Second Circuit enforces cargo waybill’s liability limitation clause

Eli Lilly Do Brasil, Ltda v. Federal Express Corp. (2d Cir. N.Y. Sept. 11, 2007).  While in FedEx’s custody in Brazil, the shipper’s cargo was stolen.  The cargo was worth about $800,000, but FedEx’s waybill limited the carrier’s liability for stolen goods to $20 per kilogram, or about $28,000 if the limitation applied.  The shipper had declined to exercise its option to declare a higher value for the cargo and pay for additional coverage.

The shipper, a Brazilian company, sued FedEx in the Southern District of New York and the parties filed cross-motions for partial summary judgment.  FedEx contended that the waybill limited its liability, while the shipper contended that Brazilian law applied.  According to the shipper, the waybill’s liability limitation would be unenforceable under Brazilian law if it could prove that FedEx had acted with gross negligence.

The Second Circuit affirmed the trial court’s ruling in FedEx’s favor.  Like the trial court, the Second Circuit performed a choice of law analysis to determine whether U.S. federal common law or Brazilian law applied.  The court recognized that Brazil had significant contacts with the parties and the contract but held that such contacts were trumped by U.S. federal common law, which would apply the contract as written, thereby protecting “the parties’ justified expectations” that their “freely undertaken contractual obligations” would be enforced.  In making this ruling, the court was influenced by the facts that both parties were “sophisticated commercial entities” and that the shipper had passed on its option to declare a higher value for the cargo.

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