[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
AUGUST 23, 2010
No. 09-12725
JOHN LEY
________________________
CLERK
D.C. Docket No. 06-23048 CV-KMM
ELI LILLY AND COMPANY, individually and
f.u.b.o. Elgo Insurance Company Limited, individually and
f.u.b.o. Certain London Market Reinsurance Underwriters,
Plaintiffs-Appellees,
versus
AIR EXPRESS INTERNATIONAL USA, INC.,
d.b.a. DHL Danzas Air & Ocean,
d.b.a. DHL Global Forwarding,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(August 23, 2010)
Before MARCUS, WILSON and COX, Circuit Judges.
COX, Circuit Judge:
The Convention for the Unification of Certain Rules for International Carriage
(“Montreal Convention”) limits international air carrier liability for damage to cargo.
This case involves a purported contractual waiver of those limits.
Defendant Air Express International USA, Inc. (“DHL”) is a provider of supply
chain logistics. Plaintiff Eli Lilly and Company and DHL entered into a long-term
service agreement under which DHL agreed to provide logistics services related to
the international shipment of Eli Lilly pharmaceuticals. Among other things, DHL
arranged for third-party air cargo carriers to transport pharmaceuticals from Europe
to the United States. This case arises out of the spoliation of temperature-sensitive
insulin products, which were shipped by air from France to Indiana and were exposed
to sub-freezing temperatures en route. Pursuant to its service agreement with Eli
Lilly, DHL arranged for Lufthansa Cargo AG to transport the insulin. Although the
exposure to sub-freezing temperatures was the result of human error attributable to
Lufthansa, DHL is liable as a contracting carrier for any damage to the cargo.
Seeking to recover for damage to the insulin products, Eli Lilly and its insurers
sued DHL for breach of the long-term service agreement and for breach of two air
waybill contracts for carriage of the damaged products. The district court dismissed
the claim for breach of the service agreement because it was preempted by the
Montreal Convention. In the same order, the court granted Plaintiffs summary
2
judgment on the issue of liability for breach of the air waybill contracts. And, the
court held that, under a provision in the long-term service agreement, DHL waived
the liability limitations of the Montreal Convention. DHL appeals; its primary
contention is that its liability should be limited pursuant to the Montreal Convention.
DHL also argues that Plaintiffs are not entitled to summary judgment because they
failed to show that the cargo was damaged in transit and because certain evidence
offered to prove its damage is inadmissible. DHL further argues that the court abused
its discretion in denying its motion for sanctions for spoliation of evidence. After
review, we affirm the grant of summary judgment to Plaintiffs on the issue of liability
and the denial of DHL’s motion for spoliation sanctions. But we reverse the ruling
that DHL stipulated that the air waybill contracts are subject to limits of liability
greater than those provided for in the Montreal Convention.
I. BACKGROUND
A. The Montreal Convention
We consider in this case certain provisions of the Montreal Convention, a
treaty which sets forth uniform rules for international air carriage. We begin with a
brief overview of the Convention and its relevant provisions.
International air carrier liability for damage to cargo and injury to passengers
has been governed by a set of uniform rules since 1933, when the Warsaw
3
Convention, adopted by delegates of thirty-three nations in 1929, took effect. The
Warsaw Convention created a liability scheme which served as the sole means to
remedy injuries suffered in the course of international air transportation of persons,
baggage, or goods. See King v. Am. Airlines, Inc., 284 F.3d 352, 356-57 (2d Cir.
2002) (summarizing provisions of the Convention for the Unification of Certain
Rules Relating to International Transportation by Air, Oct. 12, 1929, 49 Stat. 3000,
T.S. No. 876 (1934), reprinted in 49 U.S.C. § 40105 note (1997) (hereinafter
“Warsaw Convention”). To shield air carriers from catastrophic liability, the
Convention set limits on damages, and it restricted the types of claims that could be
brought against carriers. Id. To protect passengers and shippers, it required carriers
to issue air waybills detailing the conditions of carriage, and it created a presumption
of liability against carriers for injuries to passengers or damage to cargo. Id. Over
the years, subsequent international agreements changed its liability scheme, but
several features of the Warsaw Convention—caps on damages for injuries suffered
in international air transportation, a presumption of liability against carriers, and a
requirement that carriers issue air waybills—remain in effect in some form today.
In 1999, fifty-two nations including the United States signed the Montreal
Convention, a treaty to replace the Warsaw Convention. Convention for the
Unification of Certain Rules for International Carriage by Air, ICAO Doc. 9740,
4
reprinted in Treaty Doc. No. 106-45, 1999 WL 33292734 (2000). The United States
Senate ratified the Montreal Convention in September 2003, and it entered into force
on November 4, 2003, after at least thirty nations did the same. Id. Art. 53
The Montreal Convention provisions related to carrier liability for damage to
baggage and cargo are relevant to this case. Article 22(3) of the Convention limits
potential liability to seventeen “Special Drawing Rights” (“SDRs”) per kilogram of
cargo shipped. An SDR is an artificial currency, published daily by the International
Monetary Fund, which fluctuates based on the global currency market. Sompo Japan
Ins., Inc. v. Nippon Cargo Airlines Co., 522 F.3d 776, 779 n.3 (7th Cir. 2008). These
limits may be increased in one of two ways. First, Article 22(3) provides that
damages may exceed 17 SDRs per kilogram if “the consignor has made, at the time
when the package was handed over to the carrier, a special declaration of interest in
delivery at destination and has paid a supplementary sum if the case so requires.”
This provision did not represent a change in the law; it is nearly identical to Article
22(2) of the original Warsaw Convention. Second, Article 25 of the Montreal
Convention, entitled “Stipulation on Limits,” states “[a] carrier may stipulate that the
contract of carriage shall be subject to higher limits of liability than those provided
for in this Convention or to no limits of liability whatsoever.” Article 25 is new;
there is no parallel provision in the Warsaw Convention or its subsequent
5
amendments. So, the Warsaw Convention as amended expressly provided that limits
on liability for damage to cargo could be increased if a shipper declared a value for
the cargo and paid a supplementary sum if the case so required; it is unclear whether
this was the sole means to increase a carrier’s potential liability.1 After November
2003, when the Montreal Convention entered into force, limits on carrier liability
could be increased either by the shipper declaring a value for the cargo or by the
carrier stipulating that the contract of carriage, i.e. the air waybill, shall be subject to
higher limits of liability. See St. Paul Ins. Co. v. Venezuelan Int’l Airways, Inc., 807
F.2d 1543, 1547 n.6 (11th Cir. 1987) (noting that one of the functions of an air
waybill is to serve as the contract of carriage of goods.)
B. Factual Background
Eli Lilly is one of the world’s largest pharmaceutical companies. It has
manufacturing plants in thirteen countries, conducts clinical research in more than
fifty countries, and markets products in 143 countries. Eli Lilly regularly ships
1
The Warsaw Convention permitted a passenger and carrier to agree to a higher limit of
liability for death or personal injury “by special contract.” Warsaw Convention Art. 22(1). See
generally Thomas J. Whalen, Update on the IATA Intercarrier Agreement, 13 AIR & SPACE LAW 1
(1998) (describing intercarrier agreements invoking Article 22(1) of the Warsaw Convention to
increase limits on liability for passenger death or personal injury). This “special contract” provision
did not expressly apply to baggage or cargo. But, a special contract to waive limits on liability for
damage to or loss of cargo may have been valid under Article 33 of the Warsaw Convention, which
provides “[n]othing contained in this convention shall prevent the carrier either from refusing to
enter into any contract of transportation or from making regulations which do not conflict with the
provisions of this Convention.”
6
products around the world, and due to its complex supply chain, it engages providers
of international logistic services who assist Eli Lilly in coordinating shipping,
warehousing, and distribution of its products. DHL is the world’s largest provider of
logistics services. Among other things, it provides international freight forwarding
services; it arranges, through various third-party carriers, air and ocean freight
services, ground transportation, and warehousing.
DHL and Eli Lilly entered into a long-term service agreement covering a period
of five-years beginning on January 1, 2003, eleven months before the Montreal
Convention entered into force. The agreement states that DHL will provide Eli Lilly
the following services related to the transport of pharmaceuticals to and from Europe
and the United States: airfreight, ocean freight, multimodal service, customs clearance
and brokerage services, land transportation, warehousing and distribution, project
management, and customer service support. (R. 2-93 Ex. C at 4.) It further states that
DHL “is to utilize high quality airfreight service providers or if requested, to use a
carrier selected by Lilly.” (Id. at 5.) Article Five of the agreement is entitled
“Indemnification.” The first paragraph provides that DHL agrees to indemnify Eli
Lilly against third-party claims arising from breach of the service agreement. (Id. at
10.) The second paragraph contains a limitation of liability stating, in part, that
damages that either party is required to pay for whatever reason shall be limited to
7
two times the amount of the total fees payable to DHL under the service agreement.
(Id. at 11.) It also states that neither party shall be liable for loss of profits arising out
of obligations under the agreement. (Id.)
Eli Lilly France, S.A., an Eli Lilly affiliate, manufactures pharmaceuticals at
a plant in Fegersheim, France. Eli Lilly France regularly ships pharmaceuticals
between Fegersheim and the United States. Lufthansa is Eli Lilly’s preferred carrier
for these shipments, and Eli Lilly purchased a shipping service from Lufthansa called
“Cool/td.” Through this service, Lufthansa ships products in insulated containers
designed to keep cargo cool during transit. The containers do not protect cargo from
freezing temperatures, but Eli Lilly France places temperature recording devices in
the containers to monitor the air temperature to which the container and cargo are
exposed during transit. Under the Cool/td service, Lufthansa provides trucking from
the Fegersheim plant to the airport of departure, airport storage of the containers,
loading of the containers onto airplanes, air transport to Chicago O’Hare airport, and
trucking service from O’Hare to an Eli Lilly facility in Indiana.
Eli Lilly regularly directed DHL, pursuant to the long-term service agreement,
to arrange for Lufthansa to ship containers of pharmaceuticals by air from Fegersheim
to the United States. In December 2004, Eli Lilly France requested that DHL arrange
a shipment from Fegersheim to Indiana of eight containers of cold-sensitive insulin
8
and growth hormone utilizing the Cool/td service. The eight containers were divided
into two shipments, and DHL arranged for the shipments to depart from Munich,
Germany. DHL then issued two “house air waybills,” which are contracts of carriage
between Eli Lilly and DHL. It also issued two “master air waybills,” which are
contracts of carriage between DHL and Lufthansa. All waybills contained a box
labeled “Declared Value for Carriage.” Eli Lilly’s practice with respect to the
shipments handled by DHL and Lufthansa was never to declare any value for the
shipments. Consistent with this practice, the boxes were marked “NVD,” or no value
declared. The waybills also instructed the carrier to refrigerate the cargo at eight
degrees Celsius and to avoid freezing.
The shipments were transported from the Fegersheim plant to the Munich
airport in heated trucks hired by Lufthansa. Due to admitted human error by
Lufthansa personnel, the containers were left outside in sub-freezing temperatures
before they were loaded on to airplanes for shipment to the United States. When the
shipments arrived in Indiana, temperature recording devices inside the insulated
containers showed that the contents of seven of the eight containers had been
subjected to sub-freezing temperatures.
A few days after the shipments arrived in Indiana, Eli Lilly France gave notices
of claim to DHL for damage to the cargo, and DHL gave notices of claim to
9
Lufthansa. A DHL agent then sent an e-mail to Eli Lilly’s insurance company
representatives requesting that the damaged insulin products not be destroyed. Eli
Lilly permitted DHL representatives to examine the insulin products, but did not
allow them to be removed from the Eli Lilly facility. Eli Lilly asserts that it destroyed
the insulin products shipped in the containers in which temperature recording devices
registered below freezing temperatures, but that it salvaged some of the growth
hormone. It claims that destroying the insulin was necessary because determining
whether it remained viable after being exposed to sub-freezing temperatures would
have required that the insulin be subjected to destructive testing. Eli Lilly has not
produced records documenting the destruction of the insulin products, and DHL
contests whether they were actually destroyed.
Eli Lilly made a claim to its insurer, Elgo Insurance Company, in the amount
of $10,251,432.50, which represented the “transfer price” of the insulin products.
The transfer price is the price at which an Eli Lilly affiliate in the supply chain that
is in possession of a product at a certain point in time sells the product to another Eli
Lilly affiliate or a third-party. It encompasses all of the costs incurred throughout the
Eli Lilly supply chain and all of the profit that is earned in each step of the supply
chain by an Eli Lilly affiliate up to that point in time. The insurer and reinsurers
ultimately paid Eli Lilly $9,000,000 to satisfy the claim.
10
II. PROCEDURAL HISTORY
Eli Lilly, individually and for the use and benefit of its insurer Elgo Insurance
Company Limited, individually and for the use and benefit of Certain London Market
Reinsurance Underwriters, filed this action against DHL and Lufthansa in the United
States District Court for the Southern District of Florida.2 The complaint asserts a
claim against DHL for breach of the long-term service agreement. It also asserts
claims for breach of the air waybill contracts against Lufthansa and DHL. Defendants
answered the complaint, and DHL filed a cross-claim against Lufthansa for breach
of contract and indemnification or contribution.
All parties moved for summary judgment and moved to strike certain affidavits.
Defendants also sought sanctions for spoliation of evidence. The district court issued
an omnibus order in which it (1) dismissed the claim for breach of the service
agreement because it is preempted by the Montreal Convention, Eli Lilly & Co. v. Air
Express Int’l USA, Inc., 602 F. Supp. 2d, 1260, 1268-69 (S.D. Fla. 2009); (2) held
that DHL, as a contracting carrier, and Lufthansa, as an actual carrier, are liable under
the Montreal Convention for breach of the air waybills, id. at 1269-75; (3) held that
Lufthansa’s liability for the damaged cargo is capped at seventeen SDRs per kilogram
2
The Complaint also named as defendants Danzas Corporation, Deutsche Post World Net,
and DHL Express (USA), Inc. These defendants were dismissed without prejudice at an early stage
in the litigation.
11
pursuant to Article 22(3) of the Montreal Convention, id. at 1275; (4) held that DHL’s
liability is not limited by the Montreal Convention and is instead governed by the
terms of the liability provision contained in the long-term service agreement, id. at
1276-78; (5) held that damages are to be calculated based on the transfer price of the
damaged cargo, id. at 1278-79; (6) held that Eli Lilly did not commit spoliation of
evidence, id. at 1279-80; and (7) denied all motions to strike, id. at 1280-81.
Thereafter, Plaintiffs settled all claims against Lufthansa and all parties stipulated to
Lufthansa’s dismissal from the case. (R.5-258.) In addition, Plaintiffs and DHL
stipulated, without waiving DHL’s rights to contest certain rulings contained in the
omnibus order, that judgment may be entered against DHL and in favor of Plaintiffs
for the sum of $10,216,958.12. (R.5-259.) The court then entered a final judgment
in favor of Plaintiffs against DHL (R.5-260) and dismissed all claims against
Lufthansa with prejudice. DHL appeals, challenging: (1) the grant of summary
judgment in favor of Plaintiffs on the issue of liability and the denial of its motion for
summary judgment on that issue; (2) the ruling that DHL’s liability is governed by
the liability provision in the long-term service agreement; and (3) the denial of its
motion for sanctions for spoliation of evidence.
12
III. ISSUES ON APPEAL AND CONTENTIONS OF THE PARTIES
The main issue on appeal is whether DHL’s liability should be limited to
seventeen SDRs per kilogram of the damaged cargo pursuant to Article 22(3) of the
Montreal Convention, or whether the long-term service agreement between DHL and
Eli Lilly constitutes a stipulation to waive those limits. DHL argues: (1) because the
court dismissed Plaintiffs’ claim for breach of the service agreement as preempted by
the Montreal Convention, it erred in applying the terms of that agreement to
Plaintiffs’ remaining claims for breach of the air waybill contracts; (2) the court
improperly incorporated the terms of the service agreement into the separate air
waybill contracts because the air waybill contracts were marked “no value declared”;
(3) DHL did not breach the service agreement, and the liability limitation contained
therein applies only if Eli Lilly sought indemnity from third-party claims arising from
breach of the agreement; and (4) the liability limitation in the service agreement is
ambiguous, and the court erred in interpreting that provision in favor of the drafter,
Eli Lilly. Plaintiffs counter that: (1) the service agreement provides that all air
waybill contracts between the parties would be subject to limits of liability in excess
of 17 SDRs per kilogram; (2) the Montreal Convention permits parties to enter into
an agreement collateral to the air waybill contracts waiving the Convention’s limits;
(3) there was no reason for Eli Lilly to declare a value on the air waybills because
13
under the service agreement the parties opted out of the Montreal Convention liability
regime; (4) the liability provision applied not only to indemnity claims but to all
claims arising from the agreement; and (5) it was not ambiguous.3
DHL also contends that in concluding that the pharmaceuticals were damaged,
the court erred in considering an affidavit of Rene Scheer, an Eli Lilly logistics
manager. It argues that the contents of the affidavit were not based on Scheer’s
personal knowledge, that they were hearsay, that attached documents were not
authenticated, and that the documents were translated from French to English by
Scheer himself, who is not a certified translator. Plaintiffs counter that the district
court did not rely on the challenged portions of the affidavit, that the contents of the
affidavit were drawn from Scheer’s personal knowledge gained from his job duties
as a logistics manager, that the translations comport with the Federal Rules of
3
DHL also contends that even if the court did not err in holding that the Montreal Convention
limits were waived by the long-term service agreement, it erred in calculating damages based upon
the transfer price of the damaged insulin products as opposed to the cost of replacement. It argues
that the transfer price includes lost profits, which the liability provision precludes Eli Lilly from
recovering. Plaintiffs counter that the transfer price represents the real value of the cargo; while it
includes profits lost by Eli Lilly affiliates, it does not include any of the profits to which Eli Lilly
itself would have been entitled in a sale of the pharmaceuticals to third parties. Because we conclude
that the Montreal Convention limits DHL’s liability to seventeen SDRs per kilogram, we do not
address whether the court erred in calculating damages based upon the transfer price of the damaged
insulin.
14
Evidence, and that the attached documents fall under the business records exception
to the hearsay rule.
DHL further contends that summary judgment was inappropriately granted on
the issue of whether the pharmaceuticals were damaged in transit. It points out that
Plaintiffs did not present proof that the pharmaceuticals were in fact destroyed, and
it claims that Eli Lilly refused to produce the pharmaceuticals for testing and
inspection by DHL. Plaintiffs counter that they presented evidence that the insulin
products were subjected to sub-freezing temperatures during transit, and this exposure
rendered them worthless whether or not actual damage occurred.
Finally, DHL contends that the court abused its discretion in holding that Eli
Lilly did not commit spoliation of evidence by refusing to permit testing and
inspection of the pharmaceuticals. Plaintiffs counter that a party moving for
sanctions for spoliation of evidence must prove prejudice. And, federal regulations
mandate destruction of pharmaceutical products subjected to sub-freezing
temperatures whether or not they are in fact damaged. Given that the pharmaceuticals
were worthless regardless of their condition, Plaintiffs argue that DHL did not suffer
prejudice from not having the opportunity to inspect the pharmaceuticals before they
were destroyed.
15
IV. STANDARD OF REVIEW
We consider de novo a grant or denial of summary judgment, applying the
same legal standards as the district court. Baker v. Birmingham Bd. of Educ., 531
F.3d 1336, 1337 (11th Cir. 2008).
A district court’s evidentiary rulings are reviewed for abuse of discretion.
General Elec. Co. v. Joiner, 522 U.S. 136, 141, 118 S. Ct. 512, 517 (1997).
A district court’s decision regarding spoliation sanctions is reviewed for abuse
of discretion. Harris v. Chapman, 97 F.3d 499, 506 (11th Cir. 1996).
V. DISCUSSION
A. The Montreal Convention limits DHL’s liability to 17 SDRs per kilogram
of the damaged pharmaceuticals.
The Montreal Convention limits on liability may be waived under Article 22(3)
if the shipper declares a value for the cargo or under Article 25 if the carrier stipulates
that the contract of carriage shall be subject to higher limits of liability. It is
undisputed that Eli Lilly did not declare a value for the cargo. At issue is whether a
provision in the long-term service agreement constitutes a stipulation to waive the
Montreal Convention limits.
The district court dismissed Plaintiffs’ claim for breach of the long-term service
agreement because it was preempted by the Montreal Convention, and this ruling is
16
not contested on appeal.4 Plaintiffs’ remaining claims allege breach of the air waybill
contracts. The court noted that “[t]he parties did not stipulate in any of the air
waybills that the shipments in question would be subject to higher limits of liability
than those provided for in the Montreal Convention.” Eli Lilly, 602 F. Supp. 2d at
1276. Nevertheless, it held that DHL stipulated to waive the Convention’s limits
through the liability provision in the long-term service agreement. Id. The court
explained that “the Liability Limitation clearly and unambiguously establishes that
DHL’s liability is limited to two times the total fees payable to DHL for the duration
of the Service Agreement.” Id. The air waybills and the service agreement are
separate contracts, and they were not executed contemporaneously. Therefore, in
concluding that a provision in the service agreement serves as a stipulation to subject
the waybills to increased limits on liability, the court implicitly held that the service
agreement is incorporated into the air waybill contracts.
In addressing whether the liability provision of the service agreement
constitutes a stipulation to waive the Montreal Convention limits, we first interpret
the terms of the service agreement and the air waybill contracts; we must discern the
4
Article 29 of the Convention preempts state law actions falling within its scope. It reads,
in part, “[i]n the carriage of passengers, baggage and cargo, any action for damages, however
founded, whether under this Convention or in contract or in tort or otherwise, can only be brought
subject to the conditions and such limits of liability as are set out in this Convention . . . .” See
Paradis v. Ghana Airways Ltd., 348 F. Supp. 2d 106, 111 (S.D.N.Y. 2004).
17
meaning of the liability provision and discern whether the parties intended to
incorporate that provision into the air waybill contracts. We generally apply state law
to such questions of contract interpretation, and the parties assume that Florida law
controls.5 See e.g. In re Chira, 567 F.3d 1307, 1311 (11th Cir. 2009) (“The
interpretation of private contracts is ordinarily a question of state law.”) (quotations
and citations omitted). If we conclude that the parties did intend for the liability
provision to serve as such a stipulation, we would have to consider whether that
stipulation is effective. We would examine Article 25 of the Montreal Convention
to determine what a carrier must do to effectively stipulate that a contract of carriage
shall be subject to limits of liability in excess of seventeen SDRs per kilogram.
Because this involves interpretation of an international treaty, it is a question of
federal law. See Maugnie v. Compagnie Nationale Air France, 549 F.2d 1256, 1258
(9th Cir. 1977) (“The scope of the Warsaw Convention is a matter of federal law and
federal treaty interpretation, and must be determined from an examination of the ‘four
corners of the treaty.’”) (citations omitted).
5
Neither the service agreement nor the air waybill contracts contain a choice of law provision.
Eli Lilly is an Indiana corporation, and DHL is a foreign corporation, but its headquarters is in
Florida. The incidents giving rise to this dispute occurred in France, Germany, and Indiana. It is
unclear what law governs the interpretation of the service agreement and the air waybill contracts.
We need not dwell on choice of law issues, however, because we apply general rules of contract
interpretation to discern the meaning of the contracts. We would reach the same conclusions as to
these issues regardless of what law we applied.
18
Before turning to whether the parties intended to incorporate the liability
provision of the service agreement into the air waybill contracts, we pause to note that
it is an open question whether Article 25 of the Montreal Convention permits parties
to agree to waive the Convention’s limits in a document separate from the air
waybills. DHL contends that a stipulation under Article 25 is valid only if contained
in the contract of carriage, i.e. the air waybill, itself. We are aware of no authority
supporting this position. And, Article 25 does not state that the stipulation must be
“in” the contract of carriage. Further, Article 27 provides that “[n]othing contained
in this Convention shall prevent the carrier . . . from waiving any defences available
under the Convention, or from laying down conditions which do not conflict with the
provisions of this Convention.” So, it appears from the language of the Montreal
Convention that a stipulation to increase a carrier’s potential liability may be valid
even if it is not set forth in the waybill itself. Nevertheless, we need not decide this
issue. We assume that a carrier may stipulate to waive the Convention’s limits in a
document separate from the air waybill. But, we conclude that the parties did not
intend for the liability provision in Article 5 of the long-term service agreement to be
such a stipulation.
19
The first paragraph of Article 5 is a third-party indemnity provision. It reads:
Article 5: Indemnification
Except for claims for personal injury or property damage which are
caused by the failure of Lilly to observe any of the terms and conditions
of this agreement and those claims for personal injury or property
damage which arise from the gross negligence or willful misconduct of
Lilly, Supplier hereby agrees to indemnify and hold Lilly harmless
against and from any and all claims arising from any breach or default
in the performance of any obligation on Supplier’s part to be performed
under the terms of the agreement, or arising from any act, neglect, fault,
or omission of Supplier or of its agents, employees, visitors, invitees, or
licensee and from and against all costs, attorney’s fees, expenses, and
liabilities incurred in or about any such claims or any action against
customer by reason of such claim. Supplier, upon notice of Lilly, shall
defend same at Supplier’s expense.
(R.2-93 Ex. C. at 10.) This provision appears to require DHL to indemnify Eli Lilly
from third-party claims that arise from DHL’s breach of the service agreement. The
second paragraph of Article 5 is entitled “Liability Limitations.” It reads:
Except for a party’s obligations of this Agreement, any damages that
either party is required to pay for any reason whatsoever and regardless
of the form of action, in the aggregate, shall be limited to two times the
amount of the total fees payable to Supplier hereunder. Neither Supplier
nor Lilly shall be liable for any special, punitive or consequential
damages, or loss of profits arising out of or in connection with their
respective obligations under this Agreement. Notwithstanding the
foregoing, if any claim against Supplier is a claim covered by any
insurance policy maintained by Supplier, any recovery of proceeds
under such policy shall be paid to Lilly to the extent Lilly’s damages
exceed the foregoing limitation of liability.
20
(Id. at 11.) This provision appears to cap either party’s potential liability to two times
the amount of the total fees payable to DHL under the agreement. Because the
liability provision is contained in a section of the agreement addressing
indemnification, the parties dispute whether it applies only where Eli Lilly seeks
indemnification from third party claims arising from DHL’s breach of the service
agreement, or whether it applies to any and all claims arising from the service
agreement. We need not resolve this dispute. Whatever the scope of the liability
provision, we have no reason to conclude that the parties intended for it to apply to
the separate air waybill contracts so as to subject those contracts to limits of liability
in excess of those imposed by law.
The service agreement took effect January 1, 2003, eleven months before the
Montreal Convention entered into force. The governing law in January 2003 (the
Warsaw Convention as amended by subsequent international agreements) did not
include a provision parallel to Article 25 of the Montreal Convention—one providing
that a carrier may stipulate that a contract of carriage would be subject to increased
limits on liability. Had the parties intended for the service agreement to constitute a
stipulation to waive limits on liability, this would not have been expressly permitted
21
by the Warsaw Convention, and may have been invalid.6 This suggests that the
parties did not intend such a result. In addition, the service agreement makes no
mention of the Montreal Convention, the Warsaw Convention, the concept of
declared value, or limits of liability imposed by law. Nor does it contemplate that the
service agreement would modify any subsequently executed air waybill contracts. In
sum, there is no indication that the parties intended to opt out of the Montreal
Convention liability regime through Article 5 of the service agreement.
The air waybill contracts at issue were executed after the Montreal Convention
took effect. The parties knew of the limits on air carrier liability and the ways to
contract around those limits—declaring a value for the cargo or stipulating to waive
the limits. The waybills show that the parties declined to do so. They note that
potential liability is limited to seventeen SDRs per kilogram of cargo7 and state, “[t]he
shipper’s attention is drawn to the notice concerning carrier’s limitation of liability.
Shipper may increase such limitation of liability by declaring a higher value for
carriage and paying a supplemental charge if required.” (R.1-1 Ex’s A-D.)
6
But see supra note 1 (suggesting that a stipulation to waive the Warsaw Convention limits
on liability may have been valid under Article 33 of that convention).
7
The notices of limited liability are printed on the reverse side of the air waybills. The
reproductions of these documents contained in the record are illegible. (R.5-217 Ex. A at 2.) Both
parties acknowledge, however, that the air waybill contracts contain a clause limiting liability to
seventeen SDRs per kilogram. (Appellee’s Br. at 35; Appellant’s Br. at 24.)
22
Furthermore, the air waybill contracts indicate no intent to incorporate the service
agreement’s liability provision. “Where a written contract refers to and sufficiently
describes another document, that other document or so much of it as is referred to,
may be regarded as part of the contract and therefore is properly considered in its
interpretation.” See e.g. Hurwitz v. C.G.J. Corp., 168 So. 2d 84, 86 (Fla. 3d DCA
1964) (internal quotation and citation omitted). There is no mention of the service
agreement in the air waybill contracts. Had the parties agreed to incorporate the
service agreement’s liability provision so as to waive the Convention’s limits, they
could have noted their intent to do so. But they did not.
The conduct of and course of dealings between the parties supports our
conclusion. Eli Lilly purchased insurance to fully cover the value of the cargo in the
event of its damage or loss in transit (R.5-218 at 89). This suggests that Eli Lilly
declined to opt out of the Montreal Convention liability regime. See Groupe
Chegaray/V. De Chalus v. P&O Containers, 251 F.3d 1359, 1363 (11th Cir. 2001)
(noting that shippers, instead of paying increased freight by declaring the value of
what is shipped, generally buy insurance from cargo insurers). And, in 2002, before
the service agreement took effect, DHL arranged for air cargo transport of a number
of shipments of Eli Lilly pharmaceuticals. Eli Lilly, 602 F. Supp. 2d at 1265 (“Since
at least 2002, Lilly France instructed DHL to arrange bookings with Lufthansa for six
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to eight containers to be shipped per week.”) Eli Lilly declined to declare a value for
these shipments. (R.5-218 at 68) (acknowledging that Eli Lilly never declared a value
for cargo). After the service agreement became effective, DHL arranged for
additional shipments, including the two that gave rise to this case. Eli Lilly declined
to declare a value for these shipments as well. This suggests that the parties did not
intend for the long-term service agreement to have any effect on DHL’s potential
liability under the air waybills; it shows that, before and after the agreement
commenced, they intended for all air waybill contracts to be subject to limits of
liability imposed by the Warsaw or Montreal Conventions.
The long-term service agreement makes no mention of the Montreal
Convention, its predecessor the Warsaw Convention, or to limits on air carrier
liability imposed by law. Nor does the face of the air waybill contracts show that the
parties intended to incorporate the terms of the service agreement into those contracts.
And, the conduct and course of dealings between the parties does not suggest
otherwise. For these reasons, we conclude that the parties did not intend for the
liability provision of the long-term service agreement to subject the air waybill
contracts to increased limits of liability. We need not reach the question whether that
provision constitutes an effective stipulation under Article 25 of the Montreal
Convention. Our conclusion is drawn solely from our interpretation of the contracts,
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not by considering whether Article 25 of the Convention would have permitted the
purported stipulation.
B. The district court did not abuse its discretion in considering certain
affidavits and deposition testimony.
DHL argues that the court erred in considering an affidavit of Rene Scheer,
logistics manager of Eli Lilly France, in determining whether the cargo was delivered
to DHL and Lufthansa in good condition.8 According to DHL, the affidavit is not
based on Scheer’s personal knowledge, is hearsay, attached documents were not
authenticated, and those documents were not translated from French to English by a
certified translator. These arguments are without merit. The court “only relied on
that portion of Scheer’s affidavit that sets forth and attaches the business records
relating to the shipments in question: i.e., packing lists for the subject cargo generated
by Lilly France, protocols of manufacture, analysis, and release; certificates of
analysis; and checklists for the containers.” Eli Lilly, 602 F. Supp. 2d at 1280. We
find no error in the district court’s analysis in its omnibus order concluding that
Scheer is qualified to testify concerning the documents at issue, that those documents
fall within the business records exception to the hearsay rule, Fed. R. Evid. 803(6),
8
DHL also argues that the court erred in considering deposition testimony of Michael Mabe
and William C. Harris to conclude that the pharmaceuticals were damaged in transit. Upon review
of the record, we conclude that these arguments are without merit.
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and that Scheer’s translations of the documents from French to English could be
considered. (Id. at 1280-81.)
C. Summary judgment was appropriately granted on the issue of whether the
cargo was damaged in transit, and Plaintiffs did not commit spoliation of evidence.
DHL argues that because Plaintiffs failed to produce documents showing that
the pharmaceuticals had been destroyed, they failed to present evidence sufficient to
show that they were damaged in transit. DHL further argues that because Plaintiffs
denied DHL an opportunity to inspect and test the pharmaceuticals, they committed
spoliation of evidence warranting an adverse inference on this issue. But, Plaintiffs
produced records showing that the insulin was subjected to sub-freezing temperatures
and evidence showing that the devices which measured the temperatures were tested
and certified for accuracy before and after use. Further, federal regulations provide
that pharmaceuticals subjected to sub-freezing temperatures must be tested for safety
and purity prior to being salvaged. 21 C.F.R. § 211.208. And, Plaintiffs presented
uncontradicted expert testimony that any testing of insulin subjected to sub-freezing
temperatures would result in destruction of the insulin. Because Plaintiffs presented
undisputed evidence that the insulin was subjected to sub-freezing temperatures and
undisputed evidence that the insulin is unsaleable regardless whether actual damage
26
occurred, Plaintiffs are entitled to summary judgment on the issue of whether the
insulin products were damaged in transit.
As to DHL’s spoliation claim, a party moving for sanctions must establish,
among other things, that the destroyed evidence was relevant to a claim or defense
such that the destruction of that evidence resulted in prejudice. See Flury v. Daimler
Chrysler Corp., 427 F.3d 939, 943 (11th Cir. 2005) (explaining that spoliation
analysis hinges upon the significance of the evidence and the prejudice suffered as
a result of its destruction.) The destruction of the insulin products did not affect
DHL’s ability to make a claim or defense; the exposure to sub-freezing temperatures
rendered the products worthless regardless of the results of any tests that DHL may
have conducted. Because DHL suffered no prejudice, the district court did not abuse
its discretion in denying its claim for spoliation of evidence.
VI. CONCLUSION
For the reasons stated in this opinion, we affirm the grant of summary judgment
in favor of Plaintiffs on the issue of liability, affirm the denial of DHL’s motion for
summary judgment, and affirm the denial of DHL’s motion for sanctions for
spoliation of evidence. We reverse the ruling that DHL’s liability shall be governed
by the terms of the long-term service agreement and therefore vacate the final
judgment entered by the district court. We remand to the district court for
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proceedings not inconsistent with this opinion and with instructions that DHL’s
liability shall be capped at 17 SDRs per kilogram of the damaged cargo pursuant to
Article 22 of the Montreal Convention.
AFFIRMED IN PART; REVERSED IN PART; JUDGMENT VACATED;
AND REMANDED WITH INSTRUCTIONS.
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