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MAGNUS ELECTRONICS, v. ROYAL BANK OF CANADA

United States District Court, Northern District of Illinois, E.D


April 8, 1985

MAGNUS ELECTRONICS, INC., PLAINTIFF,
v.
ROYAL BANK OF CANADA AND AEROLINEAS ARGENTINAS, DEFENDANTS.

The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Magnus Electronics, Inc. ("Magnus") has filed a multi-count First Amended Complaint (the "Complaint") against Aerolineas Argentinas ("Aerolineas") and the Royal Bank of Canada ("Bank") to recover the unpaid portion of the purchase price of two shipments of electronics equipment that, Magnus says, were delivered to the buyer in Argentina in breach of Aerolineas' and Bank's obligations to Magnus. Bank has in turn filed a First Amended Cross-claim (the "Cross-claim") against Aerolineas for indemnity or contribution, asserting the loss was attributable to Aerolineas' wrongful conduct.

Aerolineas now has moved under Fed.R. Civ.P. ("Rule") 12(b)(6) to dismiss both the Complaint and the Cross-claim because (1) Aerolineas' liability is governed by the terms of the Warsaw Convention (the "Convention," 49 Stat. 3000 TS 876, reprinted following 49 U.S.C.A. § 1502) and (2) the claims against Aerolineas are barred by the Convention's two-year limitations period. For the reasons stated in this memorandum opinion and order, Aerolineas' motion is granted.

Facts*fn1

In October 1981 Magnus contracted to sell three of its "Magnasync" generators to buyer Alfredo Di Lullo ("Di Lullo")*fn2 in Buenos Aires. Magnus engaged a freight forwarder to arrange for shipment to Di Lullo, and the freight forwarder then engaged Aerolineas to transport the generators from Miami to Buenos Aires. According to the Aerolineas air waybill the generators were to be delivered to Bank (as consignee) in Buenos Aires, with notice to Di Lullo of their arrival. Under the terms of its arrangement with Magnus, Bank was to hold the generators pending Di Lullo's payment of the full purchase price to Bank (for Magnus' account). Only upon payment in full was Di Lullo to take delivery of the goods.

Despite those arrangements, either Aerolineas or Bank (or perhaps the two together in some fashion) permitted delivery of the generators to Di Lullo without Bank's (and hence Magnus') receiving payment. Magnus has yet to collect any portion of the $68,946 purchase price.

In early March 1982 Magnus entered into a second transaction with Di Lullo, this time involving a shipment of transceivers. Again Aerolineas was engaged to carry the goods from Miami to Buenos Aires, where Bank was to take delivery as consignee pending payment in full of the $30,831 purchase price. On March 18 Di Lullo telephoned Magnus and said it had received the transceivers in good condition and would shortly tender payment — this despite the fact Di Lullo was not to get delivery before having paid the purchase price. To date Di Lullo has paid $30,000 on the 1982 shipment, leaving an outstanding balance of $831. Again Magnus claims the loss is attributable to either Aerolineas or Bank or both.

Warsaw Convention

"[A]ll international transportation of persons, baggage, or goods performed by aircraft for hire" (Convention Art. 1(1)) is governed by the Convention, a uniform set of rules drafted at international meetings held in Paris in 1925 and Warsaw in 1929. "International transportation" is defined in relevant part to include (Art. 1(2)):

  any transportation in which, according to the
  contract made by the parties, the place of
  departure and the place of destination, whether
  or not there be a break in the transportation or
  transshipment, are situated . . . within the
  territories of two High Contracting
  Parties. . . .

Both the United States and Argentina are High Contracting Parties to the Convention.

Probably the most frequently invoked provisions of the Convention, in litigation terms, are those limiting the liability of air carriers for loss or damage to passengers or property in the course of air transportation. However, the focus of the present dispute is the limitations period under Convention Art. 29:

  (1) The right to damages shall be extinguished if
  an action is not brought within 2 years, reckoned
  from the date of arrival at the destination, or
  from the date on which the aircraft ought to have
  arrived, or from the date on which the
  transportation stopped.

  (2) The method of calculating the period shall be
  determined by the law of the court to which the
  case is submitted.

Aerolineas claims that provision bars the claims of both Magnus and Bank. They respond with several arguments in an effort to avoid dismissal:

    1. Based upon the facts as set out in Magnus'
  Complaint, it is not clear the

  loss occurred "during transportation by air," in
  which event the Convention and its two-year
  limitations period would be inapplicable to
  Magnus' claim.

    2. Bank's cross-claim is not subject to the
  Convention in any event.

    3. Even if the Convention does apply to the
  claims, the Complaint's allegations leave open
  the possibility the limitations period has not
  run, at least as to the 1981 shipment.

    4. Magnus' allegations of fraud on Aerolineas'
  part either render the two-year limitations
  period inapplicable or toll it on a fraudulent
  concealment theory.

    5. Because Aerolineas is alleged to have
  engaged in "wilful misconduct," Convention Art.
  25 says Aerolineas cannot avail itself of the
  two-year limitations period.

This opinion will deal successively with those contentions.

1. Applicability of the Convention to Both Claims

Article 18 defines the scope of a carrier's liability under the Convention:

  (1) The carrier shall be liable for damages
  sustained in the event of the destruction or loss
  of, or damage to, any checked baggage or any
  goods, if the occurrence which caused the damage
  so sustained took place during the transportation
  by air.

  (2) The transportation by air within the meaning
  of the preceding paragraph shall comprise 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.

  (3) The period of the 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 took place during the
  transportation by air.

Article 24(1) then provides that in cases covered by Article 18:

  any action for damages, however founded, can only
  be brought subject to the limits and conditions
  set out in this convention.

Magnus and Bank argue that, on the basis of the facts alleged in the Complaint, it is not clear the improper delivery of the goods to Di Lullo occurred "during the transportation by air."

That notion is simply untenable. Magnus' contract with Aerolineas specifically required delivery of the goods shipped to Bank as Magnus' consignee. As Complaint ¶ 5 puts it:

  AA undertook . . . to deliver the goods to and
  only to the named consignee, RBC, upon the
  latter's proper identification or instructions at
  destination.

For presumptive liability purposes, Article 18(3)'s terms expressly embrace an air carrier's contractual undertaking for land delivery within "transportation by air" — a term of art. Here Aerolineas' contract necessarily called for such "transportation by air" (though non-air transportation in common parlance) by Magnus once the goods arrived at their city of destination.*fn3

True enough, if the claimed damages take place during any such non-air leg of the carriage, Article 18(3) leaves open to the carrier the possibility of escaping absolute liability under Article 18(1) by proof that someone else was responsible. But that does not limit the defined scope of "transportation by air." So long as the goods remain in the air carrier's actual or constructive possession pursuant to the terms of the carriage contract, the period of "transportation by air" does not end. If Aerolineas had put the Magnus shipments on (say) a truck and transported them from the airport in Buenos Aires to another location where Di Lullo took possession, neither Magnus nor Aerolineas would have any basis for claiming "transportation by air" had ceased. Accordingly Article 24(1) makes Magnus' action for damages subject to the terms of the Convention, including the Article 29(1) limitations period.

Even if the Convention is thus plainly applicable to Magnus' claim, Bank urges it should not be construed to apply to the Cross-claim. Pointing to language dealing with rights to damages under the Convention, Bank Mem. 8 argues:

  This phrasing, like the language in other
  pertinent Convention provisions, plainly provides
  rights to, and imposes corresponding burdens
  upon, only the plaintiff shipper.

Aerolineas correctly responds that argument reflects only a partial reading of the Convention. As consignee for both the 1981 and 1982 shipments, Bank is a direct beneficiary of the Convention. Article 13 provides in relevant part:

  (1) [T]he consignee shall be entitled, on arrival
  of the goods at the place of destination, to
  require the carrier to hand over to him the air
  waybill and to deliver the goods to him. . . .

  (3) If the carrier admits the loss of the goods,
  or if the goods have not arrived at the
  expiration of seven days after the date on which
  they ought to have arrived, the consignee shall
  be entitled to put into force against the carrier
  the rights which flow from the contract of
  transportation.

And Article 14 says the consignee may enforce his rights under Article 13 in his own name:

  whether he is acting in his own interest or in
  the interest of another, provided that he carries
  out the obligations imposed by the contract.

Those provisions squarely gave Bank, in its own right, an action against Aerolineas under Article 18 for nondelivery or loss of the goods. Just as with Magnus' claim, Article 24(1) rendered Bank's claim subject to the two-year limitations period, whether filed as a direct action or as a cross-claim. See Husserl v. Swiss Air Transport Co., 388 F. Supp. 1238, 1244-45 (S.D.N.Y. 1975); Reiser v. Meloi World Travel Service, 18 Av.Cas. (CCH) 17,208, 17,209-10 (S.D.N.Y. 1983), both construing the "however founded" language of Article 24(1) and concluding the Convention establishes "the exclusive relief available for damages resulting from an injury sustained in international transportation" (Husserl, 388 F. Supp. at 1244).

2.  Measurement of the Limitations Period under Article
    29

Article 29(1) specifies any of three dates as the starting point for the running of the limitations period: the date of arrival at the destination, the date on which the aircraft ought to have arrived or the date on which transportation stopped. Magnus does not challenge the running of the limitations period on the 1982 shipment in those terms (Magnus Mem. 2).
*fn4 As to the 1981 shipment, however, Magnus claims there is as yet no factual basis for concluding the limitations period has run.

Complaint ¶ 6 alleges Aerolineas transported the generators to Buenos Aires "[a]t a time unknown to plaintiff." And Complaint ¶ 20 alleges the wrongful release of the generators to Di Lullo occurred "[a]t some point during November, 1981, or as late as some time in 1983." Those allegations, Magnus contends, leave open the possibility that the Article 29(1) limitations period did not begin to run until sometime after September 5, 1982, even though Aerolineas unquestionably took control of the generators October 19, 1981.

That argument, in all candor, is a phony. Even putting aside the fact Magnus' original complaint alleged the generators were shipped on October 20 and delivered to Di Lullo soon thereafter,*fn5 it is simply unreasonable to infer goods delivered to an air carrier on October 19, 1981 remained in transit until at least September 5, 1982. Indeed, despite its claims to uncertainty about when the goods were shipped, Magnus acknowledges the generators arrived in Buenos Aires in November 1981. Complaint ¶¶ 29-30. Moreover Magnus alleges it "has made numerous inquiries . . . since 1981 as to the whereabouts of its goods." Complaint ¶ 33. Plainly Magnus knew in late 1981 something had gone wrong with the shipment. At that point, surely, the limitations period began to run.

In an effort to avoid that result Magnus claims to look to the language of Article 29(1), contending the generators never "arrived at the[ir] destination" and the "transportation [never] stopped" because the goods were never delivered to the proper consignee. If that were an accurate construction of Article 29(1), limitations would never run in cases where goods are somehow lost after they arrive at the airport where the plane touches down but before delivery to the party identified in the carriage contract. Surely the dates set out in Article 29(1) are not intended as alternatives that leave plaintiffs to choose the one that most extends the limitations period. Rather they are obviously designed to provide for the different circumstances under which a claim against an air carrier might arise. Their clear import is that at the latest the limitations period begins to run once a party with enforceable rights under a carriage contract knows or has reason to know something has gone wrong with the shipment, be it misdelivery, loss or delay. See Strygler & Co. v. Pan American Airlines, Inc., 84 Civ. 2652 (JMC), slip op. at 5-6 (S.D.N.Y. Feb. 15, 1985).*fn6 On that (proper) reading of Article 29(1) and in the circumstances of this case, the only fair conclusion is that Magnus' and Bank's causes of action against Aerolineas accrued well before September 5, 1982.

3.  Allegations of Aerolineas' Fraud and Wilful
    Misconduct

According to Complaint Count VI, as to both the 1981 and 1982 shipments Aerolineas acted wilfully and fraudulently to release the shipped goods to Di Lullo before payment had been received. In addition, Complaint ¶ 33 alleges Aerolineas has fraudulently concealed its handling of the goods "and thus unreasonably delayed plaintiff in learning of their conversion." Those allegations of fraud, Magnus asserts, are sufficient to prevent application of the Article 29(1) limitations period to either shipment, or at least to toll the limitations period until such time as Magnus learned what had happened to its goods. Bank launches a related though not identical attack based on Aerolineas' alleged misconduct.

In support of those contentions, Magnus and Bank point to two different provisions of the Convention. Neither leads to the claimed destination.

Magnus notes Article 26, which requires a party entitled to delivery to give written notice of any claim it may have against the carrier:

  (1) Receipt by the person entitled to delivery of
  baggage or goods without complaint shall be
  prima facie evidence that the same have been
  delivered in good condition and in accordance with
  the document of transportation.

  (2) In case of damage, the person entitled to
  delivery must complain forthwith after discovery
  of the damage, and at the latest, within 3 days
  from the date of receipt in the case of baggage
  and 7 days from the date of receipt in the case
  of goods. In case of delay the complaint must be
  made at the latest within 14 days from the date
  on which the baggage or goods have been placed at
  his disposal.

  (4) Failing complaint within the times aforesaid,
  no action shall lie against the carrier, save in
  the case of fraud on his part.

Focusing on the phrase "save in the case of fraud on his part," Magnus Mem. 6 says:

  The Convention's exception to the time limitation
  by which notice may be given a carrier lies in
  the fundamental contractual principle that good
  faith in the carriage of goods should obtain in
  the premises, that is, that deliberate fraud and
  illegal conduct on the part of the carrier will
  not allow the carrier to avail itself of the
  two-year time limitation period.

But of course the fraud exception in Article 26(4) is applicable by its express terms only to the notice rules set out in the preceding Article 26 subsections — notice rules that come into play only after the person entitled to delivery has taken possession of the goods. Suspension of that narrow rule in case of fraud surely raises no inference that fraud will also suspend the overall limitations rule of Article 29(1). If anything the inference is precisely the opposite: Inclusion of an express fraud exception in Article 26 negates an implied-in-law fraud exception to Article 29(1).

Bank cites Article 25(1) of the Convention:

  (1) The carrier shall not be entitled to avail
  himself of the provisions of this convention
  which exclude or limit his liability, if the
  damage is caused by his wilful misconduct or by
  such default on his part as, in accordance with
  the law of the court to which the case is
  submitted, is considered to be equivalent to
  wilful misconduct.

Bank contends Article 29(1)'s limitations rule "excludes" or "limits" a carrier's liability and is thus negated in cases involving wilful or fraudulent misconduct. But Aerolineas correctly points out an unbroken line of cases says otherwise. As Stone v. Mexicana Airlines, Inc.,
610 F.2d 699, 700 (10th Cir. 1979) (per curiam) put it, citing earlier cases that had reached the same conclusion:

  We do not believe the language of Article 25 was
  intended to result in periods of limitation
  differing in accordance with the type of conduct
  giving rise to the cause of action. Airplanes
  travel through many jurisdictions and it is
  evident that a uniform period of limitations was
  determined to be desirable.

See also the extended discussion in Bergman v. Pan American World Airways, Inc., 32 A.D.2d 95, 299 N.Y.S.2d 982, 984-85 (1969), cited with approval in Stone and quoted at length (with total agreement) in Kordich v. Butler Aviation Detroit, Inc., 103 Mich. App. 566, 303 N.W.2d 238, 239-40 (1981) (per curiam). All the cases teach the "exclude or limit his liability" language was aimed at the familiar provisions of Article 22, not at Article 29(1) and its limitations provision. In light of the universal body of authority rejecting Bank's position, it must fail here as well.

Magnus' fallback argument is that Aerolineas' fraudulent concealment of its disposition of the goods tolled the limitations period until Magnus learned what had happened. That tolling has assertedly kept the claim alive. Magnus' contention is founded on Article 29(2):

  The method of calculating the period of
  limitation shall be determined by the law of the
  court to which the case is submitted.

On the strength of that provision Magnus invokes the Illinois discovery rule codified at Ill.Rev.Stat. ch. 110, ¶ 13-215:

  If a person liable to an action fraudulently
  conceals the cause of such action from the
  knowledge of the person entitled thereto, the
  action may be commenced at any time within 5
  years after the person entitled to bring the same
  discovers that he or she has such a cause of
  action, and not afterwards.

At least two independent reasons defeat Magnus' contention.

For one thing, the "legislative history" of the Convention demonstrates Article 29(2)'s reference to local law was never intended to bring into consideration the local limitation-tolling principles. On the contrary, the minutes of the Warsaw conference reflect its specific rejection of a provision that would have incorporated the tolling provisions of the forum's statute of limitations, substituting instead the complete bar of actions after two years had run. R.C. Horner and D. Legrez, Minutes of the Second International Conference on Private Aeronautical Law 110-13. Article 29(2) was designed to look to the law of the forum court only on the question "whether the plaintiff had taken the necessary measures within the two-year period to invoke that particular court's jurisdiction over the action." Kahn v. Trans World Airlines, 82 A.D.2d 696, 705, 443 N.Y.S.2d 79, 87 (1981). In this case that issue refers not to Illinois law but to the federal rules, in this instance Rule 3:

  A civil action is commenced by filing a complaint
  with the court.

See also Darghouth v. Swiss Air Transport Co., 18 Av.Cas. 18,536, 18,537.

Second, even were that not the case, the Illinois statute on which Magnus seeks to rely speaks of fraudulent concealment of the "cause of action." And the Illinois cases teach the provision does not apply where the party affected by that fraud may, with ordinary diligence, discover the claim. Zagar v. Health and Hospital Governing Commission of Cook County, 83 Ill. App.3d 894, 898, 39 Ill.Dec. 112, 115-116, 404 N.E.2d 496, 499-500 (1st Dist. 1980).

Here there is no need to speculate as to whether the alleged fraud sought to conceal the cause of action or, if so, whether Magnus could have discovered the alleged fraud. As early as 1981 Magnus knew something had gone wrong with the shipment of generators (Complaint ¶ 33). By March 18, 1982 Magnus knew the transceivers had been improperly delivered (Complaint ¶ 23). That takes the discovery rule out of the case entirely. Magnus concededly knew facts on which it could base a claim of nondelivery. It cannot be heard to claim it was unaware it had a cause of action against Aerolineas, regardless of any alleged fraud on Aerolineas' part.

Conclusion

Magnus and Bank have gone to considerable — and less than forthright — efforts to frame their allegations so as to avoid the consequences of having sat on their rights. Nevertheless, even accepting their allegations and reasonable inferences therefrom as true, it is plain they cannot prove any set of facts sufficient to establish the timeliness of their claims. Even under the liberal pleading standard of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957), recently reaffirmed in Hishon v. King & Spalding, ___ U.S. ___, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984), Aerolineas' motion must be granted as to Magnus' entire Complaint and Bank's Cross-claim.

Indeed this is not a case in which pleading over is called for. Magnus has already tried that (in a less-than-candid way). Accordingly not only the present pleadings but Magnus' and Bank's actions against Aerolineas are dismissed with prejudice. By a kind of poetic justice, that leaves Magnus and Bank to do battle only with each other.*fn7


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