Treiber & Straub, Inc. v. U.P.S., Inc.

• Decision Date: 09 January 2007
• Docket Number: No. 05-3743.,No. 05-3896.,05-3743.,05-3896.
• Citation: 474 F.3d 379
• Parties: TREIBER & STRAUB, INC., d/b/a Treiber & Straub Jewelers, Plaintiff-Appellant/Cross-Appellee, v. UNITED PARCEL SERVICE, INC. and UPS Capital Insurance Agency, Inc., Defendants-Appellees/Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

474 F.3d 379

TREIBER & STRAUB, INC., d/b/a Treiber & Straub Jewelers, Plaintiff-Appellant/Cross-Appellee, v. UNITED PARCEL SERVICE, INC. and UPS Capital Insurance Agency, Inc., Defendants-Appellees/Cross-Appellants.

No. 05-3743.

No. 05-3896.

United States Court of Appeals, Seventh Circuit.

Argued February 17, 2006.

Decided January 9, 2007.

COPYRIGHT MATERIAL OMITTED

Moses Josef Zimmermann (argued), Murphy, Gillick, Wicht & Prachthauser, Milwaukee, WI, for Plaintiff-Appellant/Cross-Appellee.

Mitchell S. Moser (argued), Quarles & Brady, Milwaukee, WI, for Defendants-Appellees/Cross-Appellants.

Before FLAUM, KANNE, and WOOD, Circuit Judges.

WOOD, Circuit Judge.

Treiber & Straub, Inc. ("Treiber"), a fine-jewelry store in Wisconsin, needed to return a diamond ring to a California jewelry wholesaler. It turned to United Parcel Service, the world's largest package delivery company and, using the UPS website, it arranged to send the package via "Next Day Air." As part of the transaction, it purchased $50,000 in insurance, the maximum permitted.

The ring was worth more than double that $50,000 limit—a fact that gave rise to Treiber's problems here after UPS lost the package. Treiber reimbursed the wholesaler for the full loss and then filed this lawsuit against UPS and UPS Capital Insurance Agency, Inc., a wholly owned subsidiary of UPS that administers UPS's excess value insurance program. (For simplicity, we refer in this opinion to both defendants as UPS.) Treiber wanted to collect the $50,000 for the lost package to which it believed it was entitled. UPS denied liability, pointing to the disclaimer found in its "Terms and Conditions," its shipping tariff, and its insurance policy. These documents warn (repeatedly) that when customers ship items of "unusual value," defined as those worth more than $50,000, there is no liability at all.

Finding federal jurisdiction proper because the case arose under the rules of federal common law that apply to lost or damaged goods shipped via air freight, the district court granted summary judgment for UPS. The court found that the company's disclaimers gave reasonable notice and were enforceable; it declined to reach Treiber's state law breach-of-contract theory, rejecting UPS's argument that it too arose under federal law because of field preemption. Both UPS and Treiber appealed. We affirm the district court's grant of summary judgment for UPS on the federal common law claim, and we modify the court's decision dismissing the state law claims without prejudice to a dismissal with prejudice.

I

Michael J. Straub, the president of Treiber, initiated the shipping of the diamond ring by UPS Next Day Air by going to UPS's website, www.ups.com. His plan was for the ring to be picked up in Wisconsin and delivered to Norman Silverman Co., the California jewelry wholesaler that owned it. The ring had a value of approximately $105,000. The Terms and Conditions of Service that UPS follows include the following restrictions on service:

(c) No service shall be rendered in the transportation of articles of unusual value (as defined in the UPS Tariff), including, but not limited to:

(i) Any package with an actual value of more than $50,000 (U.S.);

. . .

UPS will not be liable or responsible for loss or damage to: articles of unusual value [as defined in item 460 of the UPS Tariff].

Notwithstanding those exclusions, which Straub now claims were not prominent enough and were thus not properly drawn to his attention, he decided to purchase the maximum insurance permitted, $50,000, paying $174.65 for the policy. On the online airbill in the appropriate box, Treiber filled in "Insured Val. ($50,000.00)."

UPS picked up the ring on September 15, 2003, but the ring never arrived in California. On September 30, 2003, UPS acknowledged that the package was lost. Treiber submitted a claim for the $50,000 it thought was due to it under the policy, but on October 15, 2003, UPS disclaimed any liability because the ring's actual value exceeded $50,000 and thus it was an article of "unusual value." Treiber paid Silverman the ring's actual value of $105,000 and then in January 2004 filed suit against UPS for $50,000.

In order to ship a package using UPS's website, a shipper must first agree to the items described under the heading "My UPS Terms and Conditions," which include a separate document called the "Terms and Conditions of Service." As is common in Internet commerce, one signifies agreement by clicking on a box on the screen. In addition, a first-time shipper must click a second time to agree to these same terms and conditions. (Regular shippers also receive annually a Rate and Service Guide containing, among other things, the Terms and Conditions of Service, but there is no indication in the record that Treiber was a regular shipper.) The Terms and Conditions of Service include the language we quoted earlier, which states that UPS will not ship articles of unusual value (i.e., those valued at more than $50,000), nor will it be liable for or responsible for loss or damage to such articles.

UPS's Tariff, the "exclusive agreement" between UPS and its shippers, is not short. It is available online at www.ups. com, and it offers a table of contents for easy reference. Item 460, titled "Definition of Articles of Unusual Value, Which Are Not Accepted by UPS for Transportation," repeats that "[s]hippers are prohibited from shipping articles of unusual value via UPS," and it defines the term "articles of unusual value" to include "[a]ny package having a value of more than $50,000." Item 535, titled "Limitations of Liability," also indicates that "UPS will not be liable or responsible for the loss of or damage to any package, the contents of which shippers are prohibited from shipping, which UPS is not authorized to accept, which UPS states that it will not accept, or which UPS has a right to refuse." It too explicitly includes "articles of unusual value (as defined in Item 460)" as falling within that provision. Finally, Item 537 (if one gets that far) removes any remaining doubt about a shipment like Treiber's: it says that "UPS's maximum liability per package shipped domestically ... shall not exceed $100 regardless of the amount of Excess Value Insurance purchased by the shipper" and that "excess value insurance does not provide any insurance protection for packages or letters having an actual value of more than $50,000, even if a lesser amount is specified in the insured value field in the UPS shipping system used." The same item continues, "The excess value insurance policy does not cover or excludes coverage for: articles of unusual value (as defined in Item 460)."

Another document, the Excess Value Insurance policy, indicates (twice on the very first page) that it does not cover packages with actual values of more than $50,000. In a bullet point, the policy indicates that "Excess Value Insurance does not provide any protection for packages having an actual value in excess of $50,000 even if a lesser amount is specified in the insured value field" and then refers the reader to the exclusions section. Right below that, the policy contains a section called "What is Covered?" that provides almost word for word the same disclaimer. The warning appears a third time in the Exclusions section. The insurance policy, unlike the airbill generated by using the website or the Terms and Conditions and the Tariff, is not available online.

After the parties gave their consent to have a magistrate judge handle the proceedings, see 28 U.S.C. § 636(c), the district court ruled that Treiber "was provided plain and conspicuous notice of UPS's limitation of liability as it relates to articles of unusual value." With adequate notice, the limitation was binding; the court therefore granted summary judgment for UPS. In addition, concluding that Treiber's breach of contract claim arose under state law and was thus within its supplemental jurisdiction, see 28 U.S.C. § 1367, the court relinquished jurisdiction over that claim. Treiber appeals from the district court's judgment; UPS has cross-appealed, seeking outright dismissal of the breach of contract claim as one that also necessarily arose under federal law.

II

A

This case is somewhat unusual in that its alleged federal law basis comes from federal common law, something the parties themselves did not initially realize. Because Treiber is seeking only the $50,000 in insurance proceeds that it claims to have purchased validly, it appears that diversity jurisdiction is unavailable. See 28 U.S.C. § 1332 (amount in controversy must exceed $75,000). We therefore must first assure ourselves that federal question jurisdiction is secure. Normally, when one ships a package via UPS and there is a dispute, that dispute belongs in federal court because of the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706. The Carmack Amendment, however, applies to ground carriers and not to air carriers. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Great Western Airlines, Inc., 767 F.2d 425, 428 (8th Cir.1985); Kemper Ins. Co. v. Federal Exp. Corp., 252 F.3d 509, 514 n. 5 (1st Cir.2001) (collecting cases). Thus, when Straub selected "Next Day Air" shipping, he also took this dispute outside the jurisdiction provided by the Carmack Amendment.

In some circumstances, a claim in federal court may arise under federal common law, which is a permissible basis for jurisdiction based on a federal question under 28 U.S.C. § 1331. See Illinois v. City of Milwaukee, 406 U.S. 91, 100, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972). A federal common law contractual claim will support jurisdiction so long as it demonstrates on the face of the complaint a "sufficiently proximate federal interest." Turner/Ozanne v. Hyman/Power, 111 F.3d 1312, 1318 (7th Cir.1997). In this case, the federal interest is the same as the one that underlies the Carmack Amendment for ground carriers: a need...