Court relies on Montreal Convention’s “act of public authority” liability exclusion in cargo spoilage case

Best Value Kosher Foods, Inc. v. American Airlines, Inc. (E.D.N.Y. Dec. 12, 2016).  Best Value arranged for cheese it had purchased in France to be shipped by American from Paris to New York.  The day after the cargo arrived at American’s JFK cargo terminal, American stored it in a cooler and notified Best Value’s agent of its arrival.  The agent did not pick up the cargo until six days later.  Best Value alleged that its agent was unable to arrange an earlier pickup because the cargo had been put “on hold” by the U.S. Food and Drug Administration and U.S. Customs and Border Protection while the agencies conducted inspections.  When the cheese was finally picked up, it was warm and rancid, according to Best Value.

Best Value sued American in state court, alleging in its complaint that, per instructions on the air waybill, American had a duty to properly refrigerate the cargo upon its arrival at JFK but had failed to do so.  Best Value alleged a single count, for negligence, and sought damages of $19,800.

American removed the case to federal court.  After discovery, American moved for summary judgment on the grounds that (i) Best Value had failed to meet its burden of proving that the cargo was in good condition when it was delivered to American in France, and (ii) it had disclaimed in the air waybill and conditions of carriage any duty to refrigerate the cargo.  In opposition, Best Value contended that (i) notations on the air waybill imposed a duty on American to properly refrigerate the cargo, and (ii) because American had placed the cargo in a cooler, it had assumed a duty to refrigerate it properly.

The court held that American was entitled to summary judgment for three separate reasons.  First, the court held that the evidence submitted by Best Value failed to prove that the cargo had been delivered to American in good condition.

Second, the court held that American was exempt from liability under Article 18(2) of the Montreal Convention, which provides in part that a carrier is not liable for cargo destruction, loss or damage due to “an act of public authority carried out in connection with the entry, exit or transit of the cargo.”  The court ruled – in what it described as a ruling of first impression – that FDA and CBP inspections constitute “acts of public authority carried out in connection with the entry, exit or transit of the cargo” within the meaning of Article 18(2).  The court held that the damage to the cargo “falls squarely” within the “act of public authority” liability exclusion and that, even if American had “some duty” to keep the cargo refrigerated at a certain temperature, it was only obligated to use “reasonable care” to perform that duty and that six days was “too long to have expected American to keep the cheese at a low temperature.”

Third, the court held that Best Value had failed to meet its burden of proof as to damages because it had failed to submit sufficient evidence to prove the amount it had paid for the cargo, the cargo’s retail value or the company’s lost profits.

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