Source: http://thecabadvantage.com/articles/category/cases-from-bits/c99-volume-8-edition-3/
Timestamp: 2019-04-19 15:02:34+00:00

Document:
Power Standards Lab v. Federal Express Corp.
FEDERAL EXPRESS CORPORATION, Defendant and Appellant.
Alameda County Superior Court, Honorable Patrick J. Zika, Judge.
Shane & Taitz, David R. Shane, Timothy A. Ginn, for Defendant and Appellant.
Michael A. Mazzocone, for Plaintiff and Respondent.
Damage to electronic equipment being shipped by defendant Federal Express Corporation (Federal Express) led to litigation that culminated in a judgment in favor of Plaintiff Power Standards Lab, Inc. (PSL) for $78,000 in compensatory damages and $600,000 in punitive damages. The dispositive question is whether federal law–in the form of a preemption provision in the Airline Deregulation Act of 1978 and a doctrine of federal common law–precludes a state court from awarding any relief greater than was expressly and contractually negotiated between the carrier and the shipper. We answer this question in the affirmative. We hold that once the shipper has paid the contractual limit of its liability, state common law and statutory remedies cannot augment that recovery.
FN1. The invoice value of the equipment was $48,441.45.
The shipment arrived badly damaged. PSL’s president called Federal Express’s 800-telephone number and was repeatedly told that no inspection was necessary, and that after PSL had the equipment repaired, it should submit a claim for the amount of repair expenses. PSL paid $17,450 to have the equipment repaired, and submitted a claim for that amount. Federal Express denied the claim because the equipment had not been inspected before it was repaired. Four months of repeated entreaties produced no change in Federal Express’s position. Having been told “the only way FedEx pays claims like this is if you sue us,” PSL reluctantly did so.
Six weeks before the scheduled trial date, Federal Express sent PSL a check for $18,409.45 (the $17,450 costs of repair, plus a refund of the $959.45 originally charged to ship the equipment). By that time PSL had incurred more than $78,000 of attorney fees. It therefore proceeded to trial on its causes of action for breach of contract and recovery of attorney fees based upon breach of the implied covenant of good faith and fair dealing. The jury found that Federal Express breached its contract with PSL, and also breached “the duty of good faith and fair dealing it owed to [PSL] by unreasonably denying the claim.” The jury awarded PSL $78,027.08 representing “the amount of attorney’s fees … [PSL] reasonably incurred to collect the benefits due under the contract.” The jury also awarded PSL punitive damages of $1.5 million. The trial court denied Federal Express’s motion for judgment notwithstanding the verdict, but it conditionally granted a new trial unless PSL agreed to accept only $600,000 of punitive damages. After PSL consented to this reduction, Federal Express perfected this timely appeal.
Federal Express advances a number of contentions centered on the argument that federal law limited PSL’s damages to recovery of no more than PSL’s original claim for repair costs of its equipment, which Federal Express paid. This case should never have been tried because PSL was seeking forms of relief under California law that are precluded by federal law. The Airline Deregulation Act of 1978(ADA) and two decisions of the United States Supreme Court interpreting the ADA establish that Federal Express cannot be made to pay for more than the declared value of the equipment. The same result is also compelled by the federal common law doctrine limiting a carrier’s liability to the value of a shipment declared by a shipper to the carrier. Anything more than the amount of PSL’s repair costs, which Federal Express paid prior to trial, cannot be recovered in a California court. As we explain, both of the grounds cited by Federal Express support its argument.
The ADA enacted by Congress in 1978 largely deregulated air transport service within the United States. Congress determined that the quality and efficiency of air carrier service would be better promoted by relying on competitive market forces instead of the existing system of pervasive federal regulation. A major congressional concern was that carriers should not be burdened with conflicting state laws and policies that would have adverse economic consequences on the goal of increasing competition among carriers. (See 49 U.S.C. § 40101, subd. (a)(6); H.R. Conf. Rep. No. 95-1779, 95th Cong., 2d Sess., 1, 53 (1978); American Airlines, Inc. v. Wolens (1995) 513 U.S. 219, 222, 228, 230; Morales v. Trans World Airlines, Inc. (1992) 504 U.S. 374, 378-379.) To avoid state frustration of its purposes, Congress included a provision preempting conflicting state law. In its current version, the provision reads in pertinent part: “[A] State … may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier….” (49 U.S.C. § 41713, subd. (b)(1).) The United States Supreme Court has twice considered the scope of this provision.
FN3. As will be shown in part II, post, federal common law has long accepted limiting liability for lost, damaged, or destroyed cargo and personal property as intimately connected to the efficient operation and economic viability of common carriers.
FN4. If the airbill incorporates by reference other materials, such as a shipper’s service guide, they too are regarded as part of the contract. (E.g., King Jewelry, Inc. v. Federal Exp. Corp. (C.D.Cal.2001) 166 F.Supp.2d 1280, 1284-1285, fn. 3; Zubaz, Inc. v. Federal Exp. Corp., supra, 864 F.Supp. 723, 725.) The Federal Express airbill does incorporate its service guide, but the guide did not figure at trial or in the parties’ briefs.
FN5. The parties have not cited, nor has our own research discovered, any reported decisions where Brandt damages have been allowed in any context other than insurance. The point is moot, however, in light of the fact that the judgment must be reversed because of federal preemption.
FN6. There is recent evidence that Congress intends for air and surface shippers to be treated equally. In 1991 a Circuit Court held that Federal Express–whose operations combined air transport and motor vehicles–qualified as an air shipper for purposes of the ADA. The effect of this decision was that because Federal Express was covered by the ADA’s preemption clause, its surface operations were exempted from state regulation. (Federal Exp. v. California Public Utilities Com’n, supra, 936 F.2d 1075.) This gave air shippers a competitive advantage over ground-based rivals who remained subject to state regulation. Congress responded with the Federal Aviation Administration Authorization Act of 1994, which, in addition to enacting the current version of the ADA preemption statute, used identical language in a preemption provision for land-based carriers: “Motor carriers of property…. [A] State … may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier….” (49 U.S.C. § 14501, subd. (c)(1).) It is exceedingly unlikely in light of this recent history that Congress intends to differentiate between air shippers and surface shippers. If both now share the same exemption, there is no reason to assume that Congress intends for surface shippers’ protection under the Carmack Amendment to be greater than the protection given to air shippers by the ADA.
However much PSL insists that it is not seeking to recover because of what happened to its equipment while in Federal Express’s possession; the contract of carriage cannot be ignored. Without the contract, there would be no declared value coverage, no transportation of PSL’s property, no damage, no claim and no delay in paying the claim. It does no violence to the English language to conclude that their contract is at the heart of the parties’ dispute. Although PSL tries to reframe the issue as far away as possible from the actual movement of its goods, the fact remains that it all goes back to the contract. From this perspective, any judgment against Federal Express is liability for the performance of its services. (E.g., Read-Rite Corp. v. Burlington Air Express, Ltd., supra, 186 F.3d 1190, 1196-1197; Gordon v. United Van Lines, Inc ., supra, 130 F.3d 282, 289-290.) It is also liability imposed and enlarged by California’s “own substantive standards” concerning how those services should be performed. (See American Airlines, Inc. v. Wolens, supra, 513 U.S. 219, 232-233.) Even if the handling of claims could properly be characterized as “nonessential” to Federal Express’s operations, they are “related to” those services, they have “a connection with or reference to” those operations. (See American Airlines, Inc. v. Wolens, supra, at p. 228; Morales v. Trans World Airlines, Inc., supra, 504 U.S. 374, 384.) They are thus within the preemption of state remedies ordered by Congress.
Even if there was no ADA preemption, there would be another insurmountable impediment to affirming the judgment. Preemption or no, the rule of decision to be applied would come from a doctrine of federal common law.
“[F]ederal common law is truly federal law in the sense that, by virtue of the Supremacy Clause, it is binding on state courts” (19 Wright, Miller & Cooper, Federal Practice & Procedure (2d ed. 1996) Federal Common Law, § 4514, p. 453, fn. omitted; Banco Nacional de Cuba v. Sabbatino (1964) 376 U.S. 398, 426; Wayne v. DHL Worldwide Express (9th Cir.2002) 294 F.3d 1179, 1184). Long before passage of the ADA, a doctrine of federal common law known as the “declared value” or “released value” doctrine limited a shipper’s recovery for cargo or personal property that was lost, damaged, or destroyed while in the care of a carrier subject to federal regulatory jurisdiction.
FN7. California courts applied the release value doctrine prior to passage of the ADA (Donlon Bros. v. Southern Pacific Co. (1907) 151 Cal. 763, 770-775; Michalitschke v. Wells, Fargo & Co. (1897) 118 Cal. 683, 688-689; Muelder v. Western Greyhound Lines (1970) 8 Cal.App.3d 319, 324-325; see Civ.Code, § § 2176, 2178) and after (Dictor v. David & Simon, Inc., supra, 106 Cal.App.4th 238, 245-249; HIH Marine Ins. Services, Inc. v. Gateway Freight Services, supra, 96 Cal.App.4th 486, 492-494).
Confronting a situation almost identical to that endured by PSL, one federal appellate court stated: “Ordinarily, common law principles of equity leaven the law, softening its rigors so that the law’s aim of administering justice fairly is not lost. But on occasion, and this is one, the equities urge a course that the law may not take.” (Cleveland v. Beltman North American Co., Inc., supra, 30 F.3d 373, 374.) We find ourselves similarly hamstrung. Although the supremacy of federal law requires that Federal Express prevail, we cannot refrain from expressing our dismay at this result. However, the statutory command that states stay out of this field, as twice expansively construed by the United States Supreme Court, is unambiguous. So is the released value doctrine of federal common law that would in any event have to be applied and which would also absolve Federal Express from paying any more than the contractual amount it has already turned over to PSL.
The judgment is reversed. The parties shall bear their respective costs of appeal.
We concur: SEPULVEDA and RIVERA, JJ.
This appeal arises from the trial court’s granting of a motion for partial summary judgment on the issue of insurance coverage. The trial court found the vehicle involved in the subject accident was a “nonowned auto” under the policy issued by Clarendon National Insurance Company to Durand Logging, Inc., and thus a “covered auto” under the policy. Clarendon appeals. We affirm.
On July 23, 1999, Plaintiff, Allison Huddelston Winn, was driving east on Louisiana Highway 3128 in Rapides Parish with her mother, Margaret Huddleston, riding as a guest passenger, when they were involved in an accident with a tractor-trailer owned and operated by Defendant, Vance Luther (“Luther”). At the time of the accident, Luther was hauling timber for Defendant, Durand Logging, Inc. (“Durand Logging”). Allison Huddleston Winn, Margaret Huddleston and William C. Huddleston filed suit against Luther, his automobile liability insurer, Reliance Insurance Company (“Reliance”), Durand Logging Inc. and its insurer, Clarendon National Insurance Company (“Clarendon”), alleging that Luther and Durand Logging were insured under the Clarendon policy.
Plaintiffs filed a motion for partial summary judgment seeking a legal determination that the Clarendon automobile liability insurance policy issued to Durand Logging provided coverage for Plaintiffs’ injuries. The trial court ruled in favor of coverage and Clarendon appealed.
The issue on appeal is whether the trial court erred in finding that the vehicle driven by Luther was a “covered auto” under the Clarendon policy.
Since the trial court decided the issue of insurance coverage by summary judgment, this court’s standard of review is de novo and governed by the same criteria that governed the trial court’s determination of whether summary judgment is appropriate. Sinegal v. Kennedy, 04-299 (La.App. 3 Cir. 9/29/04), 883 So.2d 1079; La.Code Civ.P. art. 966.
We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “accident” and resulting from the ownership, maintenance or use of a covered “auto”.
HIRED “AUTOS” ONLY. Only those “autos” you lease, hire, rent, or borrow. This does not include any “auto” you lease, hire, rent, or borrow from any of your employees or partners or members of their households.
NONOWNED “AUTOS” ONLY. Only those “autos” you do not own, lease, hire, rent or borrow that are used in connection with your business. This includes “autos” owned by your employees or partners or members of their households but only while used in your business or your personal affairs.
If the Luther vehicle meets the policy definition of a “hired auto,” it is not a “covered auto” under the Clarendon policy due to the employee exclusion. [FN1] If the vehicle is a “nonowned auto,” it is a “covered auto” as long as it was being used in Durand’s business, which is not disputed.
FN1. The trial court, at the hearing on the motion for partial summary judgment, also determined that Luther was an employee of Durand Logging. The judgment on that issue was not appealed.
In order to classify the Luther vehicle as either a “hired auto” or a “nonowned auto,” this court must first determine if the vehicle was being leased, hired, rented or borrowed by Durand Logging. The trial court found that it was not. We agree.
Luther and Durand had an arrangement whereby Luther would haul wood for Durand using Luther’s own truck and trailer. Luther was paid by the load for the wood he hauled and delivered. The evidence is clear that Durand exercised no control over the truck itself. No one at Durand Logging ever operated or maintained the Luther vehicle. All maintenance, repair and fueling expenses incurred were Luther’s responsibility. Clearly, Durand Logging had no rights of possession, dominion, or control over the truck. See Green v. Bobby A. Freeman Estate, 99-1262 (La.App. 3 Cir. 4/5/00), 759 So.2d 201and Gore v. State Farm Mut. Ins. Co., 26,417, (La.App. 2 Cir. 1/25/95), 649 So.2d 162,writ denied, 95- 481 (La.4/21/95), 653 So.2d 555 cited therein.
The court does note that there was testimony from Luther and Mickie Durand, the owner of Durand Logging, that the tractor-trailer owned by Luther was being leased to Durand when this accident occurred. However, the lay opinion of these individuals is not determinative on the legal requirements for a contract of lease.
The Louisiana Civil Code articles on lease were revised by 2004 La. Acts No. 821 effective January 1, 2005. However, this accident occurred in 1999 and the following articles are pertinent to this 1999 accident.
Lease or hire is a synallagmatic contract, to which consent alone is sufficient, and by which one party gives to the other the enjoyment of a thing, or his labor, at a fixed price.
To the contract of lease, as to that of sale, three things are absolutely necessary, to wit: the thing, the price, and the consent.
1. The letting out of things.
2. The letting out of labor or industry.
To let out a thing is a contract by which one of the parties binds himself to grant to the other the enjoyment of a thing during a certain time, for a certain stipulated price which the other binds himself to pay him.
The agreement between Luther and Durand did not involve the lease of a specific thing, i.e. the vehicle. The parties did not agree that Durand was to have enjoyment of the truck for a “certain time” nor was there a “certain stipulated price” for the use of the truck. Luther was to use his own vehicle to accomplish the task of hauling wood. If considered to be a contract of lease, the agreement between Luther and Durand Logging was more akin to the lease of Luther’s labor. See La.Civ.Code art. 2675. The record establishes that Luther was compensated based on the amount of wood he hauled with the truck. He was not paid a specified fixed amount for the use of the truck. Durand Logging hired Luther to perform the work, which is to be distinguished from a lease of the truck by Durand who had no rights to the truck itself as a result of the arrangement between the parties. We, like the trial court, therefore conclude that the vehicle being operated by Luther was not a vehicle leased by Durand Logging.
For the foregoing reasons, the judgment of the trial court is affirmed. All costs of this appeal are assessed to Defendant/Appellant, Clarendon National Insurance Company.

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 art. 2675