Opinion ID: 1240913
Heading Depth: 2
Heading Rank: 2

Heading: NCA's Right to a Setoff

Text: Before trial, Sompo settled its claims against both Pace and Yusen for $100,000 and $8,500, respectively. NCA claims that it is entitled to a setoffor, more precisely, a reduction in the judgment amountto the extent of these settlement amounts. The district court held that a setoff was appropriate under the Illinois Joint Tortfeasors Contribution Act (JTCA), 740 Ill. Comp. Stat. 100/2(c). We review such conclusions of law de novo. Johnson v. West, 218 F.3d 725, 729 (7th Cir.2000). Relying on El Al Israel Airlines, Ltd. v. Tsui Yuan Tseng, 525 U.S. 155, 175, 119 S.Ct. 662, 142 L.Ed.2d 576 (1999), Sompo contends that the Warsaw Convention generally preempts any domestic contribution or setoff laws. El Al indeed stands for the proposition that the Warsaw Convention preempts local law causes of action to the extent that they are inconsistent with the Convention. El Al, 525 U.S. at 161, 175, 119 S.Ct. 662. However, the Convention's preemption is not complete: auxiliary issues not addressed by the Convention, such as who may recover and for what harms they may be compensated, are left to domestic law. Id. at 169-70, 119 S.Ct. 662; Zicherman v. Korean Air Lines Co., 516 U.S. 217, 225, 116 S.Ct. 629, 133 L.Ed.2d 596 (1996) (holding that the question of whether loss of society damages may be recovered under the Warsaw Convention is an issue governed by domestic law). An air carrier's right to a setoff or contribution from a joint tortfeasor is, similarly, incidental to the causes of action available under the Convention and therefore not subject to its limited preemption. Sompo further submits that the Convention contains its own setoff provision, which specifically preempts other domestic setoff or contribution laws. Article 25A states: 1. If an action is brought against a servant or agent of the carrier arising out of damage to which this Convention relates, such servant or agent, if he proves that he acted within the scope of his employment, shall be entitled to avail himself of the limits of liability which that carrier himself is entitled to invoke under Article 22. The aggregate of the amounts recoverable from the carrier, his servants and agents, in that case, shall not exceed the said limits. Warsaw Convention as amended by MP4, art. 25A(1), (2). In Sompo's view, because Article 25A effectively allows an air carrier a setoff against its limitation amount for any payments made by its servants or agents, setoffs not mentioned in the provision, such as setoffs against codefendants who are not such servants or agents, are not permitted. Consequently, Sompo argues, NCA cannot seek a setoff because Article 25A would not allow such a setoff. Article 25A simply is not a provision designed to deal with joint and several liability. It addresses whether an airline may effectively be held liable for damages above the Convention's liability cap because of judgments against its agents. See, e.g., Reed v. Wiser, 555 F.2d 1079, 1093-97 (2d Cir.1997) (examining the history of the MP4 and noting that the purpose of Article 25A was to prevent an end run around the liability limits in the Convention). Article 25A fulfills the purpose of the Convention by precluding suits against agents that could increase effectively the liability of the airlines. Joint tortfeasors, whose money flows from different sources, are not the concern of Article 25A. Cases about preemption, such as El Al, note the intent of the Convention's framers to create a uniform scheme of regulation for international air carriers. The Convention's concern with uniformity focuses on protecting the airlines from catastrophic judgments and ensuring them predictability in liability. El Al, 525 U.S. at 157, 119 S.Ct. 662 (Given the Convention's comprehensive scheme of liability rules and its textual emphasis on uniformity, the Court would be hard put to conclude that the Warsaw delegates meant to subject air carriers to the distinct, nonuniform liability rules of the individual signatory nations.). The Convention precludes both state causes of action and suits against agents because of their potential to erode the effectiveness of the treaty's liability limitations. The airline's relationship to joint tortfeasors is merely an auxiliary issue, however, and uniformity in this context is, under the scheme of the Convention, less important. The Convention also contains a savings clause which specifically notes that [n]othing in this Convention shall prejudice the question whether a person liable for damage in accordance with its provisions has a right of recourse against any other person. Warsaw Convention, art. 30A. Thus, it appears that the Convention refused explicitly to preempt local contribution schemes. Furthermore, preemption of state laws by treaty is generally disfavored. El Al, 525 U.S. at 181, 119 S.Ct. 662 (Stevens, J. dissenting) ([A] treaty, like an Act of Congress, should not be construed to preempt state law unless its intent to do is clear.); Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996). Absent clear evidence of preemption, then, we decline to rule that state setoff and contribution laws are preempted by the Warsaw Convention.
Having determined that the Warsaw Convention does not, by its own terms, address the issue, we must look to the law that would govern the parties' setoff and contribution rights absent the Convention. Zicherman v. Korean Air Lines Co., Ltd., 516 U.S. 217, 229, 116 S.Ct. 629, 133 L.Ed.2d 596 (1996). Both parties agree that, in the absence of the Convention, their dispute would be governed by Illinois law; therefore, we turn to an examination of Illinois law regarding contribution and setoffs. NCA claims a right of setoff under the Illinois Joint Tortfeasor Contribution Act (JTCA or Contribution Act), 740 Ill. Comp. Stat. 100/2(c). The JTCA provides in pertinent part: When a release . . . is given in good faith to one or more persons liable in tort arising out of the same injury . . . it reduces the recovery on any claim against the others to the extent of any amount stated in the release . . . or in the amount of the consideration actually paid for it, whichever is greater. Id. The setoff is applied even if the resultant judgment is thereby reduced to zero dollars. Pasquale v. Speed Prods. Eng'g, 166 Ill.2d 337, 211 Ill.Dec. 314, 654 N.E.2d 1365, 1382 (Ill.1995). In order for the JTCA to be applicable, however, both NCA and Pace must have been liable in tort for the same injury. 740 Ill. Comp. Stat. 100/2(c). Both parties concede that the plaintiff here suffered a single, indivisible injury to its goods. Their disagreement lies in whether both parties were liable in tort for the purposes of the JTCA. The purpose of the Contribution Act is to balance the equities between all culpable parties while ensuring that plaintiffs do not receive double recovery. Doyle v. Rhodes, 101 Ill.2d 1, 77 Ill.Dec. 759, 461 N.E.2d 382, 388 (Ill.1984); Pasquale, 211 Ill.Dec. 314, 654 N.E.2d at 1381-82. In furtherance of this purpose, the Supreme Court of Illinois has construed liability in tort to mean potential tort liability, Doyle, 77 Ill.Dec. 759, 461 N.E.2d at 387, and the Illinois courts have construed broadly this potential liability criterion. [9] Illinois courts determine potential tort liability at the time of the injury to the plaintiff, not when the basis for liability is actually decided by the court. Joe & Dan Int'l Corp. v. U.S. Fid. & Guar. Co., 178 Ill.App.3d 741, 127 Ill. Dec. 830, 533 N.E.2d 912, 918 (Ill.App.Ct. 1988). The JTCA focuses, as it was intended to do, on the culpability of the parties rather than on the precise legal means by which the plaintiff is ultimately able to make each defendant compensate him for his loss. Doyle, 77 Ill.Dec. 759, 461 N.E.2d at 388. Sompo contends that the Illinois statute is inapplicable here because neither Pace nor NCA [10] was potentially liable in tort: Sompo's complaint included claims against NCA and Pace under the Warsaw Convention and the Carmack Amendment, both of which provide their own cause of action. In support of its contention, Sompo notes that Illinois courts have looked to the pleadings to determine whether a party is potentially liable in tort. [11] Although a party's complaint is relevant, Illinois courts consistently have held that the plaintiff's own theory of liability is not conclusive for the purposes of the Contribution Act. [12] Furthermore, even if its pleadings were considered dispositive, that fact would not help Sompo here. Sompo brought claims against NCA and Pace under the Warsaw Convention and the Carmack Amendment; it also, however, chose to include negligence claims against NCA and Yusen in its original complaint and against Pace in its amended complaint. Under Sompo's own theory of liability, then, the defendants were potentially liable in tort. Sompo next submits that NCA in fact never was potentially liable in tort because its claim arose under the Warsaw Convention, a federal liability scheme that has been held to preempt state tort claims in cases involving interstate carriers and a loss of goods. See El Al, 525 U.S. at 175, 119 S.Ct. 662. In its view, NCA likely could have defeated a state law negligence claim by arguing that the Warsaw Convention provides the exclusive grounds for recovery against it. Id. Therefore, Sompo argues, NCA was not a potential tortfeasor for the purposes of the JTCA. The logic of the Supreme Court of Illinois, expressed in Doyle, 101 Ill.2d 1, 77 Ill.Dec. 759, 461 N.E.2d 382, is helpful to our analysis. In Doyle, the defendant employer maintained that its statutory immunity under the Illinois Workers' Compensation Act also immunized it from a contribution claim under the JTCA; because the state Workers' Compensation Act preempted other state law tort claims, the employer maintained that it had no potential liability in tort. Id. at 384. The court rejected this argument, concluding that the defendant was potentially liable in tort at the time of the incident, even though any common law tort action ultimately would have been preempted by the workers' compensation regime. Id. at 388. It reasoned that, although preemption is a defense to any tort action brought by an employee for a work-related incident, it is merely an affirmative defense, not an outright bar to liability. Id. at 386-87. In its view, an employer could make the strategic decision to defend against an employee's tort claim on its merits rather than invoke the protections of the workers' compensation scheme, perhaps in the hopes that the jury would find the evidence of negligence lacking. In such a case, the employer's legal exposure would be based on liability in tort. Id. Such potential liability was enough for the Supreme Court of Illinois to find the JTCA applicable. Id. [13] The reasoning in Doyle may be applied in this case. As we noted earlier, the Warsaw Convention preempts state tort laws to the extent that those state rules conflict with its own regulatory structure. See El Al, 525 U.S. at 175, 119 S.Ct. 662 ([T]he Convention's preemptive effect is clear: The treaty precludes passengers from bringing actions under local law when they cannot establish air carrier liability under the treaty.). However, this preemption is limited. Article 24 provides: In the carriage of 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 limits of liability set out in this Convention . . . . (emphasis added). Article 24 expressly contemplates that an action may be brought in contract or in tort. The liability limitation provisions of the Warsaw Convention simply operate as an affirmative defense. [14] Accordingly, the Supreme Court of Illinois' reasoning in Doyle suggests that the limited preemption in the Warsaw Convention does not preclude the application of the JTCA here. Although the parties do not reference it, we acknowledge that we previously have held that the JTCA did not apply to a party sued under the Carmack Amendment because the federal statute preempt[ed] the field formerly occupied by common law theories of liability. N. American Van Lines v. Pinkerton Sec. Sys., 89 F.3d 452, 458 (7th Cir.1996). Nevertheless, we found that decision to be consistent with the Illinois Supreme Court's analysis in Doyle because, in North American, liability could be premised solely on the Carmack Amendment. The plaintiff there was foreclosed from suing in tort by the terms of the Carmack Amendment, which preempts the field formerly occupied by common law theories of liability. Id. at 458. Accordingly, there was no need for the defendant to plead the liability limitations in the Carmack Amendment as an affirmative defense: the contract defined both its liability and [the plaintiffs'] right to relief. Id. at 459. Notably, we emphasized in North American that the Carmack Amendment was unique. Id. at 458. It was intended by Congress to be a consumer-friendly law, establishing its own mechanism for contribution and relieving shippers of the burden of determining which of the several carriers handling interstate shipments bears the blame for loss or damage under diverse state laws. Id. at 457. The Warsaw Convention, on the other hand, privileges the air carrier and provides it with a partial affirmative defense to claims by potential plaintiffs. Unlike the Carmack Amendment, the Warsaw Convention does not have its own apportionment system, and it expressly contemplates the use of state law to fill in the interstices. See Warsaw Convention, art. 24 ([A]ny 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 limits of liability set out in this Convention without prejudice to the question as to who are the persons who have the right to bring suit and what are their respective rights.); art. 30A (Nothing in this Convention shall prejudice the question whether a person liable for damage in accordance with its provisions has a right of recourse against any other person.). The Warsaw Convention therefore is particularly suited to the application of state setoff and contribution schemes. Accordingly, the Carmack Amendment and the Warsaw Convention are distinguishable, and our application of Doyle here is consistent with our prior opinion in North American. Furthermore, the two other circuit courts that have addressed the question have concluded that a right of setoff or contribution is available for the airlines in claims arising under the Warsaw Convention. See In re Air Crash at Little Rock, Arkansas on June 1, 1999, 291 F.3d 503, 516-17 (8th Cir.2002) (examining the question of tortfeasor contribution under the Warsaw Convention, and directing the district court to allow the defendant airline to file a third-party claim for contribution against the United States); Piamba Cortes v. American Airlines, Inc., 177 F.3d 1272, 1305 (11th Cir.1999) (assuming that a state law claim for contribution was proper under the Warsaw Convention). Our conclusion that the Warsaw Convention is compatible with a state law contribution scheme, therefore, is consistent with the interpretation of other circuits. Although we conclude that a claim for liability under the Warsaw Convention is compatible with a claim for contribution or setoff under the JTCA, our inquiry does not end there. A party seeking contribution or a right of setoff under the JTCA must show that the plaintiff potentially had a cause of action sounding in tort against both the party seeking contribution and the party from whom contribution is sought. N. American, 89 F.3d at 456 (emphasis added). To seek a setoff under the JTCA, then, NCA must show that Sompo could have brought a claim sounding in tort against Pace and/or Yusen as well as against the air carrier. Sompo does not dispute that Yusen was potentially liable in tort here; accordingly, NCA is entitled to a setoff of the $8,500 Yusen paid to Sompo in the settlement. Pace, however, was potentially liable only under the Carmack Amendment, a fact that, as we have already discussed, precludes NCA from seeking a setoff of its payments under the JTCA. See N. American, 89 F.3d at 458. Even if Pace is not a potential tortfeasor within the meaning of the JTCA, however, NCA can claim a setoff right based on Illinois common law. See, e.g., Maher v. Chicago Park Dist., 269 Ill.App.3d 136, 206 Ill.Dec. 290, 645 N.E.2d 295, 297 (Ill.App.Ct.1994) (noting that the JTCA is not the sole source of a setoff right, and a setoff right existed at common law); Hentze v. Unverfehrt, 237 Ill.App.3d 606, 178 Ill.Dec. 280, 604 N.E.2d 536, 541 (Ill.App.Ct.1992) (holding that a right of setoff is implied in contract cases, even if not statutorily encompassed by the JTCA); Johnson v. Belleville Radiologists, Ltd., 221 Ill.App.3d 100, 163 Ill.Dec. 596, 581 N.E.2d 750, 753 (Ill.App.Ct.1991) (The provision for a setoff contained in the Contribution Act is not the source of the defendants' right to a setoff; it is merely a codification of that right. Defendants were entitled to a setoff at common law.). Sompo does not dispute the existence of this common law right, and therefore we conclude that NCA is entitled to a setoff of the entire settlement amount. In sum, we hold that the Illinois Joint Tortfeasors Contribution Act is not preempted by the Warsaw Convention, and that NCA is entitled to a setoff of the entire amount of the settlement under the JTCA and Illinois common law. We next must determine whether the setoff should be taken from the capped judgment amount ($74,450.84), reducing Sompo's award to zero, or from the total proven damages amount ($271,304), granting Sompo the maximum damages allowable under the Convention.