Opinion
00 CV 1383 (ILG)
January 16, 2002
MEMORANDUM ORDER
On October 11, 2001, the Court issued a Memorandum and Order (the "MO") denying the motions of defendants Alitalia Airlines S.p.A. ("Alitalia"), Gava International Freight Consolidators (USA), Inc. ("Gava USA") and Gava International Freight Consolidators, S.p.A. ("Gava S.p.A.") for summary judgment, and granting the cross-motion of plaintiff Commercial Union Ins. Co. a/s/o Ilapak, Inc. ("Commercial Union") for summary judgment. The MO provided that a hearing would be scheduled to determine Commercial Union's damages, including prejudgment interest and costs. (See MO at 19-20.)
Gava S.p.A. and Gava USA are collectively referred to herein as the "Gava Defendants." Gava S.p.A., Gava USA and Alitalia are collectively referred to herein as the "Defendants."
Subsequent to the issuance of the MO, the Defendants consented to the entry of judgment against them in the amount of $28,000, thereby obviating the need for a hearing. (See Pl. Mem. at 1; Alitalia Mem. at 1.) The parties, however, disputed whether prejudgment interest is available in this action. The Court therefore directed the parties to submit legal memoranda on the issue. After a careful review of the submissions of the parties, it appears improper to award Commercial Union prejudgment interest, as discussed below. Commercial Union's application for an award of prejudgment interest therefore is denied.
BACKGROUND
The factual background of this dispute is set forth at length in the MO, and will not be repeated here. Simply put, this is an action by Commercial Union to recover for damage sustained to a pasta packing machine while the machine was en route from Florence, Italy to Newton. Pennsylvania. The parties previously agreed that the Warsaw Convention governed Commercial Union's claims, but disputed whether liability could be imposed in accordance with the terms of the Convention. Accordingly, the parties cross-moved for summary judgment. In the MO, the Court determined that imposing liability on the Defendants was proper under the Convention, and therefore granted Commercial Union's motion for summary judgment.
Although they have since stipulated to the amount of compensatory damages which may be awarded under the limitation of liability provisions of the Convention, the parties now dispute whether Commercial Union may recover prejudgment interest. The Defendants argue that two Second Circuit cases clearly proscribe an award of prejudgment interest in Warsaw Convention cases. (See Alitalia Mem. at 2-3; Gava Def. Mem. at 4-5.) Commercial Union, on the other hand, argues that the two Second Circuit cases relied on by the Defendants are no longer applicable, in light of a more recent Supreme Court case which requires the Court to look to local law to determine whether prejudgment interest is available. (See Pl. Mem. at 1-4.) Commercial Union further argues that, in this case, New York law applies and that prejudgment interest is mandatory under New York law. (See id. at 3-4.)
DISCUSSION
In O'Rourke v. Eastern Air Lines, Inc., 730 F.2d 842 (2d Cir. 1984), abrogated on other grounds by Salve Regina College v. Russell, 499 U.S. 225 (1991), an action to recover damages resulting from the death of a passenger on an airliner which crashed, the Second Circuit first confronted the issue of prejudgment interest in Warsaw Convention cases. The O'Rourke court noted that the Convention set a $75,000 cap on damages recoverable for the "death, wounding, or other bodily injury" of a passenger, and that this sum was "inclusive of legal fees and costs." Id. at 852. The plaintiff argued that since the cap stated that the "$75,000 [is] inclusive of legal fees and costs," but made no reference to prejudgment interest, the damages cap should have been construed to permit the recovery of prejudgment interest. See id.
The court disagreed, reasoning that there was "no indication that the contracting parties to the [Convention] intended to . . . be liable for more than the fixed and definite sum of $75,000," id. (citations omitted), and therefore the fact that the $75,000 figure in the Convention was inclusive of attorney's fees and costs could not be understood to mean that it excluded prejudgment interest. The court further noted that "the awarding of prejudgment interest in excess of this amount would be contrary to the purposes of the [Convention] and would thus undercut the fundamental intent of [its] framers." Id. at 853. Finally, the Court stated that "[t]he Convention indicates that any liabilities that . . . airlines may be subject to must be found within" the Convention, and that "[a]n award of prejudgment interest pursuant to the law of the forum is not a condition set out in the Convention." Id.
One year later, the Second Circuit applied O'Rourke's holding concerning prejudgment interest to a case involving damage to transported goods. In Exim Industries, Inc. v. Pan American World Airways, Inc., the plaintiff sought to recover damages for goods lost while in transit from India to New York. 754 F.2d 106, 107 (2d Cir. 1985). The district court limited the plaintiffs recovery in accordance with the terms of the Warsaw Convention, and the Second Circuit affirmed. In its opinion, the Second Circuit rejected the plaintiffs contention that prejudgment interest should have been awarded, stating "[a]ppellant's final contention, that pre-judgment interest should be awarded in Warsaw Convention cases, already has been rejected by this Court." Id. at 109 (citing O'Rourke).
While the holdings in O'Rourke and Exim are clear regarding the availability of prejudgment interest in Warsaw Convention cases, Commercial Union argues that those two cases are no longer applicable, in light of the Supreme Court's more-recent decision in Zicherman v. Korean Air Lines Co., 516 U.S. 217 (1996). In Zicherman, the plaintiffs were the relatives of a person killed when Korean Air Lines ("KAL") flight 007 was shot down over the Sea of Japan in 1983 after straying into Soviet airspace. The plaintiffs sued KAL and sought to recover, among other things, damages for loss of society resulting from the death of their relative. See id. at 218-19. At trial, KAL moved for a determination that the plaintiffs' damages claims were limited by the Death on the High Seas Act, and that loss of society damages were unrecoverable under DOHSA. The district court denied the motion, reasoning that DOHSA could not limit recovery under the Warsaw Convention, and the jury thereafter awarded loss of society damages to the plaintiffs. See id. at 220. On appeal, the Second Circuit set aside the loss of society award. The appellate court concluded that the substantive law of compensatory damages to be applied under the Warsaw Convention was general maritime law, and loss of society damages were unrecoverable under maritime law on the facts of the case.See id. at 220-21. The Supreme Court then granted certiorari to resolve the question of what law governed damage claims under the Warsaw Convention.
The Court began by analyzing Article 24 of the Convention, which expressly limits Article 17. The Court quoted the text of Article 24:
Article 17 is the article permitting recovery for personal injuries, while Article 18 is the article permitting recovery for damage to goods. See 49 Stat. 3000, T.S. No. 876 (1934) reprinted in note following 49 U.S.C. § 40105.
(1) In the cases covered by article 18 and 19 any action for damages, however founded, can only be brought subject to the conditions and limits set out in this convention.
(2) In the cases covered by article 17 the provision of the preceding paragraph shall also apply, without prejudice to the questions as to who are the persons who have the right to bring suit and what are their respective rights.Id. at 224-25 (emphasis in original). Because Zicherman was a personal injury action brought under article 17, the Court focused on Article 24(2), and, due to the "without prejudice" language emphasized above, the Court found that "[t]he most natural reading of this Article is that, in an action brought under Article 17, the law of the Convention does not affect the substantive questions of who may bring suit and what they may be compensated for. Those questions are to be answered by the domestic law selected by the courts of the contracting states." Id. at 225; see also id. at 229 ("Articles 17 and 24(2) provide nothing more than a pass-through, authorizing us to apply the law that would govern in absence of the Warsaw Convention.").
Commercial Union seizes upon this language, and suggests that it is dispositive of the prejudgment interest issue in this case. According to Commercial Union, Zicherman left "the issue of what damages are legally cognizable . . . to the domestic law applicable under the forum's choice-of-law rules, as if the Warsaw Convention was inapplicable." (Pl. Mem. at 2.) Commercial Union argues that, under New York's choice of law rules, New York law should apply in this case, and prejudgment interest therefore should be awarded. (See id.)
Commercial Union, however, reads too much into the Zicherman opinion. As the discussion above makes clear, the Zicherman Court clearly distinguished actions under Article 17 (for death or personal injury) from actions under Articles 18 and 19 (for damage to goods). The Court's conclusion that the Convention "does not affect the substantive questions of who may bring suit and what they may be compensated for" only applied to actions "brought under Article 17." Zicherman, 516 U.S. at 225 ("[I]n an action brought under Article 17, the law of the Convention does not affect the substantive questions of who may bring suit and what they may be compensated for. Those questions are to be answered by the domestic law selected by the courts of the contracting states.") (emphasis added). This action, however, was commenced under Article 18, not Article 17, because Commercial Union sought to recover for damages to goods, not for personal injury. The limiting language in Article 24(2) upon which the Supreme Court focused in Zicherman — namely, that actions under Article 17 are subject to the limitations in the Convention "without prejudice to the questions as to who are the persons who have the right to bring suit and what are their respective rights" — is nowhere to be found in Article 24(1), which applies to actions commenced under Article 18.
Article 19, which states that an air carrier "shall be liable for damage occasioned by delay in the transportation by air of passengers, baggage, or goods" is not relevant for present purposes.
For these reasons, the Court finds that prejudgment interest cannot be recovered. While, under Zicherman. state law may govern the type of damages available in a personal injury action commenced under the Convention, Zicherrnan is equally clear that recovery for property damage under the Convention is "subject to the conditions and limits set out in th[e] convention." Id. see also O'Rourke, 730 F.2d at 853 ("[t]he Convention indicates that any liabilities that . . . airlines may be subject to must be found within" the Convention, and "[a]n award of prejudgment interest pursuant to the law of the forum is not a condition set out in the Convention"). As the Second Circuit ruled in Exim, the Convention does not permit the recovery of prejudgment interest in property damage cases.
It appears that Zicherman may have overruled O'Rourke, which was a personal injury action. See Pescatore v. Pan Am. World Airways, Inc., 97 F.3d 1, 20-21 (2d Cir. 1996) (in action under Article 17, court remanded matter to district court to determine whether prejudgment interest should be awarded under Ohio law).
Commercial Union calls the Court's attention to Republic National Bank of New York v. Delta Air Lines, No. 98 Civ. 8729, 2000 WL 1644483 (S.D.N.Y. Nov. 2, 2000). There, the plaintiff sought to recover damages for lost shipments of money. After summary judgment was granted in the plaintiffs favor on the issue of liability, the plaintiff moved for summary judgment on the issue of damages. Judge Martin granted the plaintiffs motion, and held that the plaintiff was entitled to an award of prejudgment interest. Judge Martin stated:
Although this case falls within the purview of the Warsaw Convention, Plaintiff correctly notes that where the Convention fails to provide a rule of law regarding damages, courts must apply the substantive law that would otherwise govern in the Convention's absence. See Zicherman v. Korean Air Lines Co., 516 U.S. 217, 229-31, 116 S.Ct. 629, 636 (1996); Pescatore v. Pan American World Airways, Inc., 97 F.3d 1, 4, 20-21 (2d Cir. 1996). The Warsaw Convention does not contain a rule regarding prejudgment interest. Here, despite the fact that the Convention supplies the cause of action, jurisdiction is based on diversity of citizenship, and thus New York's choice-of-law rules determine which forum's law will apply. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22 (1941); Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 5. Ct. 817, 822 (1938); see also Brink's Ltd. v. South African Airways, 93 F.3d 1022, 1029-30 (2d Cir. 1996). While the parties fail to brief the issue of choice of law, it appears that New York has the most significant contacts to this transaction, and thus New York's substantive law should apply. See Brink's, 93 F.3d at 1030-32.Id. at *1. Zicherman and Pescatore were suits brought under Article 17 of the Convention, and thus implicated Article 24(2). Insofar as those cases were relied upon in Republic National Bank, a suit brought to recover for the loss of goods, they were inapposite and the distinction was apparently overlooked. It is for that reason that this Court respectfully believes that Republic National Bank is inapposite here.
On August 29, 2001, the Second Circuit affirmed Judge Martin's decision granting summary judgment in Republic National Bank. See Republic Nat'l Bank of N.Y. v. Delta Air Lines, 263 F.3d 42, 49 (2d Cir. 2001). The Second Circuit's opinion, however, was limited to the propriety of granting summary judgment; it did not address the prejudgment interest issue.
CONCLUSION
For the foregoing reasons, Commercial Union's motion for prejudgment interest is denied.
SO ORDERED.