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MASCHINENFABRIK KERN, A.G. v. NORTHWEST AIRLINES

April 5, 1983

MASCHINENFABRIK KERN, A.G., PLAINTIFF,
v.
NORTHWEST AIRLINES, INC. AND J.E. BERNARD & CO., INC., DEFENDANTS.



The opinion of the court was delivered by: William T. Hart, District Judge.

MEMORANDUM OPINION AND ORDER

The plaintiff Maschinenfabrik Kern, A.G. ("Kern") filed this action against defendants Northwest Airlines, Inc. ("Northwest") and J.E. Bernard & Co. ("Bernard") in the United States District Court for the Northern District of Illinois. Kern seeks contract damages in the amount of $74,171.00 for injury to its duplicating machines during air shipment from the United States to Switzerland. The fact and extent of damage on delivery is undisputed. Bernard and Northwest, however, disclaim any liability for the damage. Northwest's disclaimer is made under the notice provision of the Warsaw Convention. 49 U.S.C. § 1502 note, Art. 26.*fn1 In the event it is found liable, Northwest also seeks a limitation of liability under Article 22 of the Convention. Bernard and Northwest cross claim against each other seeking indemnification and Bernard has filed a third party complaint against Cheshire, Co. ("Cheshire"). Subject matter jurisdiction is predicated on 28 U.S.C. § 1332(a)(2)*fn2 and 28 U.S.C. § 1337.*fn3 Venue in this district is proper.

Presently before the Court is Northwest's motion for summary judgment. For the reasons given below, Northwest's motion is denied. Summary judgment is granted in favor of Kern on the issue of liability as against Northwest. The Court finds that the only proper way to limit liability in accordance with the policy of the Warsaw convention is at $9.07 per pound of damaged goods, by reference to the last official price of gold. Nonetheless, Northwest's motion for partial summary judgment on the issue of liability limitation is denied. Kern's charge that Northwest's conduct is wilful and an exception to the liability limitation is inappropriately decided by summary disposition. Whether Bernard or Cheshire are liable to Kern, or whether any of the parties must indemnify one another, remains to be resolved.

Facts

Kern is a business entity organized under the laws of Switzerland and is a citizen of a foreign state. Northwest, a Minnesota corporation with its principal place of business in Minnesota, is a common carrier by air. Bernard, a New York corporation, with its principal place of business in Illinois, is a forwarder of freight over land. Cheshire, a subsidiary of Xerox Corporation, has its principal place of business in Mundelein, Illinois.*fn4

The damaged duplicating machines, valued at $74,171.00, are Kern's property. Kern had loaned them to Cheshire to test their suitability for possible introduction into the United States market. Pursuant to the agreement between Kern and Cheshire, Cheshire was responsible for arranging to ship the machines back to Kern in Switzerland.

On or about January 29, 1979, Bernard received Kern's duplicating machines from Cheshire for shipping to Kern in Switzerland. On or about February 9, 1979, Bernard transferred the machines to Northwest, the carrier engaged to airship the machines to Kern. Northwest, however, was only one carrier in a chain of air carriers involved in the shipment of the machines. When the duplicating machines left O'Hare Airport in Chicago, Illinois, they travelled first via Northwest (the origin carrier), then on British Airways and finally on Swiss Air (the destination carrier). Neither Swiss Air nor British Air are named parties in this suit.

When the machines arrived in Switzerland, agents of Swiss Air noted damage to them and prepared a "cargo damage report." A cargo damage report is a preprinted form designed to document any damage or loss sustained by goods during transportation. In addition to providing a place for general information, e.g., the airway bill number and last point of loading, a place is provided in which to indicate damage observed. In the instant case, the cargo damage report indicates that the duplicating machines were "broken," that the container in which the machines were crated also was "broken" and that the crates had no inner packing material. The report further recites that the damage was discovered during "an inbound check and customs clearance," although it does not indicate the country in which the machines were located when the damage was discovered.

On February 9, 1981, Kern sued Northwest and Bernard claiming damages in the amount of $74,171.00 plus costs. Since the machines' aggregate value is $74,171.00, the damage claimed is equivalent to total destruction of the machines.*fn5 In count I of its two-count complaint, Kern alleges that Northwest failed to deliver the duplicating machines in the same good condition as the machines allegedly were in when received by Northwest from Bernard. Alternatively, count II alleges that Bernard failed to deliver the duplicating machines to Northwest in the same good condition as the machines allegedly were in when received by Bernard from Cheshire.

Apparently, none of the defendants dispute the nature and extent of the damage to the duplicating machines. Northwest, however, denies all liability and raises two affirmative defenses. First, Northwest claims that it is not liable for any damage to the duplicating machines because Kern did not notify Northwest of such damage within the seven day time period for notification required under Article 26 of the Warsaw Convention. Second, Northwest says that even if Northwest is liable for injury to the machines, its liability is limited under Article 22 of the Warsaw Convention to $9.07 per pound. That ceiling on liability would greatly diminish any recovery by Kern from Northwest.

Northwest and Bernard cross claim against each other. Northwest says that although Bernard delivered the machines to Northwest with an unremarkable airway bill, the airway bill prepared by Bernard falsely portrayed the condition of the machines. Rather Northwest admits that a panel of one machine was loose, that its legs had broken through the skids and that the machines were wrapped only in plastic and set on wooden skids. Northwest claims it told Bernard of the poor packaging and refused to accept the machines for shipment. Allegedly at Bernard's persistence, Northwest reexamined the packaging, recanted and shipped the machines. Northwest says that it marked the airway bill with an "exception" to indicate that the machines were defectively packed on receipt from Bernard.

Bernard also disclaims liability to Kern. Additionally, its crossclaim against Northwest states that it delivered the machines to Northwest in good order, as proved by the "clean" airway bill which accompanied the machines to Northwest's terminal. It is Bernard's position that the exception noted on the airway bill was added by Northwest to reflect an after-delivery injury to the machines. Bernard also filed a third party complaint against Cheshire. That complaint alleges that if the machines were delivered by Bernard to Northwest in damaged condition, the cause was some action or inaction by Cheshire in packing because Cheshire prepared the machines for shipment.

Discussion

I. Notice Provision of Warsaw Convention: Article 26

Northwest's motion for summary judgment is based on Kern's alleged failure to notify Northwest of the damage to the duplicating machines within the time specified by the Warsaw Convention. Article 26 of the Convention requires that notice of damage to goods must be made in writing to the carrier within seven days of the date of receipt of goods. Written notice is given either by writing upon a document of transportation or by a separate written notice. 49 U.S.C. § 1502 note Art. 26. Article 26(4) further provides that failure to comply with the written notice requirement shall prevent any action against the carrier for damage to goods transported by the carrier, absent fraud by the carrier. Since Northwest claims that it first received written notice of the damage several weeks later, Northwest says that Article 26(4) precludes any recovery by Kern from Northwest.

To the contrary, Kern argues that the Warsaw Convention only requires written notice to any one carrier among successive carriers so long as the transportation performed is considered a single transportation. 49 U.S.C. ยง 1502 note, Art. 1(3). Under this view, it is irrelevant that Northwest may not have received notice within seven days because Swiss Air, a successive carrier on a single trip, had timely notice. Kern submits that notice to Swiss Air is demonstrated by the cargo damage report ...


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