United States District Court,

N.D. California.

Sarbjit KAUR d/b/a Ahlishan Fashion Fabrics, Plaintiff,

v.

ALL NIPPON AIRWAYS CO., LTD,; and Does 1-10, Defendants.

No. C 06-01661 SI.

 

April 17, 2006.

 

ORDER GRANTING DEFENDANT’S MOTION TO DISMISS AND GRANTING PLAINTIFF LEAVE TO

AMEND

 

SUSAN ILLSTON, District Judge.

 

Defendant has filed a motion to dismiss plaintiff’s claims as preempted under the Warsaw Convention. Pursuant to Civil Local Rule 7-1(b), the Court determines that the matter is appropriate for submission without oral argument, and accordingly VACATES the April 21, 2006 hearing. The case management conference scheduled for April 21, 2006 at 2:00 p.m. remains on calendar. For the reasons set forth below, the Court GRANTS defendant’s motion and DISMISSES plaintiff’s complaint with leave to amend.

 

BACKGROUND

On October 7, 2005, plaintiff Sarbjit Kaur, d/b/a Ahlishan Fashion Fabrics, filed a complaint in Alameda County Superior Court against defendant All Nippon Airways Co., Ltd. And Does 1-10. The complaint alleges that plaintiff hired defendant to move five pieces of cargo from New Delhi, India to San Francisco, California. Complaint ¶  5. The complaint alleges that although all five pieces of cargo were put on defendant’s aircraft in India, two pieces of cargo were lost by the time plaintiff went to pick up the cargo at defendant’s warehouse in South San Francisco. Id. at ¶ ¶  5-8. According to defendant, the warehouse is located within the grounds of San Francisco International Airport. See Motion, Ex. 2 (invoice for Nippon Cargo Airlines showing address in SFO International Airport). The missing cargo consists of fabric, jewelry, and women’s clothing. Complaint at ¶  8. The complaint alleges four claims under state law: (1) breach of contract; (2) conversion; (3) intentional infliction of emotional distress; and (4) negligent infliction of emotional distress.

 

On March 3, 2006, defendant filed a notice of removal, on the ground that the Court has original jurisdiction over the case because plaintiff’s claims arise under the Warsaw Convention or the Montreal Convention, which are both applicable to international transportation of persons, baggage, or goods performed by aircraft for hire. [] Defendant has now moved to dismiss all of plaintiff’s claims as preempted by the Warsaw Convention. Alternatively, defendant requests that the Court deem plaintiff’s breach of contract claim as a claim for cargo loss under the Warsaw Convention, and dismiss the remaining claims as preempted state law claims. []

 

The Notice of Removal states that defendant was served on or about January 31, 2006.

 

Prior to filing the instant motion, defendant met and conferred with plaintiff and requested that plaintiff stipulate to replace the state law causes of action with a Warsaw Convention cause of action. Plaintiff refused to do so. See Hutchison Decl. Ex. 3 and 4.

 

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. The question presented by a motion to dismiss is not whether the plaintiff will prevail in the action, but whether the plaintiff is entitled to offer evidence in support of the claim. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984).

 

In answering this question, the Court must assume that the plaintiff’s allegations are true and must draw all reasonable inferences in the plaintiff’s favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). Even if the face of the pleadings suggests that the chance of recovery is remote, the Court must allow the plaintiff to develop the case at this stage of the proceedings. See United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir.1981).

 

If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (citations and internal quotation marks omitted).

 

DISCUSSION

1. Defendant’s Motion to Dismiss

 

Formally known as the Convention for the Unification of Certain Rules Relating to International Transportation by Air, “the Warsaw Convention is a comprehensive international treaty … governing liability in ‘all international transportation of persons, baggage, or goods.’ ” Carey v. United Airlines, 255 F.3d 1041, 1047 (9th Cir.2001) (quoting note following statute). When the Warsaw Convention governs a particular claim, the terms of the Convention preempt state and/or local law claims, in the interest of achieving a uniform application of liability rules with respect to claims arising from international air transportation. See Tseng v. El Al Israel Airlines, Ltd., 525 U.S. 155, 169 (1999) (stating “[g]iven the Convention’s comprehensive scheme of liability rules and its textual emphasis on uniformity, we would be hard put to conclude that the delegates at Warsaw meant to subject air carriers to the distinct, nonuniform liability rules of the individual signatory nations”). A party asserting a claim that is ultimately controlled by the terms of the Warsaw Convention can generally only pursue that claim pursuant to those terms. See 49 Stat. 3000, T.S. 876, reprinted at 49 U.S.C.A. §  40105, Art. 24(1) (stating “in the cases covered by articles 18 and 19 any action for damages, however founded, can only be brought subject to the conditions and limits set out in this convention”).

 

Article 18 of the Convention addresses air carrier liability with respect to loss of or damage to baggage or goods, specifically providing that “the carrier shall be liable for damage sustained in the event of the destruction or loss of, or of damage to, any checked baggage or any goods, if the occurrence which caused the damage so sustained took place during the transportation by air.” 49 U.S.C.A. §  40105, Art. 18(1). Article 18(3) further provides that,

[t]he 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.

49 U.S.C.A. §  40105, Art. 18(3) (emphasis added).

 

Article 18(3) applies “[w]here there is some conflict over whether the damage occurred during air transportation” and “creates a rebuttable presumption that the damage took place during air transportation.” Read-Rite Corp. v. Burlington Air Express, Ltd., 186 F.3d 1190, 1194 n. 2 (9th Cir.1999) (holding that Warsaw Convention did not apply to damage to goods since damage occurred on the ground, outside London’s Heathrow Airport). A claimant seeking to avoid the reach of the Warsaw Convention must affirmatively show that the damage to goods did not occur during the course of international air travel.

 

Here, plaintiff asserts that the Warsaw Convention does not apply because the loss occurred at defendant’s warehouse. However, defendant has submitted undisputed evidence that the warehouse is located within the grounds of San Francisco International Airport. See Motion, Ex. 2. Accordingly, the Court concludes that the Warsaw Convention covers plaintiff’s loss. See id.; see also Victoria Sales Corp. v. Emery Air Freight, 917 F.2d 705, 707 (2d Cir.1990) (“[A]s the plain language of Article 18 directs, ‘transportation by air’ would include a loss occurring while the cargo was in the air or on the ground but within the confines of the airport’s boundaries.”) (emphasis added).

 

Plaintiff also asserts, without citation to any authority, that the Warsaw Convention does not apply because plaintiff has alleged intentional or gross negligence on the part of defendant. This contention lacks merit. “The Warsaw Convention provides the exclusive remedy for claims arising out of a carrier’s intentional misconduct. If a plaintiff establishes wilful misconduct by the carrier, Article 25 lifts the Convention’s limits on liability, but the Convention remains the exclusive source for the plaintiff’s remedy.” Dazo v. Globe Airport Security Servs., 295 F.3d 934, 940 (9th Cir.2002). Accordingly, plaintiff’s state law claims are preempted, and these claims are DISMISSED WITH PREJUDICE. If plaintiff wishes to pursue a claim under the Warsaw Convention, plaintiff may file an amended complaint on or before May 15, 2006.

 

2. Defendant’s Evidentiary Objection

 

Defendant objects that a statement in the Shah Declaration is inadmissible hearsay. Although the basis for defendant’s objection is incorrect, the Court finds that the statement–“Items were either intentionally or negligently misplaced from defendant’s warehouse, by his employees”–is improper argument contained in a declaration. Accordingly, the Court STRIKES this statement from the Shah Declaration.

 

The Court also notes that plaintiff attached a letter to the opposition that includes a settlement demand. This disclosure is improper, and plaintiff is cautioned against filing any documents regarding settlement negotiations.

 

CONCLUSION

For the foregoing reasons and for good cause shown, the Court hereby GRANTS defendant’s motion to dismiss and provides plaintiff leave to amend. (Docket No. 8).

 

 

 

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 05-10300

 

 

CLARENDON NATIONAL INSURANCE CO.,

Plaintiff-Appellee,

versus

FFE TRANSPORTATION SERVICES, INC., FROZEN FOOD EXPRESS INDUSTRIES, INC.,

Defendants-Appellants.

 

Appeal from the United States District Court for

the Northern District of Texas

(USDC No. 3:03-CV-1752)

_________________________________________________________

Before REAVLEY, JOLLY and DeMOSS, Circuit Judges.

PER CURIAM:*

 

Appellants-Defendants FFE Transportation Services, Inc. and Frozen Food Express Industries, Inc. (collectively AFFE@) appeal the magistrate judge=s judgment granting Appellee-Plaintiff Clarendon National Insurance Co.=s motion for summary judgment and denying FFE=s cross-motion for summary judgment.  We affirm.

I.

Clarendon issued Business Auto Policy No. T 07701905 (the Apolicy@) to Frozen Foods.  The policy was in effect from December 1, 1996 to December 1, 1997.  FFE Transportation was a named insured under the policy.  The policy provided $2 million in insurance coverage subject to a Self-Insured Retention (SIR) of $1 million.  The SIR functioned essentially as a deductible in that FFE was responsible for the first $1 million in damages arising from an accident.  Clarendon then provided $1 million in excess coverage above the SIR.

 

Under the policy, FFE had a duty to report both accidents and claims in which it was involved.  First, the policy required Aprompt notice@ of any Aaccident, claim, suit or loss.@  Additionally, Endorsement #9 of the policy required Aimmediate notice@ to Clarendon of A[a]ny claim in which the requested damage exceeds the self retained amount,@ in this case $1 million.  Endorsement #9 further required notice of an occurrence of any injury, death, or disease paid or reserved for 25% or more of the amounts stated in the schedule of underlying insurance.

The policy provided that in the event the notice provisions were not followed Clarendon would (1) not be liable on the policy if Clarendon was prejudiced by the lack of notice, and (2) would be eligible for reimbursement from the insured for any amounts paid on claims involving a breach of the policy.  The policy explicitly provided Clarendon the right to investigate, defend, and settle any claim at its discretion.

On January 9, 1997, one of FFE Transportation=s vehicles was involved in an accident which resulted in several claims against FFE.  All but one of these claims were settled by FFE for a cumulative pay out of $219,861.99.  The remaining claim was brought as a tort action against FFE by Ray Stewart in state court in Missouri.

 

Although FFE appears to dispute exactly when it should have given notice of the accident and resulting claims, the parties agree that notice was not given until after trial on the Stewart claim, and that the timing of this notice breached the policy.  Further, FFE admits that Stewart offered to settle his claim for $700,000 in the spring of 2001.  FFE did not notify Clarendon of this offer.  FFE rejected the settlement offer and the case proceeded to trial.  The jury rendered a verdict of $1.1 million in favor of Stewart and judgment was entered on April 5, 2001.   On July 18, 2001, more than three months later, FFE gave its first notice to Clarendon of the January 1997 accident and the resulting claims.   After reserving its right to seek reimbursement from FFE, Clarendon participated in post-judgment settlement efforts of the Stewart claim which resulted in a $1 million settlement.   Clarendon contributed approximately $220,000 toward that settlement.2  Clarendon then sought reimbursement of the $220,000 from FFE.  FFE refused and Clarendon brought this lawsuit.

The parties agreed that there were no genuine issues of material fact and submitted cross-motions for summary judgment by agreement to the magistrate judge.  Clarendon sought reimbursement arguing that: (1) FFE breached the notice provisions of the policy; (2) Clarendon was prejudiced by the lack of notice; and (3) because of the prejudicial breach by FFE, Clarendon had no liability under the policy.  FFE argued that, under Texas law, Clarendon must prove actual prejudice, which it contended Clarendon could not do.  Thus, FFE sought a declaratory judgment that Clarendon was not entitled to any relief.  Judgment was entered for Clarendon and FFE appeals.

 

Reviewing the magistrate judge=s grant of summary judgment de novo, we consider the parties= arguments below.

II.

The parties agree that Texas law applies to this case, and that Clarendon must prove that FFE=s failure to give notice prejudiced Clarendon in order for coverage to be forfeited.  Thus, this case turns on what proof must be offered to establish prejudice.  Clarendon argues that prejudice can be established in two ways and that it has put forth sufficient evidence to meet both standards.  First, it argues that in certain situations the prejudice can be presumed B presumed prejudice or prejudice as a matter of law.  Second, Clarendon contends that where prejudice is not presumed the insurer can still avoid coverage by demonstrating actual prejudice.   FFE argues that the presumed prejudice standard is no longer good law and that Clarendon failed to prove actual prejudice.  We need not decide whether the presumed prejudice rule is still good law as Clarendon has shown actual prejudice.

 

Clarendon contends that FFE=s breach of the notice provision prevented it from exercising valuable rights.  Clarendon points to Section II.A. of the Trucker=s coverage form providing Clarendon with the absolute right to settle the claim as it Adeems appropriate.@  Stewart offered to settle the claim for $700,000.  FFE refused and a judgment of $1.1 million resulted.  Consequently, Clarendon argues that the breach of the notice provision by FFE resulted in the deprivation of Clarendon=s right to settle which proved to be worth $400,000.3  Had the Stewart claim settled for $700,000, the total payout on all claims resulting from the January 8, 1997 collision would have been $919,861.994 B within the SIR, resulting in no cost on the claim to Clarendon.  However, with the post-judgment settlement of $1 million, the total payout on the claim was $1,219,861.99, resulting in a cost of $219,861.99 to Clarendon.  Clarendon argues that this evidence demonstrates actual prejudice.

FFE counters that this is insufficient evidence of actual prejudice.  It contends that Clarendon must establish, not that it could have settled the claim for $700,000, but that it would have settled had FFE given notice.  We disagree and hold that Clarendon has shown that it suffered actual prejudice. It is beyond dispute that, pursuant to the express terms of the policy and in its unfettered discretion, Clarendon could have settled the Stewart action for a sum that would have resulted in no cost on the claim to Clarendon.

 

The Texas Supreme Court has held that  prejudice is the loss of a valuable right or benefit.  Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 693 (Tex. 1994) (holding that where the Aexpected benefit@ lost due to the breach Ahas no value. . . .  the insurer is not prejudiced by the breach@ and thus the insured cannot deny coverage).  The primary concern of Hernandez is that the insured must suffer the loss of a valuable right in order to avoid payment.  Thus, whether Clarendon would have accepted the settlement offer, as FFE urges, is immaterial to this point.  The fact remains that FFE=s failure to give notice caused Clarendon to lose a valuable settlement right.  See Motiva Enters. v. St. Paul Fire & Marine Ins. Co.,

— F.3d –, 2006 WL 774926, at(5th Cir. Mar. 28, 2006) (holding that Awhen … the insurer is not consulted about the settlement, the settlement is not tendered to it and the insurer has no opportunity to participate in or consent to the ultimate settlement decision, we conclude that the insurer is prejudiced as a matter of law@).  This satisfies the concerns of Hernandez and sufficiently establishes Clarendon=s prejudice.

 

We do not believe that Clarendon must show precisely what the outcome of the underlying case would have been had notice been given to make a showing of actual prejudice.  Clarendon is required to show the precise manner in which its interests have suffered.  Clarendon has done so, and thus, has demonstrated actual prejudice.

III.

For the reasons stated above, we affirm the magistrate judge=s judgment granting Clarendon=s motion for summary judgment and denying FFE=s cross-motion for summary judgment.

AFFIRMED.