Treiber & Straub, Inc. v. United Parcel Service, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
____________

Nos. 05-3743 & 05-3896
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.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 04-C-0069—Patricia J. Gorence, Magistrate Judge.
____________
ARGUED FEBRUARY 17, 2006—DECIDED JANUARY 9, 2007
____________

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 ar-
ranged to send the package via “Next Day Air.” As part of
the transaction, it purchased $50,000 in insurance, the
maximum permitted.
2 Nos. 05-3743 & 05-3896

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 whole-
saler 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 be-
lieved 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 reason-
able 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 ap-
pealed. 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
Nos. 05-3743 & 05-3896 3

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 appro-
priate 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 dis-
claimed 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
4 Nos. 05-3743 & 05-3896

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 Condi-
tions 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 Un-
usual Value, Which Are Not Accepted by UPS for Trans-
portation,” 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 au-
thorized to accept, which UPS states that it will not
accept, or which UPS has a right to refuse.” It too explic-
itly 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
Nos. 05-3743 & 05-3896 5

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 in-
surance 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, con-
cluding 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, seek-
ing outright dismissal of the breach of contract claim as
one that also necessarily arose under federal law.
6 Nos. 05-3743 & 05-3896

II
A
This case is somewhat unusual in that its alleged fed-
eral 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 pro-
ceeds 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 Amend-
ment 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” ship-
ping, 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 (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 for uniformity
in interstate shipping and commerce. See Adams Express
Co. v. Croninger, 226 U.S. 491, 506 (1913) (“[I]t is evident
Nos. 05-3743 & 05-3896 7

that Congress intended to adopt a uniform rule and re-
lieve such contracts from the diverse regulation to which
they had been theretofore subject.”). Several of our sister
circuits have already concluded that a suit against a
common carrier that uses air rather than ground to
transport goods arises under federal common law. See
First Pennsylvania Bank, N.A. v. Eastern Airlines, Inc.,
731 F.2d 1113, 1115-16 (3d Cir. 1984); Sam L. Majors
Jewelers v. ABX, Inc., 117 F.3d 922, 928-29 (5th Cir. 1997);
Read-Rite Corp. v. Burlington Air Express, Ltd., 186
F.3d 1190, 1195 (9th Cir. 1999); Nippon Fire & Marine Ins.
Co. Ltd. v. Skyway Freight Systems, Inc., et al., 235 F.3d
53, 59 (2d Cir. 2000).
In Sam L. Majors, the Fifth Circuit offered an extensive
analysis of the history of federal common law liability of
common carriers as well as the progression of regulation
and deregulation of air carriers. It concluded that cases
such as this one, for lost goods against common air carri-
ers, arise under federal law. 117 F.3d at 925-29. We are
not aware of any circuit that has held otherwise. We
therefore join our colleagues in holding that a claim for lost
or damaged goods transported by a common air
carrier arises under federal common law and thus falls
within the district court’s federal question jurisdiction.
This conclusion also means, at a minimum, that the
district court would have supplemental jurisdiction over
Treiber’s state law contractual claim assuming that it
is part of the same constitutional case or controversy, as
it appears to be. See 28 U.S.C. § 1367(a). The more impor-
tant question, as we see below, is whether there really is
a separate state contract theory left once federal law has
spoken to this matter.

B
On the merits, Treiber contends that the disclaimer of
liability for packages of “unusual value” on UPS’s website
8 Nos. 05-3743 & 05-3896

is not clear and conspicuous, a requirement that it be-
lieves federal common law imposes by analogy to the
Carmack Amendment. This failure, Treiber reasons,
resulted in its lack of notice or actual knowledge that there
would be no insurance coverage (rather than coverage
limited to $50,000) because the value of the package
shipped exceeded $50,000. The “article of unusual value”
provisions, it asserts, are “literally buried among all the
other extensive terms and conditions on the vast UPS
website.” We review the district court’s grant of summary
judgment de novo. See Valentine v. City of Chicago, 452
F.3d 670, 677 (7th Cir. 2006).
An initial question that the parties did not discuss is
whether federal common law includes a specific require-
ment of “clear and conspicuous” notice in these circum-
stances; a generic requirement of “reasonable” notice
would be more in keeping with a common law rule. We
find it unnecessary to resolve that issue, as we explain
below, but we note that a full analysis for the present
case would need to take into account not only the analogy
to the Carmack Amendment but also the McCarran-
Ferguson Act, 15 U.S.C. §§ 1011-12, which addresses the
regulation of insurance. Here, the district court (under-
standably) bypassed those preliminary questions and
evaluated the UPS airbill in the terms the parties were
discussing. It adopted a test from the Fifth Circuit’s Sam
L. Majors case, looking first to the “physical characteris-
tics of the air bill” to determine “whether they provide
reasonable notice to the shipper” and then to the “condi-
tions under which the shipment was made.” 117 F.3d
at 930. See also Casas v. American Airlines, Inc., 304
F.3d 517, 524 (5th Cir. 2002) (“A court first examines
whether the contract documents provide reasonable notice
to the customer, and then considers whether the condi-
tions under which the shipment was made offered the
customer an opportunity to receive notice of the liability
Nos. 05-3743 & 05-3896 9

limitations.”). In Sam L. Majors, as in this case, a jeweler
shipped jewelry that was lost. The shipper used an air
bill that had language on the back that excluded liability
for the loss of jewelry. The air bill also incorporated by
reference a “service guide,” which was readily available
and repeated the disclaimer that the air carrier was not
liable for the loss of jewelry. 117 F.3d at 930. The Fifth
Circuit decided that the prohibition of the shipment of
jewelry in the air bill was sufficiently plain and conspicu-
ous and that the shipper was experienced enough to
make the limitation of liability enforceable.
Our examination of the relevant pages from UPS’s
website satisfies us that UPS provided adequate notice
that customers were not permitted to ship items of
“unusual value” (meaning worth more than $50,000) and
that UPS would not be liable, nor would it offer insur-
ance—even limited to $50,000—on the defined high-value
items. Although this case differs slightly from Sam L.
Majors in that UPS may not have provided one single
document that explained everything about the limita-
tion of liability, that distinction does not call for a different
result in light of everything else that was available to the
shipper. The fact that Straub had to agree not once, but
twice, to abide by the Terms and Conditions set forth in
order to ship the package, is enough to ensure that Treiber
had clear and reasonable notice of the rules. The Terms
and Conditions of Service repeat the disclaimer of liabil-
ity several times and refer pointedly to the pertinent
parts of the Tariff, which is also available on the UPS
website.
UPS does not have the burden of proving that Treiber
had actual knowledge of the pertinent restrictions. As the
district court observed, “[f ]ailure of the plaintiff to read the
matter plainly placed before it cannot overcome the
presumption that the plaintiff assented to the terms of the
carrier.” This is basic contract law: one cannot accept a
10 Nos. 05-3743 & 05-3896

contract and then renege based on one’s own failure to
read it. See also Register.com, Inc. v. Verio, Inc., 356 F.3d
393, 403 (2d Cir. 2004) (“While new commerce on the
Internet has exposed courts to many new situations, it
has not fundamentally changed the principles of contract.
It is standard contract doctrine that when a benefit is
offered subject to stated conditions, and the offeree
makes a decision to take the benefit with knowledge of the
terms of the offer, the taking constitutes an acceptance of
the terms, which accordingly become binding on the
offeree.”) (citing RESTATEMENT (SECOND) OF CONTRACTS
§ 69(1)(a) (1981)). It would be different if, for example,
Treiber arranged for the shipment in a face-to-face trans-
action and was never given a copy of or required to agree
to abide by the Terms and Conditions of Service. See, e.g.,
E.J. Rogers, Inc. v. United Parcel Service, Inc., 338
F. Supp. 2d 935 (S.D. Ind. 2004). While Treiber may not be
a regular user of the UPS website, the company is a
business customer that knew about the high value of its
package—indeed, it is reasonable to assume that most
packages it shipped were relatively high in value. Straub
should have taken the time to examine the provisions of
the Tariff and/or the Terms and Conditions of Service
before he sent an item worth more than $100,000 via UPS.
Treiber also contends that UPS’s disclaimer of liability
violates the federal “released value doctrine,” which grew
out of the Supreme Court’s decision in Hart v. Pennsylva-
nia R. Co., 112 U.S. 331, 343 (1884). Under that doctrine,
“if a carrier wishes to enforce a limited liability provi-
sion, its contract must offer the shipper (1) reasonable
notice of limited liability, and (2) a fair opportunity to
purchase higher liability.” Read-Rite Corp., 186 F.3d at
1198. We see no problem with UPS’s practices in that
respect. UPS initially limits its liability to $100, and
then it offers its customers the opportunity to purchase
higher liability/insurance up to $50,000. If a shipper wants
Nos. 05-3743 & 05-3896 11

to send a package with an actual value of more than
$50,000, however, UPS will neither accept nor insure the
package. This is a business decision that UPS is entitled to
take. If it were to do what Treiber wants, and permit
all packages with a value greater than $50,000 to be
insured at the $50,000 level, it would distort the mix of
claims it is insuring, skewing it toward the high-value
end, necessitating a significant change in premiums. The
risk of theft would also increase for packages with higher
declared values.
UPS’s policy is only marginally different from the one
adopted by Federal Express that was discussed in King
Jewelry, Inc. v. Federal Exp. Corp., 316 F.3d 961, 962-63
(9th Cir. 2003). FedEx permits shippers to send packages
worth up to $50,000, but it limits liability for items of
extraordinary value to $500. The Ninth Circuit found
that this policy did not violate the released value doctrine.
Id. at 966. Nothing in the released value doctrine suggests
that a common carrier is obliged to accept every package.
According to the Tariff, UPS also rejects, among other
things, poorly wrapped packages, human body parts,
animals, currency, and negotiable instruments. As a
practical matter, if UPS did not refuse to insure such
packages, shippers might do what Treiber did here, which
was to conceal a violation of UPS’s policy against accept-
ing high-value items by indicating on the air bill the
insured value (of $50,000 or less) rather than the actual
value. In that way, Treiber effectively breached the
shipping contract; UPS’s refusal to accept liability for
packages its customers ship deceptively in violation of
rules set out in the Terms and Conditions of Service and
the Tariff does not violate the “released value doctrine.”

C
After it dismissed Treiber’s federal common law claim
against UPS, the district court said that it was declining
12 Nos. 05-3743 & 05-3896

to exercise supplemental jurisdiction over the state law
breach of contract theory. In so doing, it rejected UPS’s
argument that this part of the case was preempted by
federal law. The court relied on American Airlines v.
Wolens, 513 U.S. 219, 222 (1995), in which the Supreme
Court held that the Airline Deregulation Act of 1978
(ADA), 49 U.S.C. App. § 1305(a)(1), did not preempt
regular breach of contract claims against airlines. While
our case, of course, does not arise under statute but
under the federal common law, the principle seems equally
appropriate. There is no reason to assume that federal
common law preempts an even wider swath of cases than
the ADA, which overrides any state law that relates to
rates, routes, or services. This is a broad standard that
leaves to state law only breach of contract claims. See id.
at 232 (“Nor is it plausible that Congress meant to chan-
nel into federal courts the business of resolving, pursuant
to judicially fashioned federal common law, the range of
contract claims relating to airline rates, routes, or services.
The ADA contains no hint of such a role for the federal
courts.”).
The problem is that this case is only nominally about
a shipper seeking to enforce a contract that it contends
UPS breached. In reality, Treiber wants to use state law to
avoid the part of the contract that limits the carrier’s
liability. Its claim is therefore not for the conventional
breach of contract contemplated in Wolens. Treiber cannot
prevail unless we were to require “enlargement or en-
hancement [of the contract] based on state laws or policies
external to the agreement.” 513 U.S. at 233. See King
Jewelry, 316 F.3d at 965 (“[W]e hold that the district
court appropriately refused to allow King Jewelry to
use California law to modify the liability provision.”).
Because it would compel a certain kind of service, this
would, in effect, be a rule “ ‘having the force and effect of
law relating to rates, routes, or services of any air
Nos. 05-3743 & 05-3896 13

carrier. . . .’ 49 U.S.C. App. § 1305(a)(1).” Wolens, 513 U.S.
at 222-23. Rules of this type are explicitly preempted by
the ADA and, we hold, are equally preempted by the
analogous federal common law for air bills. The fact that
one part of the contract deals with insurance does not
alter our conclusion. UPS’s insurance contract and its
shipping contract are so intertwined that to permit
state contract law to affect one is to allow it to affect the
other. The shipping contract between a common carrier
of packages by air and the shipper, while enforceable in
state court, cannot be rewritten by state law. Since that
is what Treiber seeks to do, we must find that the state
law breach of contract theory in this case is preempted.

III
For these reasons, we AFFIRM the judgment of the
district court in favor of UPS on the federal common law
claim. We MODIFY the court’s decision insofar as it dis-
misses the state law claim without prejudice. Because
this theory is preempted by federal law, the judgment
dismissing this claim must be changed to one with preju-
dice. UPS is entitled to recover its costs on appeal.

A true Copy:
Teste:

________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—1-9-07