Court Opinion

ID: 9492449
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:41:32.328682+00
Date Added: 2024-06-11T17:55:18.732229
License: Public Domain

W. FLETCHER, Circuit Judge,
concurring:
I agree with the result reached by the panel but disagree with the legal analysis in part IIB of its opinion.
Article 25(1) of the Warsaw Convention provides that a carrier is entitled to limited liability for loss or damage unless “damage is caused by his wilful misconduct or by such default on his part as, in accordance with the laiu of the court to which the case is submitted, is considered to be the equivalent to wilful misconduct” (emphasis added). In part IIB of its opinion, the panel concludes that “the law of the court to which the case is submitted” is California law. I conclude that it is federal common law.
The analysis proceeds in three steps. First, Article 25(1) of the Warsaw Convention operates as a “pass-through,” directing us to apply “domestic” law. The domestic law to which we are directed is, in the words of the Supreme Court, “the law that would govern in the absence of the Warsaw Convention.” Zicherman v. Korean Air Lines Co., 516 U.S. 217, 229, 116 S.Ct. 629, 133 L.Ed.2d 596 (1996). Second, in the absence of the Warsaw Convention this case is governed by federal common law, not California law. See Read-Rite Corp. v. Burlington Air Express Ltd., 186 F.3d 1190 (9th Cir.1999); Deiro v. American Airlines, Inc., 816 F.2d 1360, 1364 (9th Cir.1987); Klicker v. Northwest Airlines, Inc., 563 F.2d 1310, 1313 (9th Cir.1977); see also Sam L. Majors Jewelers v. ABX, Inc., 117 F.3d 922, 926-29 (5th Cir.1997). Federal common law has preempted state law in this area since at least 1918, and this preemption has been preserved by the federal Airline Deregulation Act of 1978 (“ADA”), 49 U.S.C. §§ 40120(c), 41713(b)(1). See Boston & Maine R.R. v. Piper, 246 U.S. 439, 444, 38 S.Ct. 354, 62 L.Ed. 820 (1918); American Airlines, Inc. v. Wolens, 513 U.S. 219, 232-33, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995) (“The ADA’s preemption clause ... read together with the FAA’s saving clause, stops States from imposing their own substantive standards with respect to rates, routes, or services .... ”). Third, established federal common law allows the carrier to limit its liability as it has done here. See Read-Rite, 186 F.3d 1190, 1197; Deiro, 816 F.2d at 1364; Klicker, 563 F.2d at 1313; Glickfeld v. Howard Van Lines, Inc., 213 F.2d 723, 727 (9th Cir.1954); see also Sam L. Majors Jewelers, 117 F.3d at 926-29 (5th Cir.1997); Hill Constr. Corp. v. American Airlines, Inc., 996 F.2d 1315, 1317, 1319-20 (1st Cir.1993).
I
The Warsaw Convention broadly protects carriers providing international air transportation from full liability for damage or loss of cargo. One exception to the Convention’s protection from full liability is found at Article 25(1). Under that article, if the carrier commits “wilful misconduct,” or “such default” as “in accordance with the law of the court to which the case is submitted, is considered to be the equivalent to wilful misconduct,” then the carrier can be held fully liable. We have previously interpreted the term “wilful misconduct,” see, e.g., Koirala v. Thai Airways Int’l., Ltd., 126 F.3d 1205, 1210 (9th Cir.1997), but we have not, until this case, determined when a carrier may be fully liable because of “such default” in accordance with “the law of the court which the case is submitted.”
*924I agree with the majority that the plain language of Article 25(1) requires us to look beyond the Convention to the domestic law that would apply in its absence. This conclusion is compelled by Zicherman v. Korean Air Lines Co., 516 U.S. 217, 116 S.Ct. 629, 133 L.Ed.2d 596 (1996). In Zicherman, the question was whether a plaintiff could recover damages under Article 24(1) of the Warsaw Convention for loss of society resulting from the death of a relative in a plane crash on the high seas. A federal statute, the Death on the High Seas Act (DOHSA), 46 U.S.C. § 761 et seq., precluded such damages. But the Second Circuit chose not to apply the federal statute, and held instead that general maritime law supplied the substantive law of compensatory damages. See Zicherman v. Korean Air Lines Co., 43 F.3d 18, 21-22 (2d Cir.1994).
The Supreme Court reversed, holding that the federal statute rather than general maritime law should have been applied. The Second Circuit’s holding would have created a uniform rule for airplane crashes over land and over water, applying the general maritime law to both, but the Supreme Court held that existing federal law, in the absence of the Warsaw Convention, provided for application of different federal laws. The general maritime law applied (somewhat paradoxically) to crashes on land, while DOHSA applied to crashes on the high seas. The relevant point, for purposes of our analysis, is that the Warsaw Convention directed a pass-through to existing law, whatever that law happened to be. It did not provide authority for the Court of Appeals to construct a uniform rule where none had existed before. According to the Supreme Court, “[t]he Convention neither adopted any uniform rule of its own nor authorized national courts to pursue uniformity in derogation of otherwise applicable law.” Zicherman, 516 U.S. at 230-31, 116 S.Ct. 629. Rather, when the Warsaw Convention directs a pass-through to domestic law, we apply “the law that would govern in the absence of the Warsaw Convention.” Zicherman, 516 U.S. at 229, 116 S.Ct. 629.
II
Unfortunately, neither party in this case cited Zicherman or appears to have understood its requirement that we look to “the law that would govern in the absence of the Warsaw Convention.” Plaintiff Zoma-ya argued for the application of Canadian law, but in the alternative contended that FedEx is fully hable under California’s common carrier statutes. See Cal. Civ. Code §§ 2175 and 2194. Defendant FedEx maintained that California’s common law of respondeat superior precludes hohU ing FedEx liable for theft by its employees. See Lisa M. v. Henry Mayo Newhall Memorial Hosp., 12 Cal.4th 291, 297, 48 Cal.Rptr.2d 510, 907 P.2d 358 (1995). Neither party addressed the question of what law would govern in the absence of the Convention, and neither party addressed the question of whether California law is preempted by federal common law.
The validity of limitation of liability clauses in contracts for interstate carriage of goods has been governed by preempting federal common law since at least 1918. In 1887, Congress passed the Interstate Commerce Act, 24 Stat. 379, and nineteen years later passed the Hepburn Act, 34 Stat. 584. Both statutes regulated railroads, the most important interstate carrier at the time. The Hepburn Act contained a provision known as the Car-mack Amendment, which, as later interpreted by the Supreme Court, entirely preempted state regulation of common carriers. Adams Express Co. v. Croninger, 226 U.S. 491, 505, 33 S.Ct. 148, 57 L.Ed. 314 (1913). After the passage of the Carmack Amendment, the Supreme Court continued to follow the old general common law rules concerning limitations of liability, but transformed them into rules of federal common law binding in state courts as well as federal courts. See, e.g., Boston & Maine R.R., 246 U.S. at 444, 38 S.Ct. 354 (1918) (applying federal *925common law rule of limitation of liability in a case originating in Vermont state court).
Common carriers providing air transportation have been regulated by a system of federal statutes and federal common law similar to what Congress and the courts originally developed for railroads. Since 1938, three significant federal statutes have regulated (and later deregulated) common carriers by air: the Civil Aeronautics Act of 1938, 52 Stat. 973 (“CAA”); the Federal Aviation Act of 1959, 72 Stat. 731 (“FAA”); and the Airline Deregulation Act of 1978, 92 Stat. 1705 (“ADA”). These three Acts have always had “saving clauses” preserving remedies at common law. For example, the FAA preserved “the remedies now existing at common law or by statute....” 49 U.S.C.App. § 1506 (1988).1 Before and after the passage of the ADA in 1978, we have held that Congress has preserved the federal common law applicable to the limited liability provisions of air carrier contracts. See Klicker, 563 F.2d at 1313 (“[W]hether a tariff is against public policy is ultimately a judicial question requiring the application of federal common law.”); Deiro, 816 F.2d at 1365 (“The federal common law applicable to carriers was not changed with the advent of regulation air carriers [and] the subsequent deregulation of air carriers in 1978 did not change the applicability or substantive content of the relevant federal common law.”); Read-Rite, 186 F.3d 1190, 1195 (“[F]ederal common law applies to loss of or damage to goods by interstate common carriers by air.”)
Congress has not merely preserved federal common law. It has also expressly preempted any state law governing the validity of limited liability contracts of air carriers. See, e.g., Read-Rite, 186 F.3d 1190, 1197 (“[S]tate law regulating the scope of air carrier liability for loss or damage to cargo is preempted by the ADA.”) The ADA provides that states “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(b). In Wolens, 513 U.S. at 232, 115 S.Ct. 817, the Supreme Court explained that the application of state contract law to “routine breach-of-contract claims” is not preempted by the ADA, because Congress never intended “to channel 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.” Following Wolens, we have recently held that in adopting the ADA “Congress did not intend to preempt passengers’ run-of-the-mill personal injury claims” related to “in-flight beverages, personal assistance to passengers, the handling of luggage, and similar amenities.” Charas v. Trans World Airlines, Inc., 160 F.3d 1259, 1261 (9th Cir.1998) (en banc). Such “services” are only related to the purpose of federal airline deregulation in a “peripheral manner.” Id. at 1265 (quoting Morales v. Trans World Airlines Inc., 504 U.S. 374, 390, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992)).
But a court deciding whether air carriers are permitted to enter into contracts limiting their liability .for loss of or damage to shipped cargo faces neither a “routine” contract claim, as was presented in Wol-ens, nor “run-of-the-mill” injury claims, as were presented to us in Charas. In Wol-ens, the Court stated:
The ADA’s preemption clause ... read together with the FAA’s saving clause, stops States from imposing their own substantive standards with respect to rates, routes, or services, but not from affording relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated. This distinction between what the State dictates and what the airline itself under*926takes confínes courts, in breach-of-contract actions, to the parties’ bargain, with no enlargement or enhancement based on state laws or policies external to the agreement.
Wolens, 513 U.S. at 232-33, 115 S.Ct. 817. The scope of limited liability of an air carrier for loss or damage to cargo is directly related to the carrier’s rates and services and goes to the very heart of the ADA. Allowing states to decide individually whether a common air carrier may limit its liability would “significantly impact federal deregulation,” Charas, 160 F.3d at 1265, and would “adversely affect the economic deregulation of the airlines and the forces of competition within the airline industry,” id. at 1261. Indeed, one of the central purposes of the ADA was “encouraging and developing an expedited all-cargo air transportation system provided by private enterprise.... ” 49 U.S.C. § 40101. Deciding whether FedEx may contractually limit its liability is a matter of “substantive standards” based on “policies external to the agreement,” Wolens, 513 U.S. at 232-33, 115 S.Ct. 817, and any state law purporting to decide that question is preempted by the ADA.
Not surprisingly, given preemption of state law by federal common law since at least 1918 and express federal statutory preemption since 1978, we have consistently applied federal common law to determine whether air carriers may limit their liability for cargo loss or damage. In Klicker, a prized golden retriever died in the charge of Northwest Airlines, and we applied federal common law to the question of whether Northwest Airlines could enforce a contractual provision exempting it from liability. 563 F.2d at 1311, 1313. Niné years after the passage of the ADA, in Deiro, we were again presented with the death of prized dogs in the charge of an air carrier. We held that the “deregulation of air carriers in 1978 did not change the applicability or substantive content of the relevant federal common law,” and we applied federal common law to hold valid the limited liability provisions of American Airlines’ contract. 816 F.2d at 1361, 1365-66. In so holding, we followed our earlier decision in Klicker and the decision of the Third Circuit in First Pennsylvania Bank v. Eastern Airlines, Inc., 731 F.2d 1113, 1122 (3rd Cir.1984). The Fifth Circuit recently followed both Deiro and First Pennsylvania Bank in holding that the loss of or damage to cargo carried by an interstate common air carrier gives rise to a federal common law cause of action, and that any state law cause of action for the loss is preempted by the ADA. See Sam L. Majors Jewelers, 117 F.3d at 926-31. And as recently as this month, we applied federal common law to hold valid a limitation of liability clause in a contract for shipment by air of valuable machinery from England to California. See Read-Rite, 186 F.3d 1190.
It can hardly be argued that application of an established federal common law rule dating from the Supreme Court’s 1918 decision in Boston & Maine R.R., and recently followed by this court in Read-Rite, Deiro and Klicker, would be an improper intrusion upon the law-making powers of either Congress or the states. Although settings in which federal common law is applied are “few and restricted,” the Supreme Court has held that the application of federal common law is appropriate where there is a “significant conflict between some federal policy or interest and the use of state law.” O'Melveny & Myers v. FDIC, 512 U.S. 79, 87, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994) (internal quotation marks omitted). Further, the Court “require[s] the existence of such a conflict as a precondition for recognition of a federal rule of decision.” Id. Finally, federal common law must be “[t]ethered to a genuinely identifiable (as opposed to judicially constructed) federal policy.” Id. at 89, 114 S.Ct. 2048. The ADA’s preemption clause is unmistakable evidence of a “significant conflict” between a federal policy and the use of state law. See Sam L. Majors Jewelers, 117 F.3d at 929 n. 14 (“[B]y enacting the ADA’s preemption clause ... *927Congress has placed a statutory imprimatur upon federal common law in the limited circumstance of this case.”). The ADA’s savings provision, 49 U.S.C. § 40120(c), preserving common law remedies, is further evidence that an application of established federal common law to this case would be “[tjethered to a genuinely identifiable (as opposed to judicially constructed) federal policy.” O’Melveny & Myers, 512 U.S. at 89, 114 S.Ct. 2048. Finally, we have already specifically held in this circuit that federal common law applies to the carriage contract of an air carrier, noting that the “deregulation of air carriers in 1978 did not change the applicability or substantive content of the relevant federal common law.” Deiro, 816 F.2d at 1365; see also Read-Rite, 186 F.3d 1190.
Thus, if this case had arisen outside the Warsaw Convention, there is no question that this circuit and all others that have considered the question would look to federal common law to determine whether the limited liability provision in the contract is enforceable. On that issue, federal common law is, in the words of Zicherman, “the law that would govern in the absence of the Warsaw Convention.” 516 U.S. at 229, 116 S.Ct. 629.
The majority believes that its approach is supported by the Second Circuit’s decision in Brink’s Ltd. v. South African Airways, 93 F.3d 1022, 1028 (2d Cir.1996), but Brink’s is inapposite. Brink’s applied a New York choice-of-law rule in a case where “wilful misconduct” by the carrier had been alleged and a pass-through to domestic law was required. That choice-of-law rule directed the court to apply South African substantive law. Id. at 1031 (“Under any analysis, the Republic of South Africa clearly is the center of gravity of this dispute, and has the greatest interest in having its law applied to this controversy.” (citation omitted)). If there had been a federal common law of choice of law, the Second Circuit in Brink’s should have looked to that law. But despite the hopes of many conflicts scholars, there is no federal common law of choice of law.2 Instead, we have in the United States an essentially chaotic system in which a multitude of different choice of law systems are employed by different states.3 Only one circuit has found a federal common law of choice of law in Warsaw Convention cases, and I view that decision as of questionable validity in light of Zicherman. See Bickel v. Korean Air Lines Co., 83 F.3d 127, 130 (6th Cir.1996) (holding that the Warsaw Convention “embodies a concrete federal policy of uniformity and certainty which would be undermined by the use of state choice of law rules” (citation omitted)). But whether Bickel is right or not, it is clear that the Second Circuit in Brink’s did not follow a federal common law of choice of law or even consider whether there was such a law. Rather, it simply followed the only law it believed available, the New York state choice-of-law rule, which directed it to the substantive law of South Africa.
The majority cannot apply California law in this case without violating the Supreme Court’s instruction in Zicherman. The majority has failed to confront the fact that federal common law has been used, in both federal and state courts, to determine the validity of limitation of liability clauses *928for close to eighty years, and that this court has applied the very rule of federal common law at issue in this case in Read-Rite, Deiro and Klicker. This federal common law rule is clearly the law that “would govern in the absence of 'the Warsaw Convention,” Zicherman, 516 U.S. at 229, 116 S.Ct. 629, and it should be followed here.
Ill
The established federal common law of this circuit is that theft of cargo by an employee of the common carrier will invalidate a contractual limitation of liability only if the theft was for the carrier’s own use or gain. In Glickfeld, 213 F.2d at 724 (9th Cir.1954), plaintiff Glickfeld, like plaintiff Zomaya in this case, alleged that an employee of the carrier had stolen part of his shipment. The district court, however, found that the goods had not been converted by the carrier, and granted summary judgment for the amount stipulated in the carriage contract. Id. Glickfeld appealed, arguing that conversion by an employee or even a third party should be imputed to the carrier. Id. at 727. This court upheld limited liability, saying,
[Tjhe cases are uniform in holding that the conversion doctrine is pertinent only when there has been a true conversion, i.e., where the carrier has appropriated the property for its own use or gain. The carrier may properly limit its liability where the conversion is by third parties or even by its own employees.

Id.

In Deiro, we relied on our decision in Glickfeld to hold that “[ujnder the federal common law only an appropriation of property by the carrier for its own use will vitiate limits on liability,” and that “if a liability limitation is valid ... recovery for damage cannot exceed the released value regardless of the degree of the carrier’s negligence.” Deiro, 816 F.2d at 1366. Other circuits agree. In a case surveying the law of several circuits before and after airline deregulation, then-Chief Judge Breyer of the First Circuit relied upon Deiro and wrote that “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.” Hill, 996 F.2d at 1317, 1319-20 (1st Cir.1993). Chief Judge Breyer noted that Glickfeld might be an exception to this rule, since Glickfeld suggests that “the willful nature of misconduct might make a difference,” such as the carrier stealing cargo for its own benefit. Id. at 1320.
The rule laid down in Glickfeld and Dei-ro is “the law that would govern in the absence of the Warsaw Convention.” Zicherman, 516 U.S. at 229, 116 S.Ct. 629. Because there is no allegation that FedEx misappropriated the plaintiffs property for its own use, the theft of cargo by FedEx employees is insufficient to “vitiate limits on liability” contained in the contract. Deiro, 816 F.2d at 1366.
IV
This is an important case because of the majority’s rationale for the result. For virtually all of this century, California has been forbidden from regulating the liability of interstate common carriers for lost or damaged cargo. In particular, air carriers have been regulated (and later deregulated) by federal statutes, and the validity of limited liability provisions of their contracts has been determined under federal common law. But under the majority’s rationale, the California legislature, prompted by shippers or insurers, is now free to mandate full liability for theft of international shipments by employees of air carriers, irrespective of any contractual provision to the contrary. At the same time, however, because of federal common law and statutory preemption, California is forbidden to apply such a rule to domestic interstate shipments. The majority’s rationale is probably wrong as a matter of policy. More important, and for our pur*929poses controlling, it is wrong as a matter of law.

. The FAA saving clause was re-enacted in 1994 and simply stated that "remedies provided by law” are preserved, but this change was not intended to have any substantive effect. 49 U.S.C. § 40120(c).

. See, e.g., Donald T. Trautman, Toward Federalizing Choice of Law, 70 Tex. L.Rev. 1715 (1992); Michael H. Gottesman, Draining the Dismal Swamp: The Case for Federal Choice of Law Statutes, 80 Geo. L.J. 1 (1991); Daniel C.K. Chow, Limiting Erie in a New Age of International Law: Toward a Federal Common Law of International Choice of Law, 74 Iowa L.Rev. 165 (1988); Harold W. Horowitz, Toward a Federal Common Law of Choice of Law, 14 U.C.L.A. L.Rev. 1191 (1967).

. Herma Hill Kay, Theory into Practice: Choice of Law in the Courts, 34 Mercer L.Rev. 521, 585 (1983) (finding that among the fifty states the following analytically identifiable choice of law tests are applied singly or in combination; “center of gravity,” "governmental interest,” "comparative impairment," "most significant relationship,” "better law,” "principles of preference,” "functional,” "lex fori,” and "traditional vested rights”).