The Limited Stores, Inc. v. Pan American World Airways, Inc.

• Decision Date: 23 September 1992
• Docket Number: No. 91-582,91-582
• Citation: 65 Ohio St.3d 66,600 N.E.2d 1027
• Parties: THE LIMITED STORES, INC., Appellant and Cross-Appellee, v. PAN AMERICAN WORLD AIRWAYS, INC., Appellee and Cross-Appellant; Sea Insurance Co. et al., Appellees.
• Court: Ohio Supreme Court

Page 66

65 Ohio St.3d 66

600 N.E.2d 1027

THE LIMITED STORES, INC., Appellant and Cross-Appellee, v. PAN AMERICAN WORLD AIRWAYS, INC., Appellee and Cross-Appellant;

Sea Insurance Co. et al., Appellees.

No. 91-582.

Supreme Court of Ohio.

Submitted April 14, 1992.

Decided Sept. 23, 1992.

On November 24, 1985, Pan American World Airways, Inc. ("Pan Am"), appellee and cross-appellant, accepted delivery in Paris, France, of approximately twenty thousand articles of women's apparel for air shipment to New York. The apparel consisted of floral denim jeans, skirts and overalls that had been manufactured under the Americanino brand in Italy and purchased by The Limited Stores, Inc. ("The Limited"), appellant and cross-appellee.

The shipments arrived at John F. Kennedy Airport in New York on November 24 and 25, 1985. The Pan Am inside storage facilities were apparently full, so the boxes containing the clothing were left stacked on pallets in an outside storage area during a rainfall. When The Limited's agent, A.W. Fenton & Co., Inc., picked up the garments on November 26, 1985, a notation was made on the delivery receipt that the goods were "very wet."

On November 26, 1985, Pan Am notified Chubb Group of Insurance Companies ("Chubb Group"), the manager for defendant-appellee Sea Insurance Company ("Sea Insurance"), its insurance carrier, of the damaged shipment. A.W. Fenton & Co., Inc. then delivered the garments by truck to The Limited's corporate headquarters in Columbus, Ohio. Chubb Group subsequently retained defendant-appellee Intermodal Technical Services, Inc. ("ITS"), a wholly owned subsidiary of defendant-appellee GAB Business Services, Inc. ("GAB"), to survey the damaged goods.

An ITS employee, defendant-appellee Robert Maldeis, inspected the goods on December 2, 1985, and told The Limited's personnel that the shipment appeared to be a total loss. After Sea Insurance refused to pay The Limited's claimed loss, The Limited aired out the garments and in January distributed those that were salvageable to its retail stores. By that time, however, the Christmas selling season was virtually over, and the transitory fashion trend these garments were designed to meet had already peaked. Although The Limited immediately marked down the price of the garments upon placement in their stores, consumer interest in, and sales of, these garments were minimal. In preparation for the spring selling season, The Limited then recalled the garments as part of a general recall of inventory. Some of the recalled garments were sold to a distributor in a secondary market; others were donated to charity.

The Limited brought this action claiming it was entitled to recover damages from Pan Am for its negligence and from Sea Insurance, ITS, GAB, and Maldeis (collectively the "insurers and agents") on the basis of promissory estoppel. On November 28, 1988, the cause came on for a jury trial. After the close of The Limited's case, GAB, ITS, Sea Insurance and Maldeis moved for a directed verdict on The Limited's promissory estoppel claim. The trial court subsequently granted the motion.

The trial court also granted Pan Am's motion for a partial directed verdict restricting The Limited's potential recovery to the wholesale rather than retail value of the garments. Although the court eventually instructed the jury to consider the fair market value of the goods in its deliberations and did not, in those instructions, restrict The Limited's potential recovery to the wholesale value of the garments, ¹ the court precluded The Limited's counsel from arguing to the jury that the retail value of the garments was the proper measure of the fair market value of the garments, effectively limiting The Limited's potential recovery.

The jury found Pan Am liable, and in response to a special interrogatory found that thirty percent of the garments had been damaged by rainfall. The jury awarded The Limited $141,974.20 on its claim against Pan Am, to which sum the trial court added prejudgment interest. Pan Am's subsequent motion for judgment notwithstanding the verdict was denied. Upon an appeal by The Limited challenging both the jury's verdict and the directed verdict, and a cross-appeal by Pan Am concerning the trial court's assessment of prejudgment interest, the court of appeals affirmed in full the judgment of the trial court. In so ruling, the court held that although it was error for the trial court to direct a verdict restricting the fair market value of the garments to their wholesale value, the error was nonprejudicial.

The cause is now before this court upon the allowance of a motion and cross-motion to certify the record.

Schwartz, Kelm, Warren & Rubenstein, Russell A. Kelm and John A. Gleason, Columbus, for appellant and cross-appellee.

Vorys, Sater, Seymour & Pease, Michael G. Long and Patricia A. Davidson, Columbus, for appellee and cross-appellant.

Hamilton, Kramer, Myers & Cheek, Austin P. Wildman and Thomas J. Conkle, Columbus, for appellee Sea Ins. Co.

Roetzel & Andress and John P. Mazza, Columbus, for appellees GAB Business Services, Inc. et al.

PER CURIAM.

This case concerns the liability of an air carrier for damage to an international shipment of retail goods. By that description, the case seems deceptively simple. The issues this case raises, however, include the applicability of the law of two states and an international treaty under a complicated set of facts. We address each of the issues raised by appellant and cross-appellant in turn.

I

We first must determine what substantive law applies to the issues in this case. As both the trial court and the court of appeals correctly concluded, the "Convention for Unification of Certain Rules Relating to International Transportation by Air" commonly referred to as the "Warsaw Convention" ("Convention") ² provides the basic legal framework within which the dispute between Pan Am and The Limited is to be decided. The Convention was designed to provide uniform, world-wide rules of liability for losses sustained by air passengers and shippers of goods during international transportation by air. Reed v. Wiser (C.A.2, 1977), 555 F.2d 1079, 1090, certiorari denied (1977), 434 U.S. 922, 98 S.Ct. 399, 54 L.Ed.2d 279. As specified in Article 1 of the Warsaw Convention, the Convention applies to "all international transportation of persons, baggage, or goods performed by aircraft for hire." ³ Article 18 of the Convention provides that a carrier shall be liable for damage to goods occurring during "transportation by air" of those goods.

The effect of the Warsaw Convention is to place liability for damage or personal injury on the air carrier unless the air carrier shows that it took "all necessary measures to avoid the damage." Article 20 of the Convention. In exchange for the carrier's bearing that heavy burden, the Convention limits the amount of damages an injured party can collect for its damage or injury. In the case of damaged goods, Article 22(2) of the Convention limits the airline's liability to two hundred fifty French francs per kilogram of cargo unless the consignor has made a special declaration of the value of the cargo and paid an additional sum based on that value. Additionally, if it can be proven that the carrier caused the damage by its willful misconduct, then under Article 25(1) of the Convention, the liability limits of the Convention do not apply.

It is undisputed that The Limited did not make a special declaration as to value and pay an additional sum for coverage. Whether Pan Am engaged in willful misconduct, however, was an issue for the jury, and whether the jury was properly instructed on that issue is discussed in detail in Part III below.

The Warsaw Convention, as an international treaty to which the United States is a party, preempts state common carrier law with respect to those issues within its purview. Conflict-of-law principles are not relevant to the interpretation of the Convention; rather, legal interpretation must be gleaned from the four corners of the treaty. Saiyed v. Transmediterranean Airways (D.C.Mich.1981), 509 F.Supp. 1167, 1169.

The Convention, however, does not specifically address all the issues involved in the dispute between Pan Am and The Limited. Indeed, in this context the Convention merely provides for a cause of action against Pan Am and specifies the method of calculating Pan Am's maximum potential liability if it fails to prove that it took all necessary steps to prevent the damage. The Convention does not address, for example, how damages are calculated, nor does it define a standard for willful misconduct. Thus, in order to provide a legal foundation for those areas not addressed within the four corners of the Convention we must look to other sources of law.

We first note that an action brought under the Warsaw Convention cannot be classified as either a tort action or a contract action. Indeed, an action brought pursuant to the Convention, like other common carrier actions under federal law, incorporates elements of both tort and contract actions. Compare Article 21 of the Convention (permitting the application of contributory or comparative negligence principles if forum law so allows) with Article 23 of the Convention (precluding a contract that incorporates a provision further limiting the carrier's liability). Thus, with respect to the dispute between Pan Am and The Limited, while we may properly rely upon cases from any jurisdiction, state or federal, that have interpreted the Warsaw Convention and its terms, we may also rely upon federal common law in analogous carriage-of-goods cases to fill in the gaps that may still remain in the application of the Convention. Accord In re Air Disaster at Lockerbie, Scotland on Dec. 21, 1988 (C.A.2, 1991), 928 F.2d 1267 (federal common law of torts applies in construing Warsaw Convention). Although we may find it instructive to look to the law of New York and Ohio to...