Hill Construction Corp. v. American Airlines, Inc.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 92-1903

HILL CONSTRUCTION CORPORATION,
D/B/A HILL HELICOPTERS RENTAL SERVICE,
Plaintiff, Appellee,

v.

AMERICAN AIRLINES, INC.,
Defendant, Appellant.

No. 92-1992

HILL CONSTRUCTION CORPORATION,
D/B/A HILL HELICOPTERS RENTAL SERVICE,
Plaintiff, Appellant,

v.

AMERICAN AIRLINES, INC.,
Defendant, Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

[Hon. Jose Antonio Fuste, U.S. District Judge]

Before
Breyer, Chief Judge,

Torruella* and Selya, Circuit Judges.

Ricardo F. Casellas with whom Jacqueline D. Novas and Fiddler,

Gonzalez & Rodriguez were on brief for American Airlines, Inc.

Jose E. Alfaro Delgado with whom Calvesbert & Brown was on

brief for Hill Construction Corp.

June 29, 1993

*Judge Torruella heard oral argument in this matter, and
participated in the semble but, after deciding that he should
recuse himself, he did not participate in the drafting or the
issuance of the panel's opinion. The remaining two panelists
therefore issue this opinion pursuant to 28 U.S.C. 46(d).

BREYER, Chief Judge. American Airlines appeals a

judgment requiring it to pay approximately $22,000 to Hill

Construction Corporation as a result of American's having

temporarily lost, and then damaged, a helicopter blade that

Hill had asked American to ship from Puerto Rico to

California. American does not contest the fact of

liability. Rather, it argues that the court lacked the

power to award damages greater than the maximum permissible

under a contract provision limiting American's liability for

cargo "lost, damaged or delayed" to $9.07 per pound (a total

of $1,814 in this case). The district court found that the

"liability limitation" did not apply. In our view, however,

the limitation is valid and applicable. And, well-

established legal principles require us to reverse the

district court's determination.

I

Background

The record, read favorably to Hill, shows the

following:

1) On August 10, 1990, a Hill Construction
employee brought a helicopter blade to
American Airlines' cargo terminal in San
Juan, Puerto Rico, and signed (on Hill's
behalf) an American "air waybill" -- a

contract that obliged American, in return for
payment, to ship the blade to California.

2) The air waybill said on its face that
provisions on its "reverse side" would
"limit" American's "liability for loss,
damage, or delay in certain instances." The
reverse side said, among other things, that
American's liability for cargo "lost,
damaged, or delayed" was limited to $9.07 per
pound (plus transportation charges) unless
the shipper declared a higher value and paid
an additional charge. Hill's employee did not
fill in the "declared value" box on the front
of the bill, nor did the employee, in any
other way, declare a higher value, nor did
the employee pay any additional charge.

3) American accepted the blade for carriage and
promptly lost the blade.

4) About seven months later, in March 1991, in a
San Juan air cargo warehouse near the sea,
American found a crate containing what it
thought was the missing blade. It contacted
Hill's "administrator," Ms. Dorothy Hill, who
came to the warehouse. An American employee
(contrary to Ms. Hill's advice) began to open
the crate with a forklift. Inside, Ms. Hill
found the missing blade, seriously damaged
both by the forklift and by the salty sea
air.

After these events, Hill Construction brought this

lawsuit against American. After a trial, the district court

found American "negligent in the handling of plaintiff's

cargo." It decided that the liability limitation either

was invalid or, alternatively, did not apply to so serious a

violation of the transportation contract. And, it

consequently awarded full compensatory damages of almost

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$22,000, the value of the blade. American now appeals this

damage award.

II

The Law

Where air carriage contracts set forth limitations

on carrier cargo liability in a "reasonably communicative"

form and offer the shipper a choice of paying a higher rate

for greater protection, federal courts have normally found

those limitations lawful. See (1) post-deregulation air

carrier cases, e.g., Deiro v. American Airlines, Inc., 816

F.2d 1360, 1364-65 (9th Cir. 1987); Husman Constr. Co. v.

Purolator Courier Corp., 832 F.2d 459, 461 (8th Cir. 1987);

Arkwright-Boston Mfrs. Mutual Ins. Co. v. Great Western

Airlines, Inc., 767 F.2d 425, 426-27 (8th Cir. 1985); First

Pennsylvania Bank v. Eastern Airlines, Inc., 731 F.2d 1113,

1115, 1122 (3d Cir. 1984); Reece v. Delta Airlines, Inc.,

731 F. Supp. 1131, 1134 (D.Me. 1990); Neal v. Republic

Airlines, Inc., 605 F. Supp. 1145, 1148-49 (N.D.Ill. 1985);

see also Saul Sorkin, 2 Goods in Transit [hereinafter, Goods

in Transit] 13.07[1] at 13-79-82 & n.11, 13.07 [3][b] at

13-90 & n.48 (1976 & Supp. 1990) and cases cited therein

(noting continued enforcement of liability limitations

despite deregulation of air carriers); (2) regulated carrier

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cases, e.g., American Cyanamid Co. v. New Penn Motor

Express, Inc., 979 F.2d 310, 313, 316 (3d Cir. 1992); Hughes

Aircraft Co. v. North American Van Lines, Inc., 970 F.2d

609, 611-13 (9th Cir. 1992); Co-Operative Shippers, Inc. v.

Atchison, Topeka & Santa Fe Ry. Co., 840 F.2d 447, 451-52

(7th Cir. 1988); Polyplastics, Inc. v. Transconex, Inc., 827

F.2d 859 (1st Cir. 1987); Anton v. Greyhound Van Lines, 591

F.2d 103 (1st Cir. 1978); National Motor Freight Traffic

Ass'n, Inc. v. Interstate Commerce Comm'n, 590 F.2d 1180

(D.C. Cir. 1978), cert. denied, 442 U.S. 909 (1979); North

American Phillips Corp. v. Emery Air Freight Corp., 579 F.2d

229, 232 (2d Cir. 1978); Dassin v. Eastern Airlines, 501

F.2d 74 (9th Cir. 1974), cert. denied, 419 U.S. 1121 (1975);

Thomas v. Trans World Airlines, 457 F.2d 1053 (3d Cir.

1972); Quasar Co. v. Atchison, Topeka & Santa Fe Ry. Co.,

632 F. Supp. 1106, 1111-13 (N.D. Ill. 1986); cf. (3)

statutes allowing limitations on liability, e.g., 46 U.S.C.

1304(5) (carriage of goods at sea); 49 U.S.C. 10505(e)

(rail carriers), 10730(b)(1) (motor transport), 11707(c)(4)

(common carriers).

In a commercial context, liability limitations

have certain advantages. They permit a carrier to avoid

unforeseeably high liability for especially valuable cargo;

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they permit shippers of ordinary items to pay somewhat lower

freight bills; and they permit shippers of valuable items to

choose between paying an insurance premium to the carrier

and obtaining, perhaps less expensive, insurance on their

own. See Husman Constr. Co., 832 F.2d at 462; cf. Alan

Schwartz & Robert E. Scott, Commercial Transactions 122-23

(1991). On the other hand, such clauses risk unfairness,

where, for example, a shipper is, in fact, unaware of the

limitation and his choices. Yet, the requirements of

reasonably communicative notice and an opportunity to buy

increased coverage for a premium payment lessen the risk of

unfairness. And, as we have said, balancing advantages and

disadvantages, both Congress and the courts have approved

the use of such clauses.

The contract before us contains typical, standard

form clauses which reasonably communicate the limitation on

liability. The reverse side of the "air waybill" contains a

series of clauses setting forth transport conditions,

written in ordinary sized print and separated by spacing.

On the copy submitted at trial, these clauses are fairly

easy to read (except for the blurring of a few non-critical

words that may reflect poor duplication). The clauses make

clear that the carrier limits its liability for cargo that

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is "lost, damaged or delayed" to $9.07 per pound, but that

the shipper may avoid the limitation by declaring a higher

value and paying a greater charge. The front side of the

bill clearly refers the reader to the back of the bill, for

it says, in ordinary sized type, set forth clearly and

separately from other words on the page:

This nonnegotiable airbill is a contract
governed by Law and by the provisions on
the reverse side. Such provisions,
among
other things, exclude or limit the
Carrier's liability for loss, damage or
delay in certain circumstances.

The front side of the bill also contains a box captioned

"declared value," which, in this case, was left blank. Cf.

Federal Express v. Paris Business Forms, Inc., 46 Pa. D. &

C. 3d 262 (1988) (standard provisions clearly printed on

front and reverse of airbill afforded sufficient opportunity

to declare higher value).

Ms. Hill testified that American's agent did not

tell either her or her employee about the liability

limitation clauses, and that, in fact, neither she, nor her

employee, knew about such clauses. But, we do not believe

that, in these factual circumstances, American was obliged

to call the liability limitation to its customers' attention

orally. The context is commercial. Hill Construction had

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been in business in Puerto Rico for eighteen years. Its

employees had previously shipped helicopter parts from

Puerto Rico to the mainland. In this context, a reasonably

prominent writing, not in particularly small print, set

forth with reasonable clarity on the front of a printed

airbill, would seem sufficient to communicate the liability

limitation, or at least to impose upon the commercial

customer a further obligation to read (rather than to impose

upon the carrier a further obligation to point to) what is

written. See Husman Constr. Co., 832 F.2d at 461 (citing

First Pennsylvania Bank, 731 F.2d at 1115); cf. Hopper Furs,

Inc. v. Emery Air Freight Corp., 749 F.2d 1261, 1264 (8th

Cir. 1984).

The carrier also has fulfilled its obligation to

offer a further "insurance" option. The contract makes

clear that the carrier can declare a higher value and buy

full coverage for an additional fee. Hill has offered no

evidence to suggest that the amount of this fee for

additional cargo protection was unreasonable for an air

carrier in American's market.

This valid liability limitation applies in the

present situation. The provisions refer to cargo that is

"lost, damaged or delayed," and the circumstances here fall

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within this language. The clause is enforceable despite the

fact that American may never have put the blade on an

airplane. A remedial contract clause, such as this one, is

designed to take effect precisely where, as here, the

carrier has broken the basic carriage contract. As Judge

Kaufman pointed out more than forty years ago,

Only in case of a misdelivery, negligent
injury, loss or similar misfortune does
a valuation clause come into use. Hence
the Federal courts have rightly held
that the limitation of liability clause
is designed for and does survive a
breach of the contract of carriage.

Lichten v. Eastern Airlines, Inc., 87 F.Supp. 691, 697

(S.D.N.Y. 1949). Compare Restatement (Second) of Contracts

237 (breach discharges other party's duties under contract)

with, e.g., American Cyanamid Co., 979 F.2d at 316 (citing

Quasar Co., 632 F.Supp. at 1108 (breach does not invalidate

liability-limiting remedial provision designed to govern

consequences of breach)).

Hill argues that a Ninth Circuit case, Coughlin v.

Trans World Airlines, Inc., 847 F.2d 1432 (9th Cir. 1988),

is to the contrary, but Coughlin involved rather special

circumstances. A special contract provision gave a

passenger the right to carry valuables in the airplane

cabin; the airline refused to allow a widow to carry her

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husband's ashes in the cabin; the airline lost the ashes;

and the court (in a brief per curiam opinion) held

inapplicable a provision limiting the airline's liability

for loss of valuables. Unlike this case, the Coughlin

contract involved a separate, liability-limitation-related

contractual promise, namely a promise that the passenger

might personally monitor the safety of the valuables by

carrying them in the cabin. One might read the liability

limitation as conditioned on fulfillment of that promise.

See 2 Goods in Transit 13.07[4] at 13-90 & n.49. Then,

since the carrier did not permit the passenger to carry the

ashes, it failed to satisfy the condition, and the liability

limitation did not take effect. See id. at 1433. We do not

see how otherwise, consistent with prior authority, to read

this case. See, e.g., Pinion v. Dow Chemical, 928 F.2d

1522, 1536 (11th Cir.) (case should be read as consistent

with prior precedent if possible), cert. denied, 112 S. Ct.

438 (1991). And, as so read, the case provides no support

for Hill's claim here, where there is no relevant special,

liability-limitation-related condition that the carrier

failed to fulfill. As we have just pointed out, the

contract here does not condition the liability limitation

upon the carrier's satisfying its basic, general promise to

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transport the goods, for the parties normally intend a

liability limitation to apply, not to disappear, when this

type of general promise is breached. See pp. 8-9, supra.

Hill makes one further argument. It points to a

legal doctrine, called the "deviation doctrine," which

originated in maritime law. Applying that doctrine, courts

would hold liability limitations inapplicable when ships

departed significantly from prearranged routes that they had

promised to take. See 2 Goods in Transit 13.13[1] at 13-

140-42 and cases cited therein. Hill has found two state

cases, construing federal law, which applied this doctrine

outside the maritime context, where the carrier acted so as

"fundamentally" to change the foreseeable risks to the

cargo. See, e.g., Information Control Corp. v. United

Airlines Corp., 73 Cal. App. 3d 630 (1977); Philco Corp. v.

Flying Tiger Line, Inc., 171 N.W.2d 16 (Mich. Ct. App.

1969). But see Grant Gilmore & Charles L. Black, Jr., The

Law of Admiralty 3-42 at 182 (2d ed. 1975) ("deviation

doctrine" limited to geographic departures). Given

American's seriously negligent conduct, says Hill, those

state cases require us to invoke the "deviation doctrine" to

set aside the liability limitation here.

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We do not believe, however, that these cases

require the result for which Hill argues. In each of the

state cases, the carrier made a special, separate promise to

the shipper about special conditions of carriage designed to

lessen the risk of harm to the shipper's particular cargo.

In the first case, United Airlines promised Information

Control Corporation (and later specially confirmed in a

telephone conversation) that it would place Information

Control's computers on a specific flight and fly without

stopovers. See Information Control, 73 Cal. App. 3d at 632-

33. In the second case, Flying Tiger specifically promised

Philco that it would store its computer materials upright.

See Philco Corp., 171 N.W.2d at 17-18. We suspect that, as

in Coughlin, the state courts saw failure to live up to

these separate, risk-related promises (special to the

particular shipment at issue) as a "fundamental" departure

from conditions precedent to the "boilerplate" liability

limitation's taking effect. See Restatement (Second) of

Contracts 203(c) & cmt. e (specific provisions or later

additions supersede more general contract language); Baloise

Ins. Co. v. United Airlines, 723 F. Supp. 195, 199 (S.D.N.Y.

1989) (distinguishing Information Control where carrier was

under no obligation to follow specific route).

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In the case before us there was no breach of a

special transport promise. Nor was there any "deviation"

from the kind of thing one might expect to find when a

carrier has "lost, damaged, or delayed" cargo. The record

does not provide adequate basis for a court's finding

transportation-related circumstances that fell outside the

range of those in which the parties intended the liability

limitation to apply. See, e.g., American Cyanamid, 979 F.2d

at 315 (citing Deiro, 816 F.2d at 1366 (liability limitation

valid "regardless of the degree of the carrier's

negligence")); Coughlin, 847 F.2d at 1433; C.A. La Seguridad

v. Delta Steamship Lines, 721 F.2d 322, 325 (11th Cir. 1983)

(limitation valid where cargo never delivered); Hellyer v.

Nippon Yesen Kaisya, 130 F. Supp. 209, 210-11 (S.D.N.Y.

1955) (same); Rockwell Int'l Corp. v. M/V Incotrans Spirit,

707 F. Supp. 272, 273 (S.D. Tex. 1989) (limitation valid

where damage occurred in warehouse); Neal, 605 F. Supp. at

1149 & n.3 (suggesting limitation valid even in case of

willful misconduct); Schiff v. Emery Air Freight Corp., 332

F. Supp. 1057, 1059 (D. Mass. 1971) (distinguishing Philco

to uphold limitation where no intentional wrong shown); cf.

Rocky Ford Moving Vans, Inc. v. United States, 501 F.2d

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1369, 1372 (8th Cir. 1974) (refusing to apply deviation

doctrine outside maritime law).

These federal rulings apply even though the

negligence here was serious, for (as these cases show) in

the absence of some special indication, courts will not

impute to commercial parties (agreeing to a liability

limitation) an intent to litigate the degree to which loss-

causing negligence was ordinary, gross, or egregious. We

add that we have found a case that suggests, in dicta, that

the willful nature of misconduct might make a difference.

Glickfield v. Howard Van Lines, Inc., 213 F.2d 723, 727 (9th

Cir. 1954); cf. Schiff, 332 F. Supp. at 1059. But, we need

not decide whether or not we agree with that dicta for, in

this case, there is no showing of willfulness.

For these reasons, the district court's

determination that the liability limitation was inapplicable

in this case is reversed. The judgment is vacated and the

case is remanded for further proceedings consistent with

this opinion. (Our disposition of the case makes it

unnecessary to consider Hill's cross-appeal.)

So ordered.

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