     06-0530-cv
     Eli Lilly do Brazil v. Federal Express Corp.




 1                              UNITED STATES COURT OF APPEALS
 2                                   FOR THE SECOND CIRCUIT
 3                                    _____________________
 4
 5                                         August Term, 2006
 6
 7
 8    (Argued: September 22, 2006                                      Decided: September 11, 2007)
 9
10
11                                        Docket No. 06-0530-cv
12                                      ______________________
13
14                                     ELI LILLY DO BRASIL, LTDA ,
15
16                                                                                Plaintiff-Appellant,
17                                               — v .—
18
19                                   FEDERAL EXPRESS CORPORATION ,
20                                                                               Defendant-Appellee.
21                                         _________________
22
23
24   Before:         MESKILL, B. D. PARKER, & RAGGI, Circuit Judges.
25
26
27                                        __________________
28
29          Appeal from a judgment of the United States District Court for the Southern District of
30   New York (Lynch, J.) granting Federal Express enforcement of a damage limitation clause in a
31   waybill governing the transportation of cargo. AFFIRMED.
32
33             Judge Meskill dissents in a separate opinion.
34                                           __________________

35                                               MARTIN F. CASEY, Casey & Barnett, LLC, New
36                                                    York, N.Y., for Appellant Eli Lilly do
37                                                    Brasil, Ltda.
38
 1                                                 ROBERT R. ROSS , Federal Express Corporation,
 2                                                      Memphis, Tenn., for Appellee Federal
 3                                                      Express Corporation.
 4
 5                                         __________________

 6

 7   BARRINGTON D. PARKER, Circuit Judge:

 8           Eli Lilly do Brasil (“Lilly”) contracted with Federal Express (“FedEx”) to ship drums of

 9   pharmaceuticals from Brazil to J§apan. While being trucked in Brazil, the shipment was stolen.

10   This appeal considers whether the limitation on liability in FedEx’s waybill is enforceable and

11   the answer depends on whether federal common law or Brazilian law applies.

12            The United States District Court for the Southern District of New York (Lynch, J.)

13   agreed with FedEx that federal common law applied, under which the limitation was enforceable.

14   The District Court declined Lilly’s invitation to apply Brazilian law, under which Lilly contended

15   the clause would have been invalid if gross negligence were shown. The District Court

16   concluded that to do so would serve “to invalidate the liability limitations to which the parties

17   voluntarily bound themselves” and would disturb the parties’ justified expectation that their

18   contract was enforceable. We agree and we affirm.

19                                          I. BACKGROUND

20          In October 2002, Lilly contracted with Nippon Express do Brasil, who, in turn,

21   subcontracted with FedEx to transport fourteen drums of Cephalexin from Lilly’s factory in

22   Guarulhos, Brazil to Narita, Japan, through FedEx’s hub in Memphis. FedEx received the cargo

23   and consigned it to Jumbo Jet Transportes Internacionais Ltda. for transportation by truck to


                                                      2
1   Viracopos, Brazil. The truck was hijacked en route and the cargo, worth approximately

2   $800,000, was stolen.

3          The waybill for the shipment limited FedEx’s liability for stolen goods to $20 per

4   kilogram. If a customer, such as Lilly, was dissatisfied with the limitation, it was given the

5   option of securing additional coverage by declaring a higher value and paying additional

6   charges.1

7          The limitation of liability on the face of the waybill was conspicuous.2 Lilly did not elect


           1
               The waybill provides:

           If the carriage involves an ultimate destination or stop in a country other than the
           country of departure, the Warsaw Convention may be applicable and the
           convention governs and in most cases limits the liability of the Carrier in respect
           of loss, damage, or delay to cargo to 250 French gold francs per kilogramme
           [indicated to be approximately USD $20.00 per kilogram], unless a higher value is
           declared in advance by the shipper and a supplementary charge paid if required.
           ....
           (4) Except as otherwise provided in Carrier’s tariffs or conditions of carriage, in
           carriage to which the Warsaw Convention does not apply Carrier’s liability shall
           not exceed US $20.00 or the equivalent per kilogramme of goods lost, damaged or
           delayed, unless a higher value is declared by the shipper and a supplemental
           charge paid.

           2
               The limitation specifies:

           ALL GOODS MAY BE CARRIED BY ANY OTHER MEANS INCLUDING
           ROAD OR ANY OTHER CARRIER UNLESS SPECIFIC CONTRARY
           INSTRUCTIONS ARE GIVEN HEREON BY THE SHIPPER, AND SHIPPER
           AGREES THAT THE SHIPMENT MAY BE CARRIED VIA INTERMEDIATE
           STOPPING PLACES WHICH THE CARRIER DEEMS APPROPRIATE. THE
           SHIPPER’S ATTENTION IS DRAWN TO THE NOTICE CONCERNING
           CARRIER’S LIMITATION OF LIABILITY. Shipper may increase such
           limitation of liability by declaring a higher value for carriage and paying a
           supplemental charge if required.

                                                     3
 1   to declare a higher value or to pay for additional coverage. The record is silent as to the

 2   circumstances of the theft. It is not disputed that, if the limitation applied, FedEx’s exposure for

 3   the loss was approximately $28,000.

 4           Lilly, a Brazilian firm, chose not to sue FedEx in Brazil but instead sued in the Southern

 5   District of New York. The parties cross-moved for partial summary judgment. FedEx sought to

 6   limit its liability in accordance with the waybill and Lilly sought to have Brazilian law applied,

 7   believing that the limitation might not be enforceable if it could prove that the trucking company

 8   acted with gross negligence. Both parties assumed that federal common law choice-of-law

 9   analysis applied but they disagreed as to the results of that analysis.

10           The District Court granted FedEx’s motion, ruling that substantive federal common law,

11   not Brazilian law, applied and, as a result, the limitation was valid. The court’s choice-of-law

12   analysis, relying on the Restatement (Second) of Conflict of Laws (the “Restatement”),

13   determined that Brazil had an interest in “regulating the liability of – and corollary standards of

14   care to be exercised by – carriers transporting goods within its borders.” The court then reasoned

15   that because of Brazil’s numerous contacts with the transaction, it undoubtedly had a significant

16   interest in regulating the transaction, while the United States had only a “general policy interest

17   in limiting the liability of FedEx as a federally-certified air carrier.”

18           After considering all the Restatement factors, however, including several that favored

19   Lilly, the court concluded that federal common law, which accords primacy to vindicating the

20   parties’ justified expectations, trumped Brazilian law. Specifically, Judge Lynch found that

21   because United States law would enforce the contract as written and Brazilian law might permit


                                                         4
 1   the contract to be disregarded, “Brazil’s interests in defining the liability of carriers operating

 2   within its borders, even taking into account its considerable contacts with the transaction, are not

 3   so strong here as to occasion unsettling the private agreement of these particular parties, who, to

 4   the extent they were aware of Brazilian law, opted to contract around it.” Heavily weighting this

 5   factor, the court concluded that the United States is “the jurisdiction with the most significant

 6   relationship to the transaction and the parties.” After the parties stipulated the amount of

 7   damages, the court entered a judgment for Lilly in accordance with the limitation in the waybill.

 8   This appeal followed.

 9                                            II. DISCUSSION

10           A. Standard of Review

11           We review de novo the district court’s determination that federal law applies, Curley v.

12   AMR Corp., 153 F.3d 5, 11 (2d Cir. 1998); the district court’s determinations regarding questions

13   of Brazilian law, id.; Fed. R. Civ. P. 44.1; as well as the district court’s resolution of the cross-

14   motions for summary judgment, Terwilliger v. Terwilliger, 206 F.3d 240, 244 (2d Cir. 2000).

15           B. Choice of Law Analysis

16           Although the Supreme Court has cautioned that it is appropriate for courts to apply

17   federal common law in only a “few and restricted” instances, O’Melveny & Myers v. FDIC, 512

18   U.S. 79, 87 (1994) (internal quotation marks omitted), this Court has recognized that cases

19   involving the liability of air carriers for lost or damaged freight are controlled by federal common

20   law, see Nippon Fire & Marine Ins. Co., Ltd. v. Skyway Freight Sys., Inc., 235 F.3d 53, 59 (2d

21   Cir. 2000). Because this appeal requires us to consider FedEx’s liability for lost shipment of


                                                        5
 1   freight, and since the parties have conceded the issue, a federal common law choice-of-law

 2   analysis is appropriate.

 3          As our prior cases indicate, when conducting a federal common law choice-of-law

 4   analysis, absent guidance from Congress, we may consult the Restatement (Second) of Conflict

 5   of Law. See Pescatore v. Pan Am. World Airways, Inc., 97 F.3d 1, 12 (2d Cir. 1996); see also

 6   DaimlerChrysler Corp. Healthcare Benefits Plan v. Durden, 448 F.3d 918, 923 (6th Cir. 2006)

 7   (turning to the Restatement where prior caselaw did not address the choice-of-law question at

 8   issue); Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006) (“Federal common

 9   law follows the approach outlined in the Restatement (Second) of Conflict of Laws.”).

10          In general, “[t]he federal common law choice-of-law rule is to apply the law of the

11   jurisdiction having the greatest interest in the litigation.” In re Koreag, Controle et Revision

12   S.A., 961 F.2d 341, 350 (2d Cir. 1992). As to the transportation of goods, § 197 of the

13   Restatement provides:

14          The validity of a contract for the transportation of passengers or goods and the
15          rights created thereby are determined, in the absence of an effective choice of law
16          by the parties, by the local law of the state from which the passenger departs or the
17          goods are dispatched, unless, with respect to the particular issue, some other state
18          has a more significant relationship under the principles stated in § 6 to the
19          contract and to the parties, in which event the local law of the other state will be
20          applied.
21
22   Restatement (Second) of Conflict of Laws § 197 (emphasis added).

23          Section 6 identifies a number of factors relevant to determining which state has the more

24   significant relationship with the parties and the contract:

25          a) the needs of the interstate and international systems,
26          b) the relevant policies of the forum,

                                                       6
 1          c) the relevant policies of other interested states and the relative interests of those
 2          states in the determination of the particular issue,
 3          d) the protection of justified expectations,
 4          e) the basic policies underlying the particular field of law,
 5          f) certainty, predictability and uniformity of result, and
 6          g) ease in the determination and application of the law to be applied.
 7
 8   Restatement (Second) of Conflict of Laws § 6(2).

 9          Brazil’s interests in the contract and the parties are by no means insignificant. The

10   contract was negotiated and executed in Brazil, between a Brazilian company and a United States

11   company that regularly transacts business in Brazil. The purpose of the contract was to ship

12   goods located in Brazil, out of Brazil to Japan. The goods did not enter the United States and

13   would have done so only because Memphis is the FedEx transship center. These considerations

14   are important ones to the § 6 analysis. See id. § 188(2) (stating that the principles of § 6 should

15   be analyzed taking into account, among other things, the place of negotiation of the contract, the

16   place of performance, and the place of business of the parties). As explained in the Restatement,

17   the § 188 contacts serve to identify “[t]he states which are most likely to be interested,” namely

18   those states “which have one or more of the [section 188] contacts with the transaction or the

19   parties.” Id. § 188 cmt. e (emphasis added). Section 188, like § 197, thus establishes something

20   akin to a default rule based on a non-exhaustive list of contacts. In moving beyond the default

21   rule to a determination of what rule of law applies in a particular circumstance, the contacts are

22   “to be taken into account in applying the principles of § 6.” Id. § 188(2). However, they do not

23   subsume those principles and are not determinative in themselves. To hold otherwise would

24   render § 6 superfluous.

25          Thus, our recognition that Brazil’s interest, based only on § 188 contacts, is greater than

                                                       7
 1   the United States’ cannot be the end of our inquiry or determinative of its conclusion. The

 2   United States also has some interest in this transaction and the parties, being FedEx’s domicile.

 3   See id. § 188(2)(e). Which state is most interested under § 188 is a different question from which

 4   state has the more significant relationship with the parties and the contract for purposes of § 197.

 5           In this case, even taking account of Brazil’s superior § 188 contacts, two of the § 6 factors

 6   emerge as determinative of United States venue: (1) the relevant policies of other interested

 7   states and the relative interest of those states in the determination of the particular issue in

 8   dispute, § 6(2)(c), and (2) protection of the parties’ justified expectations, § 6(2)(d). Once Lilly –

 9   for whatever reason – asked a United States court to consider its contract, it invited application of

10   the well-settled “presumption in favor of applying that law tending toward the validation of the

11   alleged contract.” Kossick v. United Fruit Co., 365 U.S. 731, 741 (1961); see also Pritchard v.

12   Norton, 106 U.S. 124, 137 (1882) (“The parties cannot be presumed to have contemplated a law

13   which would defeat their engagements.” (internal quotation marks omitted)). This presumption

14   is consistent with the general rule of contract construction that “presumes the legality and

15   enforceability of contracts.” Walsh v. Schlecht, 429 U.S. 401, 408 (1977); see Nat’l Labor

16   Relations Bd. v. Local 32B-32J Serv. Employees Int’l Union, AFL-CIO, 353 F.3d 197, 202 (2d

17   Cir. 2003) (acknowledging the presumption that an ambiguous contract should not be interpreted

18   so that it is rendered invalid and unenforceable); Restatement (Second) of Contracts § 203(a)

19   (“[A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms is

20   preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.”); cf.

21   Kipin Indus., Inc., v. Van Deilen Int’l, Inc., 182 F.3d 490, 495-96 (6th Cir. 1999) (observing that


                                                        8
 1   under the Restatement, even an explicit choice of law provision is to be considered a mistake if

 2   the chosen law would invalidate an express portion of the contract).

 3          The paramount importance of enforcing freely undertaken contractual obligations,

 4   especially in commercial litigation involving sophisticated parties, was obvious to the District

 5   Court and is obvious to us. The Restatement expressly provides that the justified expectation of

 6   enforceability generally predominates over other factors tending to point to the application of a

 7   foreign law inconsistent with such expectation. Comment b of § 188 of the Restatement

 8   provides:

 9          Parties entering a contract will expect at the very least, subject perhaps to rare
10          exceptions, that the provisions of the contract will be binding upon them. Their
11          expectations should not be disappointed by application of the local law rule of a
12          state which would strike down the contract or a provision thereof unless the value
13          of protecting the expectations of the parties is substantially outweighed in the
14          particular case by the interest of the state with the invalidating rule in having this
15          rule applied.
16
17   Id. § 188, cmt. b (emphasis added). Likewise, the comments to § 197 note that the default rule

18   favoring the local law of the state of dispatch may not apply when the contract would be invalid

19   under such law “but valid under the local law of another state with a close relationship to the

20   transaction and the parties.”3 Id. § 197 cmt. c. In such a situation, the default shifts to favor the

21   validating law “unless the value of protecting the expectations of the parties by upholding the



            3
              The dissent suggests that the United States does not have a “significant” or “close”
     relationship with the contract for purposes of § 197. See Dissenting Op. at 8, 10. As we have
     already noted, the United States is the domicile of FedEx. Moreover, the § 197 comments
     suggest that the very fact that one interested state’s laws would render a contract valid, while
     another’s would not, bolsters the “significance” of the first state’s relationship to the transaction
     and the parties. See Restatement § 197 cmt. c.

                                                       9
 1   contract is outweighed in the particular case by the interest of the state of departure or dispatch in

 2   having its invalidating rule applied.” Id.

 3          Under federal common law, the limitation in the waybill is valid. The “release value”

 4   doctrine recognizes the validity of provisions limiting the liability of carriers for lost or damaged

 5   cargo. See Nippon Fire, 235 F.3d at 59-60 (validating such provisions where they are “set forth

 6   in a ‘reasonably communicative’ form so as to result in a ‘fair, open, just and reasonable

 7   agreement’ between carrier and shipper” and “offer the shipper a possibility of higher recovery

 8   by paying the carrier a higher rate”); accord Shippers Nat’l Freight Claim Council, Inc. v.

 9   Interstate Commerce Comm’n, 712 F.2d 740, 746 (2d Cir. 1983); Hill Constr. Corp. v. Am.

10   Airlines, Inc., 996 F.2d 1315, 1317 (1st Cir. 1993).

11          We have little difficulty concluding that this case does not present a rare exception and

12   that the parties reasonably expected – or certainly should have expected – that their contract

13   would be enforceable. As we noted, the contract contained not only a loss limitation clause, but

14   offered Lilly the option of securing more insurance if it paid a higher premium – an option Lilly

15   did not avail itself of. Lilly has offered no satisfactory justification for expecting that it would be

16   permitted to finesse this commitment.

17          Lilly’s principal contention is that the District Court erred in attaching a presumption of

18   validity to the contract because it is commonplace in the sphere of international common

19   carriage, including in Brazil, that a carrier who acts with gross negligence will be precluded from

20   relying on a contractual liability limitation. While acknowledging that the contractual limitation

21   provision controls for simple negligence, Lilly, relying on § 6(2)(c) of the Restatement, contends


                                                       10
 1   that under the laws of Brazil – the other interested state – the limitation provision is void if

 2   FedEx acted with willful misconduct or gross negligence.

 3           Lilly has not convinced us that this contention is correct. Lilly relies on a declaration by

 4   Brazilian transportation attorney, Paulo de C. Machado, which Lilly submitted in support of its

 5   motion for summary judgement. The declaration initially states that “there is NO legal limitation

 6   for carriers in road or railroad transportation.” As the sole authority for this proposition, the

 7   declaration refers to a Brazilian legislative decree which states that “[t]he railroads are

 8   responsible for the total or partial loss, pilferage or damage to the merchandises which they

 9   received to transport.” According to the declaration, this decree has been applied to

10   transportation by truck. With regards to air transportation, both domestic and international, the

11   declaration asserts that “[t]here is limitation of liability only in air carriage, but it does not apply

12   in case of gross negligence.” The following Brazilian law provisions are offered as support for

13   this proposition:

14           Decree No. 20.704/31, art. 25:
15           1) The carrier has no right to benefit of the dispositions of the [Warsaw]
16           Convention, which exclude or limit their liability, if the loss is consequence of
17           their malice or of their fault, when according to the law of the court analyzing the
18           case fault is equivalent to malice.
19
20           Law No. 7.565/86:
21           The limits of the indemnity, stated in this Chapter, are not applicable if it is
22           proved that the loss resulted from malice or gross fault of the carrier or of their
23           employees.

24           Lilly’s statements of Brazilian law prove too much. Brazilian law does not provide for

25   any specific limitations on liability for losses occurring during truck carriage. Limitations of



                                                        11
1   liability, under Brazilian law, are only expressly allowed in air carriage and are then subject to an

2   exception for gross negligence. Given no real support in the record for Lilly’s contention that

3   Brazil’s gross negligence exception even applies during ground carriage – let alone support for

4   the proposition that Brazil’s interest in applying such an exception outweighs the value of

5   upholding the contract, cf. Restatement § 197 cmt. c. – we are hard-pressed to see how the parties

6   could have had a justified expectation to that effect.4 In the absence of such support, we are

7   comfortable concluding that our own firmly grounded policy of enforcing contractual obligations

8   assumed by sophisticated commercial entities should apply. 5


           4
             We also disagree with the dissent that we are required to take Machado’s articulartion of
    various propositions of Brazilian law at face value, see Dissenting Op. at 15-17, when Machado
    then refers to and quotes specific provisions of Brazilian law that do not support those
    representations. Unlike Curley v. AMR Corp., 153 F.3d at 12, we do not find that Lilly’s
    submissions of Brazilian law were insufficient to conduct a proper choice of law analysis;
    instead, we find that Lilly’s representations contradict the actual provisions of Brazilian law that
    govern.
           5
             The dissent argues that a State’s strong policy interest predominates over the justified
    expectations of the parties that a contractual damages provision is valid. See Dissenting Op. at
    11-13. While it is possible that evidence of a strong policy interest may overcome the
    presumption of enforceability of a contract provision, no such Brazilian policy has been
    identified.
             Confoundedly, the dissent argues that we need not concern ourselves with what Brazilian
    law is, in determining Brazil’s policy interests. See Dissenting Op. at 14. It seems obvious to us
    that whether or not Brazilian law has an invalidating rule governing ground transport is
    particularly relevant to whether Brazil, in fact, has a strong policy interest in this issue that is
    owed deference. The Restatement acknowledges that “[t]he content of the relevant local rule of a
    state may be significant in determining whether this state is the state with the dominant interest.”
    Restatement (Second) Conflict of Laws § 6 cmt. f. In this case, the provisions of Brazilian law
    submitted by Lilly reflect policies that are either completely at odds with what the parties
    contracted for (i.e., would never allow a provision that limits ground carriage damages) or that
    have no relationship to the issue before us (i.e., would only apply to air carriage losses and not
    ground carriage).


                                                     12
1                                III. CONCLUSION

2   The judgment of the District Court is affirmed.




                                           13
 1   #06-0530

 2   Eli Lilly v. Fed Ex

 3

 4   MESKILL, Circuit Judge, dissenting:

 5              I agree that we should apply the federal common law’s

 6   choice of law rules to determine whether this contract is

 7   governed by Brazilian law or federal common law and that we may

 8   look to the Restatement (Second) of Conflict of Laws (1971) (the

 9   Restatement) for guidance.   However, I disagree with the

10   majority’s conclusion that under federal common law and the

11   Restatement the United States has a greater interest in this

12   litigation than does Brazil.   I believe that Brazil’s strong

13   interest in regulating commerce within its borders trumps any

14   interest of the United States in enforcing this contract.

15   Therefore, I respectfully dissent.

16   I.   The Restatement (Second) of Conflict of Laws

17              The Restatement has four provisions that offer guidance

18   as to how we should resolve this conflict between Brazilian law

19   and federal common law.   See Restatement §§ 6, 188, 197 and 207.

20   My analysis begins with the Restatement provisions that

21   specifically apply to conflicts in contract law because “a

22   specific statute controls over a general one.”   Bulova Watch Co.

23   v. United States, 365 U.S. 753, 758 (1961); see also United


                                     14
 1   States v. Torres-Echavarria, 129 F.3d 692, 699-700 n.3 (2d Cir.

 2   1997) (“The operative principle of statutory construction is that

 3   a specific provision takes precedence over a more general

 4   provision.”).

 5        A.   Section 197 of the Restatement Sets Brazil as the
 6             Default Jurisdiction Because the Goods Were Dispatched
 7             From Brazil

 8             The FedEx Air Waybill called for the transportation of

 9   Lilly’s goods from Brazil to Japan.   The Waybill contained no

10   choice of law provision.   Under Restatement § 197 contracts for

11   the transportation of goods are governed “by the local law of the

12   state from which . . . the goods are dispatched.”   Section 197

13   sets Brazil as the default jurisdiction because the state of

14   dispatch “will naturally loom large in the minds of the parties”

15   and it “has a natural interest in the contract of transportation

16   and in many instances has a greater interest in the contract than

17   the state of destination, if for no other reason than that there

18   can be no absolute certainty at the time of the departure that

19   . . . the goods will reach the latter state.”   Restatement § 197

20   cmt. b.

21             However, while § 197 sets Brazil as the default

22   jurisdiction, it also provides for the possibility that another

23   state may have “a more significant relationship under the

24   principles stated in § 6 to the contract and to the parties.”


                                     15
 1   Furthermore, “[o]n occasion” the law of a state other than the

 2   state of dispatch might apply.   Restatement § 197 cmt. c.     This

 3   may occur if the contract is invalid under the law of the state

 4   of dispatch but valid under the law of a state with “a close

 5   relationship to the transaction and the parties.”      Id.   Thus,

 6   Brazil’s laws will govern this contract unless the United States

 7   has either a “more significant relationship” to the contract and

 8   to the parties than does Brazil, Restatement § 197 (emphasis

 9   added), or the contract is invalid under Brazilian law and the

10   United States has a “close relationship” to the contract and to

11   the parties, Restatement § 197 cmt. c (emphasis added).      Leaving

12   aside for the moment the issue of whether the FedEx Air Waybill

13   is valid under Brazilian law, I turn to Restatement § 188 for

14   guidance in determining whether the United States has a

15   significant or close relationship to the contract or to the

16   parties.

17        B.    Under § 188 of the Restatement Brazil Has the Most
18              Substantial Contacts With the Contract and With the
19              Parties

20              Section 188 of the Restatement is designed to help

21   courts resolve a conflict of laws that involves “an issue in

22   contract.” Restatement § 188(1).      To determine which state has

23   “the most significant relationship to the transaction and the

24   parties,” id., the court evaluates the following five contacts:


                                      16
 1        (a) the place of contracting,
 2        (b) the place of negotiation of the contract,
 3        (c) the place of performance,
 4        (d) the location of the subject matter of the contract,
 5        and
 6        (e) the domicil, residence, nationality, place of
 7        incorporation and place of business of the parties.


 8   Id. § 188(2)(a)-(e).   Once these contacts are known, the court

 9   takes them “into account” by “applying the[m to] the principles

10   of § 6.”   Id. at § 188(2).   The § 6 principles are those general

11   considerations that “underlie all rules of choice of law,” id. at

12   § 188(1) cmt. b.:

13        (a) the needs of the interstate and international
14        systems,
15        (b) the relevant policies of the forum,
16        (c) the relevant policies of other interested states
17        and the relative interests of those states in the
18        determination of the particular issue,
19        (d) the protection of justified expectations,
20        (e) the basic policies underlying the particular field
21        of law,
22        (f) certainty, predictability and uniformity of result,
23        and
24        (g) ease in the determination and application of the
25        law to be applied.

26   Id. at § 6(1).   Thus, to determine whether the United States has

27   a “significant” or “close” relationship to the contract and to

28   the parties, the Court must first evaluate each state’s § 188(2)

29   contacts with the FedEx Air Waybill.

30              1.    The Place of Negotiation Was Brazil

31              The FedEx Air Waybill was negotiated between FedEx and

32   Lilly’s Brazilian freight forwarder Nippon Express do Brasil,

                                      17
 1   Ltda (Nippon Express) in Brazil.     The contract between FedEx and

 2   Jumbo Jet Transportes Internacionais, Ltda (Jumbo Jet), and the

 3   contract between Lilly and Nippon Express, also were negotiated

 4   in Brazil.

 5             2.   The Place of Contracting Was Brazil

 6             The FedEx Air Waybill was issued to Nippon Express in

 7   Brazil by the FedEx office in São Paolo.    In addition, the

 8   following contracts were executed in Brazil: (1) Lilly’s contract

 9   with Nippon Express, (2) Nippon Express’ subcontract with FedEx,

10   and (3) FedEx’s subcontract with Jumbo Jet.

11             3.    Performance Under the Contract Occurred Only In
12                   Brazil

13             Lilly contracted with Nippon Express to transport the

14   fourteen drums of Cephalexin from Lilly’s factory in Cosmopolis,

15   São Paolo, Brazil to Lilly’s customer in Iwate, Japan.    Nippon

16   Express picked up the pharmaceuticals from Lilly’s factory in São

17   Paolo and transported them to the Nippon Express freight

18   forwarding facility at Cumbica Airport in Guarulhos, Brazil.

19   Nippon Express then subcontracted with FedEx to deliver the

20   shipment to Narita International Airport in Chiba, Japan.

21             FedEx picked up and accepted the pharmaceutical cargo

22   at the Nippon Express freight forwarding facility in Guarulhos,

23   Brazil and subcontracted with Jumbo Jet to transport the cargo

24   locally from Guarulhos to an airport FedEx uses for international

                                     18
 1   shipments located in Viracopos, Brazil.    While the goods were on

 2   a Jumbo Jet truck on route to Viracopos the truck was hijacked

 3   and the pharmaceuticals were stolen.    Had the pharmaceuticals

 4   made it to Viracopos, FedEx would have transported them to Chiba,

 5   Japan via São Paolo and Memphis, Tennessee.    However, because the

 6   Jumbo Jet truck was hijacked the only performance that ever took

 7   place under the contract occurred in Brazil.

 8                Admittedly, performance under the contract also would

 9   have taken place in the United States had the shipment not been

10   hijacked.1    However, the goods were only to enter the United

11   States briefly so that FedEx could route them through its hub in

12   Memphis before sending them on to Japan.    The United States was

13   neither the final destination state nor the state of dispatch.

14   The cargo’s planned brief stopover in Memphis is an insignificant

15   contact when compared with the performance that actually took

16   place in Brazil, especially considering that the performance that

17   is the subject of this contract dispute -- the ground

18   transportation between Guarulhos to the airport located in



          1
           Restatement § 188(3) provides that when “the place of
     negotiating the contract and the place of performance are in the
     same state, the local law of this state will usually be applied.”
     In this case, the place of negotiating was Brazil but the place
     of performance was both Brazil and the United States.
     Nevertheless, because what little performance occurred was in
     Brazil, § 188(3) serves to highlight Brazil’s significant
     interest in the contract.

                                       19
 1   Viracopos -- occurred only in Brazil.    Therefore, while the

 2   contract called for performance in both the United States and

 3   Brazil, because the shipment originated in Brazil, the little

 4   performance that occurred under the contract occurred in Brazil.

 5   The goods never left Brazil.   Thus the § 188(2)(c) contact weighs

 6   heavily in favor of Brazil.

 7             4.    The Subject Matter of the Contract Was Located in
 8                   Brazil

 9             The pharmaceutical cargo was in Brazil at the time of

10   contracting and FedEx never transported the cargo out of Brazil.

11             5.    The Parties Involved Are Either Brazilian
12                   Companies Or Companies That Regularly Conduct
13                   Business in Brazil

14             Lilly, Nippon Express and Jumbo Jet are all Brazilian

15   companies domiciled in Brazil.   FedEx is not a Brazilian company.

16   Nevertheless, FedEx regularly conducts business in Brazil and the

17   Air Waybill here was issued by the FedEx office in São Paolo.

18        C.   When the § 188(2) Factors Are Taken Into Account and
19             Applied to the § 6 Principles Brazil Emerges as the
20             State With the Most Significant Relationship to the
21             Transaction and to the Parties

22             “The states which are most likely to be interested [in

23   the contract] are those which have one or more of the [§ 188(2)]

24   contacts.”   Restatement § 188 cmt. e.   Brazil has the most

25   substantial § 188(2) contacts with the FedEx Air Waybill and with

26   the parties.   While the majority admits that Brazil’s § 188(2)


                                      20
 1   contacts are “important ones,” they never proceed to the next

 2   step and take those contacts into account and apply them to the

 3   principles of § 6.   Instead, the majority concludes that two of

 4   the § 6 principles -- (1) the relevant policies of other

 5   interested states and the relative interests of those states in

 6   the determination of the particular issue, and (2) the justified

 7   expectations of the parties -- “emerge as determinative” in favor

 8   of applying federal common law.

 9             The majority concludes that federal common law applies

10   over Brazilian law without pointing to a single § 188(2) contact

11   that the United States has with either the FedEx Air Waybill or

12   with the parties.    In addition, the majority never acknowledges

13   that under § 197 Brazil is the default jurisdiction whose laws

14   govern this contract unless the United States has a “significant”

15   or “close” relationship to the contract.   In my view, §§ 188 and

16   197 are specific provisions addressing conflicts in contract law

17   that should take precedence over the more general § 6 principles.

18   See Bulova, 365 U.S. at 758.   Therefore, I would follow the

19   Restatement and take each states’ § 188(2) contacts into account

20   and apply them to the § 6 principles.   When this is done, Brazil

21   emerges as the only state with a “significant” or “close”

22   relationship to the contract and to the parties.

23             I agree with the majority that the most important § 6


                                       21
 1   principles implicated by this conflict of laws are (1) the

 2   relevant policies of the forum, (2) the relevant policies of

 3   other interested states and the relevant interests of those

 4   states in the determination of the particular issue, and (3) the

 5   protection of justified expectations.    See Restatement § 6(b),(c)

 6   & (d).    I also agree with the majority’s conclusion that under

 7   our federal common law choice of law rules there is “some

 8   presumption in favor of applying that law tending toward the

 9   validation of [an] alleged contract.”    Kossick v. United Fruit

10   Co., 365 U.S. 731, 741 (1961).

11               The presumption in favor of applying the law that tends

12   to validate a contract is important where the alternative is no

13   contract at all.    This was the conflict of laws choice presented

14   in Kossick, but it is not the conflict of laws choice presented

15   here.    In this case application of Brazilian law may invalidate

16   one provision in the FedEx Air Waybill and then only under

17   limited circumstances.    However, in Kossick the Court was faced

18   with a much more drastic choice: (1) apply the New York Statute

19   of Frauds, which would render the alleged oral contract wholly

20   invalid, or (2) apply federal maritime law, which generally

21   upholds oral contracts.    365 U.S. at 733-34.   Even though the

22   application of New York law would have completely invalidated the

23   contract, the Kossick Court did not treat that factor as


                                      22
 1   dispositive, but instead analyzed whether the contract was

 2   “sufficiently related to peculiarly maritime concerns” and

 3   whether the contract “though maritime” was “maritime and local.”

 4   Id. at 738 (internal quotation marks omitted).

 5             The Kossick Court never treated the presumption in

 6   favor of applying the law that would validate the contract as

 7   dispositive, and under circumstances that presented a much more

 8   compelling case for adherence to the presumption than those

 9   presently before the Court.   Instead, the presumption was just

10   one of “several considerations” the Kossick Court discussed in

11   its choice of law analysis.   Id. at 741.2   I find no support in

12   Kossick for the majority’s conclusion that we must ignore all

13   other traditional choice of law factors and instead apply federal

14   common law because it validates this contract, particularly when

15   it is Brazil that has the dominant interest in this litigation

16   and applying Brazilian law could only affect the amount of

17   damages in a limited situation.    Even if the presumption in favor

18   of applying the law that tends to validate contracts applies

19   here, with all of the § 188(2) contacts, Brazil has easily

20   rebutted the presumption.


          2
           The other considerations were whether the contract was
     “essentially maritime [in] character,” whether the contract could
     have been made “anywhere in the world” and whether its validity
     “should be judged by one law wherever it was made,” and whether
     New York had a significant interest in the contract. Id.

                                       23
 1             Furthermore, while the federal common law’s presumption

 2   in favor of applying the law that tends to validate contracts

 3   might mean that the United States has a general interest in

 4   validating contracts, the United States still does not have a

 5   “significant” or “close” relationship with this contract.

 6   Therefore, under § 197 Brazil remains as the default jurisdiction

 7   whose laws govern this contract of transportation regardless of

 8   whether the liability limitation is valid under Brazilian law.

 9   The Restatement does not elevate the forum state’s interests

10   above any other state’s, nor should we.3

11             I also disagree with the majority’s conclusion that the

12   protection of the justified expectations of the parties mandates

13   application of federal common law.   First, because choice of law

14   is not expressed in the Waybill the justified expectations of the

15   parties, like the other § 6 principles, must be analyzed in

16   accordance with each state’s § 188 contacts.   The United States

17   does not have any significant § 188 contacts with this contract.

18   However, Brazil served as the place of negotiation and execution

19   of the contract, the majority of the companies are domiciled in

20   Brazil, and the contract called for the transportation of goods



          3
           The United States’ interest in enforcing contracts will
     arise in any choice of law contract case litigated in its courts,
     even when the only contact it has with the contract is that it is
     the state where the lawsuit was brought.

                                     24
 1   located in Brazil out of Brazil.     Under these circumstances, I

 2   believe that the parties would be wholly justified in expecting

 3   that their contract was governed by Brazilian law.

 4             Second, there has been no allegation by either party

 5   that the contract would be rendered completely invalid under

 6   Brazilian law.   We are only concerned with the validity of the

 7   limitation of liability provision and then only under certain

 8   conditions.   I agree with the Restatement commentary that while

 9   “the expectations of at least one of the parties would presumably

10   be disappointed if the [damages] provision is found to be

11   invalid[,] [o]n the other hand, a rule declaring such a provision

12   invalid is likely to represent a strongly-felt policy which the

13   forum would be hesitant to override if the state with the

14   invalidating rule was the state with the dominant interest in the

15   issue to be decided.”   Restatement § 207 cmt. c.4   Regardless of


          4
           Section 207 of the Restatement addresses conflict of laws
     involving damages provisions in breach of contract claims. While
     the text of § 207 provides that “[t]he measure of recovery for a
     breach of contract is determined by the local law of the state
     selected by application of the rules of §§ 187-188,” the
     commentary minimizes the importance the justified expectations of
     the parties have in cases such as this, where the only conflict
     involves the measure of recovery:

          [Q]uestions involving the measure of recovery for
          breach of contract will be determined in accordance
          with the law selected by application of the rule of
          § 188. This rule in turn calls for the application of
          the choice-of-law principles stated in § 6, of which
          one . . . is the protection of the justified

                                     25
1   what the parties expectations were, Brazil is the state with the

2   dominant interest in this litigation and by applying federal

3   common law we are overriding Brazil’s “strongly-felt policy”

4   regarding the validity of the damages provision.

5             Third, while I agree with the majority that in many

6   cases “the protection of the justified expectations of the

7   parties is of considerable importance in contracts,” Restatement



         expectations of the parties. This principle, however,
         has little role to play with respect to the measure of
         damages. In the absence of a provision in the contract
         dealing explicitly with the question of damages, it is
         improbable that the parties gave thought before
         entering the contract to what the measure of damages
         would be in the event of breach. Hence, the expectations
         of the parties are unlikely to be disappointed by
         application of the rule of one state rather than of the
         rule of another state. In such circumstances, the
         forum, in determining which is the state of the
         applicable law with respect to the measure of damages,
         will usually give primary weight to the choice-of-law
         principle, also mentioned in § 6, which seeks the
         effectuation of the relevant policies of the state with
         the dominant interest in the issue to be determined.

         The situation is essentially the same where the issue
         involves the validity of a provision in the contract
         dealing with the measure of damages. Here the
         expectations of at least one of the parties would
         presumably be disappointed if the provision is found to
         be invalid. On the other hand, a rule declaring such a
         provision invalid is likely to represent a
         strongly-felt policy which the forum would be hesitant
         to override if the state with the invalidating rule was
         the state with the dominant interest in the issue to be
         decided.

    Id. at § 207 cmt. c.

                                    26
 1   § 188 cmt. b, I do not agree that to protect the justified

 2   expectations of the parties we should enforce blindly the

 3   contract as written where no choice of law is expressed and that

 4   choice might determine the damages allowed.   If the majority’s

 5   interpretation of the Restatement is correct, then §§ 188, 197

 6   and 207 serve no purpose, and we need never consider whether the

 7   United States or any other interested state has any contacts with

 8   a contract.   I do not believe that the presumption in favor of

 9   applying the law that tends toward the validation of the contract

10   has supplanted the traditional choice of law analysis embodied in

11   the Restatement.

12               Of course, where two states have significant interests

13   in the contract the common law presumption in favor of applying

14   the law of the state that tends to validate the contract might

15   prove dispositive.   However, this is not such a case.   Brazil’s

16   interest in regulating commerce within its own borders heavily

17   outweighs any interest the United States has in enforcing this

18   contract.   The Supreme Court has instructed courts to “construe[]

19   ambiguous statutes to avoid unreasonable interference with the

20   sovereign authority of other nations.”    F. Hoffmann-La Roche Ltd.

21   v. Empagran S.A., 542 U.S. 155, 164 (2004); see also Murray v.

22   The Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804)

23   (“[A]n act of congress ought never to be construed to violate the


                                      27
 1   law of nations if any other possible construction remains.”).

 2   Here we are dealing only with a judicially created common law

 3   presumption and not an act of Congress, yet the majority somehow

 4   concludes that this presumption is an interest that trumps

 5   Brazil’s sovereign authority.

 6   II.   Lilly’s Evidence of Brazilian Law

 7              Finally, the majority faults Lilly for failing to

 8   provide sufficient evidence that Brazilian law does not allow

 9   common carriers to limit their damages when they are grossly

10   negligent.    However, the issue before the Court is whether

11   Brazilian law applies -- not what Brazilian law is.    I do not see

12   why we need to consider the particulars of Brazilian law at this

13   stage of the proceedings.

14              But even assuming arguendo that the content of

15   Brazilian law should play a role in resolving this conflict of

16   laws, Lilly has supplied sufficient evidence that Brazil treats

17   limitation of liability provisions differently than does the

18   United States.    The majority dismisses the Machado declaration as

19   offering “no real support” for Lilly’s assertion that Brazilian

20   law does not allow FedEx to limit its liability for acts of gross

21   negligence.    However, the Machado declaration plainly states that

22   “a common carrier is not entitled to limit its liability if found

23   to be grossly negligent in the care of the cargo while said cargo


                                      28
 1   was in its custody, control and possession or in the custody,

 2   control and possession of its duly appointed agent or sub-

 3   contractor.”   Under the Federal Rules of Civil Procedure,

 4   district courts are allowed to make determinations regarding

 5   foreign law by considering “any relevant material or source,

 6   including testimony, whether or not submitted by a party or

 7   admissible under the Federal Rules of Evidence.”    Fed. R. Civ. P.

 8   44.1.   We have “urge[d] district courts to invoke the flexible

 9   provisions of Rule 44.1 to determine issues relating to the law

10   of foreign nations” because “such issues can be expected to come

11   to the federal courts with increasing frequency as the global

12   economy expands and cross-border transactions increase.”     Curley

13   v. AMR Corp., 153 F.3d 5, 13 (2d Cir. 1998).   Nevertheless, the

14   majority finds the Machado declaration insufficient despite the

15   Federal Rules of Civil Procedure and our case law that would

16   allow the district court to rely on it.   This is an odd

17   conclusion because FedEx never challenged Lilly’s

18   characterization of Brazilian law.

19              In the district court proceedings FedEx decided not to

20   submit proof of Brazilian law because “such is premature at this

21   point,” and in its brief to this Court FedEx mistakenly informs

22   us that “the parties did not offer factual proof of the substance

23   of Brazilian law.”   However, only FedEx failed to provide proof


                                     29
 1   of Brazilian law.   Lilly’s characterization of Brazilian law and

 2   the Machado declaration are unchallenged.5

 3             I also disagree with the majority’s conclusion that

 4   Lilly failed to address whether the parties could contract around

 5   Brazilian law.   The Machado declaration states that “a common

 6   carrier is not entitled to limit its liability if found to be

 7   grossly negligent.”   The plain meaning of this sentence is that

 8   common carriers in Brazil cannot limit their liability for

 9   grossly negligent acts even if they try.

10             For the foregoing reasons, I respectfully dissent from

11   the majority opinion.   I would vacate the district court’s

12   judgment and remand this case to allow the district court to

13   determine whether the limitation of liability provision in the

14   FedEx Air Waybill is valid and enforceable under Brazilian law.




          5
           FedEx even appears to concede that Brazilian law would
     render the limitation provision invalid: “Eli Lilly seeks to
     apply Brazilian law, which would not enforce the limitation if
     Eli Lilly can prove that FedEx acted with gross negligence or
     willful misconduct.”

                                     30
