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Underwriters at Lloyds Subscribing to Cover Note B0753PC1308275000 v. Expeditors Korea Ltd.

United States Court of Appeals, Eleventh Circuit

February 16, 2018

EXPEDITORS KOREA LTD., FORWARD AIR, INC., Defendants - Appellants.

         Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 1:14-cv-20708-DPG

          Before JORDAN and JILL PRYOR, Circuit Judges, and PROCTOR, [*] District Judge.

          JILL PRYOR, Circuit Judge

         Expeditors Korea Ltd. and Forward Air, Inc. (together, the "transporters") damaged cargo that they were responsible for transporting internationally. In this case, the Underwriters at Lloyds ("Lloyds"), having compensated its insured-the cargo's owner-for the damage to the cargo, seeks to recover from the transporters. The transporters admit their liability; the only question is how much they owe. Lloyds and the transporters disagree over the rules that govern the amount the transporters must pay. There are two possibilities: (1) the Montreal Convention, [1] a multinational treaty that provides uniform rules for liability in international air carriage, or (2) the waybill, the contract between the transporters and the company that shipped the cargo. The Convention and the waybill establish nearly identical limitations of liability, in each case capping damages based on the weight of the damaged shipment. The only potential difference, for our purposes, is that when damage to one part of a shipment renders the rest of the shipment less valuable, the Montreal Convention calculates liability based on the weight of the entire shipment, while the waybill is ambiguous about whether the weight of the damaged part alone should be used. Because the transporters damaged one part of a machine that could not operate without the damaged part, the extent of the transporters' liability may depend on whether the Montreal Convention or the waybill controls. We therefore must address whether the Montreal Convention applies under the circumstances present here: After the cargo had been flown from South Korea to Miami, Florida, en route to Orlando, Florida, it was damaged either at a trucking company's warehouse outside Miami International Airport or while aboard a truck bound for Orlando.

         We hold that the district court erred in ruling that the Montreal Convention governs the transporters' liability. The Convention does not apply based on the district court's factual findings regarding where the cargo was damaged. By default, then, the waybill governs the transporters' liability. Because the waybill is ambiguous about the weight that should be used to calculate liability, we remand the case for the district court to address the issue in the first instance.

         I. BACKGROUND

         A. The Montreal Convention

         We begin with a brief overview of the relevant provisions of the Montreal Convention. The Convention, which was ratified by both the United States and South Korea, caps a carrier's liability for cargo damaged during international air transport. See Eli Lilly & Co. v. Air Express Int'l USA, Inc., 615 F.3d 1305, 1308 (11th Cir. 2010). The Convention's Article 22 limits a carrier's potential liability to 19 Special Drawing Rights (SDRs) per kilogram of cargo shipped.[2] See Montreal Convention art. 22(3). "An SDR is an artificial currency, published daily by the International Monetary Fund, which fluctuates based on the global currency market." Eli Lilly, 615 F.3d at 1308. Central to the dispute in this case, Article 22 provides that if only part of the cargo is damaged, then only the weight of the damaged package or packages is used to calculate liability, but if damage to some packages affects the value of other, undamaged packages, then the weight of the undamaged packages will also be included in the calculation. See Montreal Convention art. 22(4).

         The Convention, and thus Article 22's limitation of liability, applies only to cargo damaged during "carriage by air." Id. art. 18(1). Article 18 defines carriage by air as "the period during which the cargo is in the charge of the carrier." Id. art. 18(3). The fourth paragraph of Article 18 expressly excludes from that definition "any carriage by land, by sea or by inland waterway performed outside an airport." But there are two exceptions to this exclusion that extend the reach of "carriage by air." First, the Montreal Convention establishes a rebuttable presumption that cargo damaged at an unknown point during a journey that includes at least some carriage by air will be governed by the Convention. See id. art. 18(4). Second, if a carrier substitutes non-air carriage for air carriage without the permission of the sender, the Convention deems the non-air carriage to have been carriage by air. See id. It is plain, then, that the Convention reaches further than literal air transit, but how much further depends on the interplay between paragraphs three and four of Article 18. We examine Article 18 in greater detail below.

         B. The Waybill

         In this case, if the Montreal Convention does not apply, then the waybill under which the cargo was shipped governs the transporters' liability. A waybill is "[a] document acknowledging the receipt of goods by a carrier . . . and the contract for the transportation of those goods." Waybill, Black's Law Dictionary (10th ed. 2014). Here, the waybill Expeditors issued provided for airport-to-airport transportation of the cargo from Incheon, South Korea, to Orlando, Florida.[3]

         The waybill capped the carrier's liability for damage to cargo at the same amount as the Montreal Convention, 19 SDRs per kilogram. Like the Convention, the waybill also provided that the weight used to calculate damages was to be the same weight that was used to calculate the shipping charges. The waybill described what would happen if only part of the shipment was damaged:

In any case of loss, damage, to, or delay to part of the cargo, the weight to be taken into account in determining Expeditors' limit of liability shall be only the weight of the package or packages concerned.

Air Waybill ¶ 6 (Doc. 78-3).[4] The parties disagree about whether the waybill's reference to "package or packages concerned" indicates that only the weight of packages actually lost, damaged, or delayed may be considered or whether the weight of packages that diminished in value due to the loss, damage, or delay of related packages may also be included in calculating the carrier's liability.

         The waybill contained one other term that is relevant here. The waybill gave Expeditors the right to substitute non-air carriage for air carriage, absent specific instructions to the contrary.

         C. The Shipment

         TriQuint Semiconductor, Inc., a manufacturer of components used in electronics, purchased a machine for coating silicon wafers from Cybortrack Solutions Inc., a South Korean company. The machine consisted of various process stations where the wafers were prepared and a robotic arm that moved the wafers among these process stations. Cybortrack hired Expeditors to transport the machine to TriQuint in ten separate shipping crates from Incheon, South Korea to Orlando, Florida.

         Even though the waybill provided for airport-to-airport transportation between the two cities, Expeditors did not fly the ten crates directly from Incheon to Orlando. Instead, it flew them to Miami and then arranged for a multi-step journey by land to Orlando. After the crates arrived in Miami, a cargo handling company delivered them from Miami International Airport to Expeditors' warehouse near the airport. Expeditors then hired Forward Air to drive the crates by truck to Forward Air's Orlando facility. Along the way, Forward Air stored the crates for a short period of time in its Miami warehouse. Finally, Expeditors hired Crazy Joe's Airfreight to transport the crates by truck from Forward Air's Orlando facility to TriQuint's delivery agent.

         Unfortunately, the machine was damaged somewhere between Miami and Orlando. Forward Air employees noted no damage to the crates when they arrived at Forward Air's Miami warehouse. And the company's policy was to decline shipments of damaged items. When the crates arrived at Forward Air's Orlando facility, a Forward Air employee reported that two of the crates were damaged, one of them severely. The severely damaged crate contained the silicon coating machine's robotic arm. The Forward Air employee testified that the crate containing the robotic arm had been crushed either while it was being loaded onto the truck at Forward Air's Miami facility or while traveling in the truck from Miami to Orlando, as a result of improper loading. Upon picking the crates up from Forward Air's Orlando facility, a driver for Crazy Joe's observed that one crate had a hole in it and two crates were missing legs. A Forward Air supervisor also observed the damage when the crates were picked up by the Crazy Joe's driver.[5]

         By the time it reached TriQuint, the robotic arm was damaged beyond use.[6]TriQuint received no replacement arm for approximately five months, and the rest of the machine was inoperable without the arm. The company filed a claim with its insurer, Lloyds, which paid it $918, 000 in compensation for the damage.

         D. Procedural History

         Lloyds then filed this action against Expeditors and Forward Air in federal district court, alleging that in damaging the cargo Expeditors breached its duties under the Montreal Convention, Forward Air was negligent, and both defendants breached the waybill. Lloyds sought $920, 000 in damages.[7] After discovery, the transporters moved for partial summary judgment, arguing that the Montreal Convention did not apply and that the waybill capped their liability. The district court denied the motion and then held a bench trial.

         After trial, the court entered findings of fact and conclusions of law, determining that the Montreal Convention governed the transporters' liability. The court found that TriQuint's machine was damaged either while in the custody of Forward Air at its warehouse facility in Miami or in transit to its Orlando facility. The court also found that Forward Air was acting as an agent of Expeditors while the cargo was in its custody. After examining the text of the Montreal Convention, the court concluded that the damage occurred during carriage by air, and so the Convention applied. Applying the Convention's limitation of liability, the court entered judgment in favor of Lloyds against the transporters in the amount of $195, 882 (plus interest).[8] The court calculated the transporters' liability based on the weight of the entire shipment, not merely the crate containing the damaged robotic arm.

         The transporters filed a motion to alter judgment and for additional findings under Federal Rules of Civil Procedure 59 and 52, respectively, arguing that the district court had misapplied the Montreal Convention. The district court denied the motion. This appeal-from both the judgment and the denial of the post-trial motion-followed. The transporters do not contest their liability to Lloyds or the amount that Lloyds paid to TriQuint; this appeal concerns only the limitation of liability that governs the calculation of damages.


         Following a bench trial, we review a district court's conclusions of law de novo and its findings of fact for clear error. Wexler v. Anderson, 452 F.3d 1226, 1230 (11th Cir. 2006). With regard to the Montreal Convention, the interpretation of a treaty is a question of law we review de novo. United States v. Duboc, 694 F.3d 1223, 1229 n.7 (11th Cir. 2012). "The goal of treaty interpretation is to determine the actual intention of the parties 'because it is our responsibility to give the specific words of the treaty a meaning consistent with the shared expectations of the contracting parties.'" In re Comm'rs Subpoenas, 325 F.3d 1287, 1294 (11th Cir. 2003) (quoting Air France v. Saks, 470 U.S. 392, 399 (1985)), abrogated in part by In re Clerici, 481 F.3d 1324, 1333 n.12 (11th Cir. 2007).

         With regard to the waybill, "[c]ontract interpretation is generally a question of law." Lawyers Title Ins. Corp. v. JDC (Am.) Corp., 52 F.3d 1575, 1580 (11th Cir. 1995). The question of whether a contract is ambiguous is a question of law that we review de novo. Carneiro Da Cunha v. Standard Fire Ins. Co./Aetna Flood Ins. Program, 129 F.3d 581, 584-85 (11th Cir. 1997). But "[q]uestions of fact arise . . . when an ambiguous contract term forces the court to turn to extrinsic evidence of the parties' intent . . . to interpret the disputed term." Lawyers Title, 52 F.3d at 1580.


         We now turn to the question that brings the parties before us: how much of the money that Lloyds paid TriQuint for the damaged machine can be recovered from the transporters? The amount of the transporters' liability may depend on whether the Montreal Convention or the waybill controls. Both the Convention and the waybill cap the transporters' liability at 19 SDRs multiplied by the weight of the damaged cargo, but they may differ as to whether the weight of the undamaged parts of the shipment rendered less valuable by the damage to the robotic arm should be included as cargo.

         The district court applied the Montreal Convention, but we conclude, based on the district court's own factual findings, that it should have looked to the waybill instead. Below, we interpret the provisions of the Montreal Convention dealing with damage to cargo and apply them to the facts as found by the district court. Because the Convention is inapplicable under these facts, the waybill governs the transporters' liability. We conclude that the waybill is ambiguous about whether damages must be calculated using only the weight of the one crate containing the robotic arm or using the weight of all the cargo that diminished in value due to the damage to the arm. We thus remand to the district court for further findings of fact to resolve this ambiguity.

         A. The Montreal Convention Does Not Govern the Damages at Issue.

         The issue is whether, under the facts of this case, the cargo was damaged in such a way that the Montreal Convention applies. This issue turns on our interpretation of Article 18, which defines when the terms of the Montreal Convention govern. In construing Article 18, our "analysis must begin . . . with the text of the treaty and the context in which the written words are used." Air France, 470 U.S. at 397. If the treaty contains "difficult or ambiguous passages, " we may go beyond the text of the treaty to consider general rules of construction as well as "the history of the treaty, the negotiations, and the practical construction adopted by the parties." E. Airlines, Inc. v. Floyd, 499 U.S. 530, 535 (1991) (internal quotation marks omitted); see Zicherman v. Korean Air Lines Co., Ltd., 516 U.S. 217, 226 (1996) (explaining that "a treaty ratified by the United States is not only the law of this land but also an agreement among sovereign powers" and thus "we have traditionally considered as aids to its interpretation the negotiating and drafting history (travaux préparatoires) and postratification understanding of the contracting parties"). Applying this framework, we conclude that the Montreal Convention does not apply in this case because the district court's findings tell us that the cargo was damaged during carriage by land rather than during carriage by air.

         Article 18 establishes the conditions under which the Montreal Convention will govern liability for damaged cargo. Three of its four paragraphs are relevant here. The first paragraph limits the Convention's reach to damage that takes place during carriage by air:

1. The carrier is liable for damage sustained in the event of the destruction or loss of, or damage to, cargo upon condition only that the event which caused the damage so sustained took place during carriage by air.

         Montreal Convention art. 18(1).

         The third and fourth paragraphs then set forth when carriage by air occurs. The third paragraph broadly defines "carriage by air" by creating a default rule that any time when the cargo is in the carrier's control qualifies as carriage by air:

3. The carriage by air within the meaning of paragraph 1 of this Article comprises the period during which the cargo is in the charge of the carrier.

Id. art. 18(3). Importantly, this paragraph neither restricts carriage by air to the time when the cargo is actually aboard an airplane nor limits it geographically, such as confining it to within an airport. We note that if the Convention was intended to apply only when the damage occurred aboard an aircraft, this paragraph would be wholly unnecessary.

         The fourth paragraph of Article 18 refines the definition of carriage by air by excluding certain periods when the cargo is control of the carrier. Initially, it carves out from the definition of carriage by air most non-air transportation performed outside an airport:

4. The period of the carriage by air does not extend to any carriage by land, by sea or by inland waterway performed outside an airport.

Id. art. 18(4). We will refer to this first sentence as "the exclusion." Under the exclusion, no period of a journey can qualify as both carriage by air and carriage by land. Beyond drawing this distinction, Article 18 does not define "carriage by land."

         After the exclusion, the fourth paragraph establishes two exceptions to the exclusion. If the conditions of either exception are satisfied, the carriage is deemed to have been carriage by air notwithstanding the exclusion. The first exception applies when damage occurs at an unknown point during a journey consisting of both air carriage and non-air carriage that falls within the exclusion. This exception establishes a rebuttable presumption that the cargo was damaged during carriage by air unless there is proof that the damage occurred during carriage by land:

If, however, such carriage[9] takes place in the performance of a contract for carriage by air, for the purpose of loading, delivery or transshipment, any damage is presumed, subject to proof to the contrary, to have been the result of an event which took place during the carriage by air.

Id. When it is proven that the damage did not occur during carriage by air, the Convention will not apply. Id.; see Danner v. Int'l Freight Sys. of Wash., LLC, No. ELH-09-3139, 2013 WL 78101, at *21 (D. Md. Jan. 4, 2013) (reading paragraph four as "establish[ing] a rebuttable presumption"); see also Read-Rite Corp. v. Burlington Air Express, Ltd., 186 F.3d 1190, 1194 n.2 (9th Cir. 1999) (same in the Warsaw Convention context);[10] UPS Pty. Ltd. v Gountounas and Another (2001) 80 SASR 288, 292 ( S.Ct. S. Austl.) (same).[11]

         The second exception to the exclusion applies when a carrier substitutes carriage by another mode of transportation for carriage by air without the consent of the customer (the "consignor")[12]:

If a carrier, without the consent of the consignor, substitutes carriage by another mode of transport for the whole or part of a carriage intended by the agreement between the parties to be carriage by air, such carriage by another mode of transport is ...

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