Pennsylvania Insurance Company v. Federal Express Corp.

Filing 34

MEMORANDUM AND ORDER - Defendant's Motion for Partial Summary Judgment is granted. (Filing No. 25 .) Counts 1, 2, 3, and 5 of Plaintiff's complaint are dismissed. Defendants liability on Plaintiff's breach of contract claim (Count 4) is limited to $100.Ordered by Judge Susan M. Bazis. (MKR)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
PENNSYLVANIA INSURANCE COMPANY, a
New Mexico Corporation, as the Subrogee of
John Breslow and Sonia Breslow;

8:23CV274

Plaintiff,
MEMORANDUM AND ORDER
vs.
FEDERAL EXPRESS CORP., a Delaware
Corporation;
Defendant.
This matter is before the Court on Defendant Federal Express Corp.’s (“FedEx”) Motion
for Partial Summary Judgment. (Filing No. 25). A third-party paid FedEx to ship a watch to the
purchaser, Sonia Breslow (“Sonia”). Sonia had third-party insurance from Plaintiff, Pennsylvania
Insurance Company (“PIC”). PIC paid Sonia for the value of the lost watch, and then PIC, as
subrogee, brought state-law claims against Defendant in the District Court for Douglas County,
Nebraska. Defendant removed the matter to this court. (Filing No. 1.)
Defendant seeks dismissal of Plaintiff’s state law claims for negligence, unjust enrichment
and civil theft, alleging the claims are preempted by the Airline Deregulation Act. Defendant also
seeks dismissal of the conversion claim. Defendant asserts Plaintiff may proceed with a breach of
contract claim, but seeks a determination that Defendant’s liability cannot exceed $100.00.

I.

Background
A. The Shipment
A Jean Bugatti Tourbillon Chronograph Watch, Serial # 01/50 valued at $250,000.00 was

created in Geneva, Switzerland at Jacob & Co. (Filing No. 1-1.) It was sent securely by private
courier from Geneva to New York. Id. The purchaser, Sonia Breslow, planned for the watch to be
initially delivered to the Iron Horse Golf Club in Whitefish, Montana, and then shipped to her in
Scottsdale, Arizona. In doing so, Sonia would avoid sales taxes that would be imposed if the watch

was shipped directly to Arizona. (Filing No. 25-14.) The watch was intended to be a gift for her
husband, John.
The watch was sent from New York using Malca-Amit USA, LLC’s secured delivery
service. Delivery of the watch was restricted to two assistants at the Iron Horse Golf Club. The
shipment was in a yellow bag, secured at the top. It was received at Iron Horse on November 17,
2022. (Filing No. 1-1.)

Sonia directed one of the assistants to tender the watch to FedEx for

delivery to a UPS store in Scottsdale. An employee at Iron Horse repackaged one of the boxes in
the shipment and created a shipping label using the Iron Horse FedEx Account Number. FedEx
records show there was no value declared on the shipment.
FedEx accepted the shipment for delivery and the transportation cost was $127.69. (Filing
No. 25-4.) The shipment contained two boxes and the two boxes were received at the FedEx
facility in Scottsdale. FedEx security video shows that one box was pulled out of the yellow bag,
FedEx employees attempted to scan the package without success then the package moved down
the belt out of view of the camera. When Sonia opened the yellow bag that had been shipped by
Iron Horse, there was only one box inside. (Filing No. 30-3.) The watch was not inside, and it
has not been found. (Filing No. 1-1.)
Sonia made a claim against PIC under a Private Collection Insurance Policy she held with
John, and she received a check for $250,000. (Filing No. 1-1.) PIC, acting in its capacity as
subrogee to the purchasers, brought claims against FedEx for negligence (Count 1), conversion
(Count 2), Unjust Enrichment (Count 3), Breach of Contract (Count 4), and Civil Theft (Count 5)1
B. Contract of Carriage
The contract of carriage between Defendant and the shipper consisted of a Pricing
Agreement, the Terms and Conditions, and the provisions of the Service Guide incorporated by
reference into the Agreement. (Filing No. 25-4.) Iron Horse entered into the Pricing Agreement
with Defendant for shipping services on January 21, 2009 and the agreement was still in effect on
Plaintiff’s complaint identifies Civil Theft as “Count 6” but there is no Count 5 in the complaint, thus the court will
address the civil theft claim as Count 5 for the sake of clarity.
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the date of the shipment involved in this case. (Filing No. 25-4; Filing No. 25-7.) The Pricing
Agreement states: “Each shipment made with FedEx is subject to the country of origin location’s
terms and conditions of carriage and the FedEx Service Guide in effect at the time of shipment…”
(Filing No. 25-4; Filing No. 25-8.)
When labels are created, the user must click a button on the screen accepting the Terms of
Use of the FedEx website and the FedEx Service Guide. (Filing No. 25-9.) There is a link on the
screen to the Service Guide and the Terms and Conditions. (Filing No. 25-13.) The Service Guide
contains a provision stating the “declared value of any package represents our maximum liability
in connection with a shipment of that package, including, but not limited to, any loss, damage,
delay, misdelivery, nondelivery, misinformation, any failure to provide information, or misdelivery
of information relating to the shipment.” (Filing No. 25-8.) The Terms and Conditions of the
January 3, 2022 FedEx Service Guide states that with respect to “U.S. express package services,
unless a higher value is declared and paid for, our liability for each package is limited to US$100.”
(Filing No. 25-8). Shipments containing jewelry or watches are limited to a maximum declared
value of $1,000, and the maximum total value which can be declared for any package is $50,000.
(Filing No. 25-8). The Service guide states that Defendant does “NOT PROVIDE INSURANCE
COVERAGE OF ANY KIND” and “ANY EFFORT TO DECLARE A VALUE IN EXCESS OF
THE MAXIMUMS ALLOWED IN THE FEDEX SERVICE GUIDE IS NULL AND VOID.” (Id).
(emphasis in original).

II.

Standard of Review
Summary judgment under Federal Rule of Civil Procedure 56 is proper when the movant

“shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). In ruling on a motion for summary judgment,
this Court views the facts in the light most favorable to the nonmoving party, however, that is true
“only if there is a ‘genuine’ dispute as to those facts.’ ” Intel Corp. Inv. Pol'y Comm. v. Sulyma,
589 U.S. 178, 190 (2020) (quoting Scott v. Harris, 550 U.S. 372, 380 (2007)).

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To be a material fact, the fact has to be one which “may ‘affect the outcome of the suit.’ ”
Partridge v. City of Benton, 70 F.4th 489, 491 (8th Cir. 2023) (quoting Erickson v. Nationstar
Mortg., LLC, 31 F.4th 1044, 1048 (8th Cir. 2022)). “A dispute over a fact is ‘genuine’ only if ‘the
evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ ” Pitman
Farms v. Kuehl Poultry, LLC, 48 F.4th 866, 875 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986)).
III.

Analysis
Plaintiff’s Complaint alleges claims for negligence, conversion, unjust enrichment, breach

of contract, and civil theft. Defendant asserts the negligence, unjust enrichment, and civil theft
claims must be dismissed as they are preempted by the Airline Deregulation Act of 1978.
Defendant concedes the breach of contract and conversion claims may proceed under Federal
common law, with limitations, as discussed in further detail below.
A. Preempted Claims
The Airline Deregulation Act (ADA or the Act) was enacted in 1978 to promote “efficiency,
innovation, and low prices” in the airline industry. 49 U.S.C. § 40101(a)(12)(A). The Act was
enacted after “determining that maximum reliance on competitive market forces would best further
efficiency, innovation, and low prices as well as variety [and] quality...of air transportation
services.” Morales v. Trans World Airlines, Inc., 504 U.S. 374, 378 (1992) (internal quotations
omitted). To ensure that states cannot undo federal regulation, the ADA contains a preemption
clause that prohibits a state from “enact[ing] or enforc[ing] a law, regulation, or other provision
having the force and effect of law related to a price, route, or service of an air carrier.” See id.; 49
U.S.C. § 41713. The parties do not dispute that Defendant is an air carrier subject to the ADA.
The preemption clause's causation requirement is broadly construed. See Morales, 504
U.S. at 383-84; Am. Airlines, Inc. v. Wolens, 513 U.S. 219, 223 (1995) (noting that Morales defined
the predecessor to the ADA preemption clause's “related to” language as “having a connection
with, or reference to,” air carrier prices, routes, or services). That said, some claims may affect air

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carrier pricing or service in a manner “too tenuous, remote, or peripheral” for preemption to apply.
Morales, 504 U.S. at 390 (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100 n.21 (1983)).
At issue is whether Plaintiff’s common law claims are sufficiently “related to” a service of
FedEx to merit ADA preemption. The majority of circuits has held the term “service” as used in
the ADA refers to the “bargained-for or anticipated provision of labor from one party to another.”
See Headstream Technologies, LLC v. FedEx Corporation, 2023 WL 1434054 (6th Cir. 2023);
Hodges v. Delta Airlines, Inc., 44 F.3d 334, 336 (5th Cir. 1995); see Watson v. Air Methods Corp.,
870 F.3d 812, 817-18 (8th Cir. 2017); Air Transp. Ass'n of Am., Inc. v. Cuomo, 520 F.3d 218, 223
(2d Cir. 2008) (per curiam) (collecting cases).
State common law claims “fall comfortably within the language of the ADA pre-emption
provision.” Northwest, Inc. v. Ginsberg, 572 U.S. 273 281 (2014). “Stripped of rhetorical
flourishes,” state common law claims about package handling and delivery procedures “plainly
concern the contractual agreement between FedEx and the users of its services.” Tobin v. Fed.
Exp. Corp., 775 F.3d 448, 454 (1st Cir. 2014). The activity at issue here was directly related to
FedEx’s services as an air carrier i.e. the mishandling of the package containing the watch.
In its brief, Plaintiff makes no specific argument regarding the unjust enrichment claim or
the civil theft claim. Plaintiff does assert several ways in which Defendant was negligent. For
example, Plaintiff argues that FedEx typically accepts shipments in boxes, while this shipment was
sent in a secured bag or pouch containing two boxes. Thus, Plaintiff argues, FedEx should not
have accepted the package and by doing so FedEx was negligent. Plaintiff also argues that FedEx
did not properly handle or track the package. Plaintiff urges this court to find this case falls outside
of the sweep of the ADA because the “tort liability for injuries caused by outrageous conduct” goes
beyond the scope of normal aircraft operations. See Rombom v. United Airlines, Inc., 867 F.Supp.
214, 222 (S.D.N.Y. 1994).
Upon review, Rombom, and other cases involving personal injury actions against an airline
are distinguishable from the numerous cases involving claims for loss or damage to cargo. Id., Cf.
Blanco v. Fed. Express Corp., No. CIV-16-561-C, 2017 WL 3496458, at *2 (W.D. Okla. Aug. 15,
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2017), aff'd in part, 741 F. App'x 587 (10th Cir. 2018); Tobin v. Federal Express, 775 F.3d 448
(1st Cir. 2014); Cash Am. Pawn, L.P. v. Fed. Exp. Corp., 109 F. Supp. 2d 513, 524 (N.D. Tex.
2000).
Plaintiff’s state common law claims of negligence, unjust enrichment, and civil theft are
preempted by federal law. Defendant’s motion for summary judgment will be granted as to these
claims. As will be discussed in more detail below, there are certain federal common law exceptions
to ADA preemption which allow the conversion and breach of contract claims to proceed.

B. Breach of Contract
i. Breach of Contract Not Preempted by the ADA
Defendant states that Plaintiff may proceed with the breach of contract claim, i.e. that the
claim is not preempted by the ADA. See Am. Airlines v. Wolens, 513 U.S. at 228-33 (holding “the
ADA’s preemption prescription bars state-imposed regulation of air carriers, but allows room for
court enforcement of contract terms set by the parties themselves.”).
When a shipper contests the validity of a contractual clause that limits an air carrier’s
liability, federal common law is applied. Kemper Ins. Companies v. Fed. Exp. Corp, 252 F.3d 509,
512 (1st Cir. 2001) cert. denied 534 U.S. 1020 (2001). The liability of FedEx and other federally
certificated air carriers for loss attendant to goods in transit is governed exclusively by federal law.
Arkwright-Boston Mfg. v. Great Western Airlines, 767 F.2d 425 (8th Cir. 1985); Sam L. Majors
Jewelers v. ABX, Inc., 117 F.3d 922 (5th Cir. 1997); Nippon Fire & Marine Ins. Co. v. Skyway
Freight Systems, 235 F.3d 53 (2nd Cir. 2000).
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.” Id. at 232. This distinction between what the State dictates and what the airline
itself undertakes confines 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. So, while
state law claims such as negligence and civil theft are preempted by the ADA, a plaintiff can
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proceed against an air carrier with a breach of contract claim. See American Airlines, Inc. v.
Wolens, 513 U.S. 219 (1995).
ii. Released Value Doctrine
Plaintiff alleges that Defendant is liable in breach of contract for the full value of the
missing watch. Plaintiff argues there is a genuine issue of material fact as to whether Sonia had
notice of the terms of the contract of carriage and that the choice of liabilities and rates was
presented to the shipper. In short, Plaintiff argues, “The contractual claim limiting FedEx’s limits
is not enforceable.” (Filing No. 30.)
Citing the released value doctrine, it is Defendant’s position that Plaintiff is limited in
recovery to the amount provided in the contract of carriage because the shipper did not declare a
value at the time of shipping. It states that the terms of the contract of carriage placed in issue
expressly and unambiguously limit Defendant’s liability to $100.00, entitling Defendant to
summary judgment as to limited liability.
The Eighth Circuit has held that, under federal common law, “[a] common carrier may not
exempt itself from liability for its negligence; however, a carrier may limit its liability.” Hampton
by Hampton v. Fed. Exp. Corp., 917 F.2d 1119, 1121 (8th Cir. 1990), citing Hopper Furs, Inc. v.
Emery Air Freight Corp., 749 F.2d 1261, 1264 (8th Cir.1984). This body of law, which has come
to be known as the “released value doctrine” of federal common law, requires that in order to limit
its liability “the carrier must present the shipper with a reasonable opportunity to declare a value
for the shipment above the maximum value set by the carrier, pay an additional fee, and thereby
be insured at a higher rate should the shipment go awry.” Hampton by Hampton v. Fed. Exp. Corp.,
917 F.2d at 1121; See, also Kemper Ins. Companies, Inc. v. Fed. Exp. Corp., 115 F. Supp. 2d 116,
122 (D. Mass. 2000), aff'd sub nom. Kemper Ins. Companies v. Fed. Exp. Corp., 252 F.3d 509 (1st
Cir. 2001). It is not necessary that the carrier explain the option to declare a higher value to the
shipper, rather, the carrier must provide only reasonable notice of the opportunity to declare a
higher value. Husman Const. Co. v. Purolator Courier Corp, 832 F.3d 459 (8th Cir. 1987).

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“When the facts of a case satisfy the released value doctrine, courts look to the contract
language to determine the rights of the parties.” Kemper, 115 F.Supp. 2d at 123. Iron Horse’s
employee, acting upon the direction of Sonia created and attached the shipping label using
Defendant’s website. During that process, the employee was presented with the opportunity to
declare a value on the shipment in the “Package Details” section by checking a box. (Filing No.
25-4; Filing No. 25-9). There are options to purchase a higher limit of liability from FedEx, and
there is an admonition that if no value is declared the maximum liability for the shipment is set in
the Conditions of Carriage. Defendant’s records show the shipper did not declare a value for the
shipment. (Filing No. 25-4).
The final step before creating a shipping label required the shipper to click a button stating,
“By clicking ‘Finalize’, I accept the Terms of Use of the FedEx website and the FedEx Service
Guide.” There were links to the relevant documents. The shipper was operating under the pricing
agreement between Iron Horse and FedEx and confirmed receipt of the terms and conditions
contained in the Service Guide, including the ability to declare a higher value and pay a higher fee
for additional coverage. Therefore, the goals of the released value doctrine have been met and the
terms in the contract of carriage limiting liability are controlling.
Numerous courts have found that a shipper in this situation, who did not declare a value
for the shipments, are held to the limits specified in the contract of carriage on a claim for breach
of contract. See e.g. Headstream Technologies, LLC v. FedEx Corporation, 2023 WL 1434054 at
*5 (6th Cir. 2023); Golden Hawk Metallurgical, Inc. v. Fed. Express Corp., No. 15-14005, 2016
WL 5791198, at *4 (E.D. Mich. Oct. 4, 2016); N. Cypress Med. Ctr. Operating Co. Ltd v. Fedex
Corp., 892 F. Supp. 2d 861, 870 (S.D. Tex. 2012). In this case, where the shipper did not declare
a value, the liability of the Defendant to the shipper would be limited to $100. (Filing No. 25-8.)
See Headstream at * 5; Kemper Ins. Companies v. Fed. Exp. Corp., 252 F.3d 509, 512-14 (1st Cir.
2001).
There is some question as to whether the released value doctrine applies in a suit brought
by a plaintiff that is not a party to the contract of carriage. The Eighth Circuit took up this issue in
Hampton by Hampton v. Fed. Exp. Corp, where the claims were brought by third parties who were
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affected when items shipped were not delivered as anticipated. The court determined the plaintiff
failed to cite any authority in support of the position that the released value doctrine did not apply
to them. The same is true here, and the court has no reason not to apply the released value doctrine
under these circumstances.
Plaintiff argues that Defendant must meet a burden of “producing prima facie evidence
which demonstrates that it provided notice of a choice of liabilities and rates to the shipper,” and
it has not done so. (Filing No. 30). However, this argument is premised upon Defendant not
providing notice to Sonia, but she was not the shipper – Iron Horse was.
In addition Defendant asserts, correctly, that it would have no reason to know that there
was another party that would need to be consulted about the terms and conditions of the shipment.
Iron Horse, as the shipper, and Defendant were party to the contract, but Sonia was not. Sonia,
and PIC as subrogee, can only enforce the contract of carriage as a third-party beneficiary to the
contract of carriage, and “third-party beneficiaries generally have no greater rights in a contract
than does the promissee.” United Steelworkers of Am. v. Rawson, 495 U.S. 362, 375 (1990). Thus,
the limitation of liability applicable to Iron Horse applies to Sonia, and to PIC as subrogee as well.
It is worth noting that Plaintiff argues that if Sonia had the opportunity to, she “could have
had the coverage for the Bugatti Watch placed on FedEx instead of PIC.” (Filing No. 30.)
However, this argument is disingenuous. Even if Sonia was the shipper, the limits of any potential
liability under the Service Guide were well below the value of the watch, had a value been
declared. And, regardless of whether the policy was purchased before or at the time of shipping,
Sonia was clearly insured for the value of the watch and would have no reason to pay Defendant
more to ship the watch at a higher declared value. See Kemper Ins. Companies v. Fed. Exp. Corp.,
252 F.3d 509, 513 (1st Cir. 2001). (finding the fact that third-party insurance was available and
was purchased by the shipper counsels against invaliding the limitation on liability, particularly
where the plaintiff is not the shipper, but the subrogated third-party insurer of the package.).

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C. Conversion
In some cases, courts have discussed a “conversion exception” in the context of
applicability of limited liability provisions. Blanco v. Fed. Express Corp., No. CIV-16-561-C,
2017 WL 3496458, at *3 (W.D. Okla. Aug. 15, 2017), aff'd in part, 741 F. App'x 587 (10th Cir.
2018); See, e.g. Glickfield v. Howard Van Lines, Inc., 213 F.2d 723, 727-728 (9th Cir. 1954);
Kemper Ins. Companies v. Fed. Exp. Corp.., 252 F.3d 509, 512 (1st Cir. 2001). It is against public
policy to permit a carrier to limit its liability and thus to profit from its own misconduct. So, where
a carrier has intentionally converted for its own purposes the property of the shipper, traditional
true conversion claims may proceed and limitations on liability are then considered inapplicable.
However, there must be some proof that the carrier appropriated the property. See, e.g., Glickfeld,
213 F.2d at 727 (requiring proof that the carrier has appropriated the property for its own use or
gain, rather than the simple fact that the property has gone missing); Nippon Fire & Marine Ins.
Co. v. Holmes Transp. Inc., 616 F.Supp. 610 (S.D.N.Y.1985) (same). The carrier may properly
limit its liability where the conversion is by third parties or even by its own employees.” Glickfeld
v. Howard Van Lines, Inc., 213 F.2d 723, 727 (9th Cir. 1954)
The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate
time for discovery and upon motion, against a party who fails to make a sufficient showing on an
essential element of [its] case with respect to which [it] has the burden of proof. Celotex Corp v.
Catrett, 477 U.S. 317 (1986). If the movant points to the absence of evidence supporting the
nonmovant with respect to such an issue, the nonmovant, in order to avoid an adverse summary
judgment on that issue, must produce sufficient summary judgment evidence to sustain a finding
on that issue. Id; see, also, Anderson v. Liberty Lobby Inc., 477 U.S. 242 (1986). The nonmoving
party must “substantiate [its] allegations with sufficient probative evidence [that] would permit a
finding in [his] favor based on more than mere speculation, conjecture, or fantasy.” Putnam v.
Unity Health System, 348 F.3d 732 (8th Cir. 2003).
Here, Defendant asserts there is no evidence to support Plaintiff’s conversion claim.
(Filing No. 25-1.) In response, Plaintiff asserts facts showing that the shipment was opened and/or
repackaged by a FedEx employee, and that this occurred outside of the view of FedEx’s video
monitors. Plaintiff also offers Sonia’s deposition testimony speculating that the watch is “Either
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in a box or somebody’s arm.” (Filing 30-3 at p. 39). Plaintiff argues that Sonia never received the
watch, therefore there is a genuine issue of material fact as to whether Defendant appropriated the
watch for its own use or gain. However, there is no evidence presented that true conversion by
Defendant has occurred. And, there can be no genuine dispute of material fact as to this issue
because there are no facts at all indicating what actually happened to the watch.
Plaintiff argues that summary judgment is inappropriate because “FedEx has offered no
evidence nor could it because it does not know the current location of the Bugatti Watch.” (Filing
No. 30.) However, this argument actually supports Defendant’s position; if Defendant does not
know the location of the watch, there cannot be a finding that Defendant intentionally converted
the watch for its own purposes. Defendant’s motion for summary judgment will be granted as to
Plaintiff’s conversion claim.
Accordingly,
IT IS ORDERED:
1. Defendant’s Motion for Partial Summary Judgment is granted. (Filing No. 25.)
2. Counts 1, 2, 3, and 5 of Plaintiff’s complaint are dismissed.
3. Defendant’s liability on Plaintiff’s breach of contract claim (Count 4) is limited to $100.
Dated this 30th day of August, 2024.
BY THE COURT:
______________________
Susan M. Bazis
United States District Judge

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