The opinion of the court was delivered by: Patel, Chief U.S. District Judge.
This action follows the loss of international cargo owned by Seagate
Technology LLC in San Francisco in November 1998. Now before the court is
China Eastern Airlines' motion for partial summary judgment against
Dalian China Express International Corporation, Ltd. ("China Express"),
U-Freight America, Inc. ("U-Freight") and Gateway Cargo Services America
("Gateway"). Having considered the parties' arguments and submissions,
and for the reasons set forth below, the court enters the following
memorandum and order.
This case arises out of a shipment of disc drives transmitted by air on
November 11, 1998, from Shanghai, China to San Francisco on China Eastern
Airlines ("China Eastern"). Air shipment was arranged by China Express
and U-Freight, freight-forwarding companies.*fn1 Two different air
waybills were issued in relation to the shipment. The first is China
Express's air waybill number USH-00450778. The second, and the one at
issue here, is China Eastern's air waybill number 781 1178 0941. See
Declaration of Marc Wang, Exh. E ¶ 3. The China Eastern waybill lists
China Express as the shipper and U-Freight as the consignee. Joint
Statement of Undisputed Facts ("JS") ¶ 5; JS, Exh. B. According to
the air waybill, the original weight of the cargo was 2,850 kilograms.
Wang Dec., Exh. E ¶ 3.
The back of the China Eastern waybill lists the "Conditions of
Carriage." Among them is the following provision:
JS, Exh. C
The Shanghai branch of China Express/U-Freight did not
declare a value for the consignment. China Express is listed as China
Eastern's agent on the waybill. China Eastern provides blank air waybills
to China Express and U-Freight and allows China Express and U-Freight to
issue them. JS ¶ 9.
According to Seagate, when the cargo arrived at San Francisco
International Airport, China Eastern released it to its ground-handling
agent, Gateway. Gateway took the cargo to its warehouse to await its
release to Seagate. See Declaration of Mark T. McClenning, Exh. B ¶
4. Gateway's warehouse is located in South San Francisco, near but not on
the grounds of the airport. Before the cargo's rightful owners could
claim it, it was released to an unknown party who presented a false
warehouse receipt. See JS ¶ 3;*fn3 Wang Dec., Exh. G ¶ 8;
McClenning Dec., Exh. D ¶ 6. Since the incident, 679 units of the
cargo have been recovered by police. McClenning Dec., Exh. C.
In September 1999, Seagate brought suit against China Express,
U-Freight, Gateway and Does One through Ten to recover the value of its
lost cargo. On November 12, 1999, U-Freight and China Express filed a
third-party complaint against China Eastern for damages and equitable
indemnity and contribution, demanding attorneys' fees and costs incurred
in defending against Seagate's complaint and reimbursement for any
judgment or settlement they are forced to pay. China Express and
U-Freight cross-claimed against Gateway and Does One through Ten for
damages and equitable indemnity for breaching the duty of care.
After answering the complaint, Gateway lodged a cross-claim against
China Eastern for contractual indemnity and declaratory relief in which
it claimed that China Eastern is required to defend and indemnify Gateway
for the losses alleged by Seagate. Gateway claims that China Eastern, by
refusing to indemnify it, has effectively breached the ground-handling
agreement, causing Gateway to incur legal costs associated with its own
defense. Gateway demands indemnity for any judgments against it by
Seagate, U-Freight or China Express, as well as declaratory judgment that
it is entitled to be indemnified for fees and legal costs incurred.
On November 27, 2000, China Eastern counter-claimed against Gateway
alleging that Gateway intentionally or recklessly caused the loss in
question, and that in defending this action, China Eastern has incurred
legal costs. China Eastern also seeks a declaratory judgment that Gateway
is not entitled to indemnity from China Eastern for the damages in
Gateway's complaint or for legal costs incurred in Gateway's defense of
On January 22, 2001, China Eastern moved for partial summary judgment
against China Express, U-Freight and Gateway. China Eastern seeks
declaratory judgment that the liability limits found in the waybill's
Conditions of Contract are enforceable against China Express, U-Freight,
and Gateway, and that under these terms, its liability is limited to $20
per kilogram, or $48,360.
Under Federal Rule of Civil Procedure 56, summary judgment shall be
granted "against a party who fails to make a showing sufficient to
establish the existence of an element essential to that party's case, and
on which that party will bear the burden of proof at trial . . . since a
failure of proof concerning an essential element of the nonmoving party's
case necessarily renders all other facts immaterial." Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see
also T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626,
630 (9th Cir. 1987).
The moving party bears the initial burden of identifying those portions
of the record which demonstrate the absence of a genuine issue of
material fact. The burden then shifts to the nonmoving party to "go
beyond the pleadings, and by [its] own affidavits, or by the
`depositions, answers to interrogatories, or admissions on file,'
designate `specific facts showing that there is a genuine issue for
trial.'" Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (citations omitted);
see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct.
2505, 91 L.Ed.2d 202 (1986) (holding a dispute about a material fact is
genuine "if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party"). The moving party discharges its burden
by showing that the nonmoving party has not disclosed the existence of
any "significant probative evidence tending to support the complaint."
First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 290, 88 S.Ct. 1575,
20 L.Ed.2d 569 (1968).
I. Governing Law
A. Warsaw Convention
The Warsaw Convention is an international treaty governing the
international shipment of goods by air. See 49 U.S.C. § 40105, note.
Under Article 18 of the Convention, a carrier is liable for damage or
loss of any goods "if the occurrence which caused the damage so sustained
took place during the transportation by air." Id. at art. 18(1). Air
transportation is defined under the Convention as "the period during
which the baggage or goods are in charge of the carrier, whether in an
airport or on board an aircraft, or in the case of a landing outside an
airport, in any place whatsoever." Id. at art. 18(2). This definition is
limited, however, by Article 18(3), which states:
The period of transportation by air shall not extend
to any transportation by land, by sea or by river
performed outside an airport. If, however, such
transportation takes place in the performance of a
contract for transportation by air, for the purpose of
loading, delivery or transshipment, any damage is
presumed, subject to proof to the contrary, to have
been the result of an event which too place during the
transportation by air.
Id. at art. 18(3). The presumption that the damage occurred during air
transportation can be rebutted with proof that the loss or damage
occurred off airport premises. See Read-Rite Corp. v. Burlington Air
, 1194 (9th Cir. 1999) (holding damage that
occurred at a ground handling facility near, but not on the grounds of,
airport was not covered by the Warsaw Convention); see also Victoria
Sales Corp. v. Emery Air Freight, Inc.,
, 707 (2d Cir. 1990)
("The plain language of Article 18 draws the line at the airport's
Seagate contends that when it went to collect its cargo from
Gateway's warehouse, the cargo could not be found. This amounts to a
claim that the shipment was lost while it was in Gateway's control. There
is no dispute that Gateway's warehouse is located outside the boundaries
of SFO, and Seagate has not alleged that the loss occurred while the
cargo was in transit or being handled on airport premises. Therefore, the
Warsaw Convention does not apply.
B. Federal Common Law
Determining the content of federal common law is yet another
matter. See 19 Charles A. Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice and Procedure, § 4518 (discussing the inquiry
federal courts must make in determining the content of federal common
law). When determining federal common law, a court may look to many
different sources, including "pre-Erie Railroad v. Tompkins principles of
`federal general common law,' generally recognized common-law principles
of the subject-matter area involved in the case, considerations of what
rule is best designed to implement the underlying federal policy or
statute involved in the litigation, general considerations of equity
jurisprudence or notions of systemic or party convenience, analogous
federal statutes, and the content of the forum state's law." Id.
The Supreme Court has held that there is a general presumption in
favor of applying state law principles in federal court actions, which
holds particularly true "in areas in which private parties have entered
legal relationships with the expectation that their rights and
obligations would be governed by state-law standards." Kamen v. Kemper
Financial Servs., Inc., 500 U.S. 90, 98, 111 S.Ct. 1711, 114 L.Ed.2d 152
(1991) (noting that corporations law is an example of an area of law that
parties expect to be governed by state-law standards). In this case, the
parties have chosen to bring suit in a federal court in the Northern
District of California. Seagate appears to have significant contacts with
this area, as does Gateway. Neither China Express nor U-Freight has
raised any choice-of-law issues. The court assumes that the parties
expected, when they entered into the agreements at issue, that California
law would govern any disputes arising therefrom. Accordingly, with
deference to the parties' expectations and in the interests of
federalism, this court may reasonably apply California contract
principles to this action.
California courts rely heavily on the Restatement. See
Brinderson-Newberg Joint Venture v. Pacific Erectors, Inc., 971 F.2d 272,
277 (9th Cir. 1992), cert. denied, 507 U.S. 914, 113 S.Ct. 1267, 122
L.Ed.2d 663 (1993). Thus, the court will supplement its application of
state law with reference to relevant state and federal court
interpretations of the Restatement. The Restatement (Second) of Contracts
is equally helpful in that it represents "generally-recognized common-law
principles of the subject-matter area involved in the case," another basis
for discerning the substance of federal common law. See 19 Wright, Miller
& Cooper § 4518.