Rational Software Corporation v. Sterling Corporation

United States Court of Appeals
For the First Circuit
No. 04-1607
RATIONAL SOFTWARE CORPORATION,
Plaintiff, Appellant,
v.
STERLING CORPORATION,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Lynch, Circuit Judge,
Cyr, Senior Circuit Judge,
and Howard, Circuit Judge.
Jonathan D. Hurwitz with whom Cozen O'Connor was on brief, for
appellant.
Lawrence F. Boyle with whom Richard M. Dohoney and Morrison
Mahoney LLP were on brief, for appellee.
January 5, 2005

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HOWARD, Circuit Judge. On February 1, 2001, Rational
Software, a California company, hired Sterling Corporation, a
Massachusetts company, to move a computer disk array ("computer")
between two of Rational's Massachusetts facilities. The computer
weighed 1540 pounds and was worth $250,000. Sterling's employees
broke the computer during the move. Invoking diversity jurisdiction,
Rational sued Sterling to recover the value of the computer. After
a short bench trial, the district court entered judgment in favor of
Rational for $924 after finding that the parties had agreed to limit
Sterling's liability to sixty cents per pound. Rational appeals.
Absent clear error, we accept the district court's findings
of fact. See Fed. R. Civ. P. 52(a). We review pure issues of law
de novo, including questions of statutory interpretation. See Bonano
v. East Carribean Airline Corp., 365 F.3d 81, 83 (1st Cir. 2004).
The interpretive question presented is whether the carrier's
limitation of liability provision, well known to Rational, the
shipper, by a prior course of dealings, is effective, when, in the
instance of damaged goods, the bill of lading is not given to the
shipper until after the damage occurred. We hold that Massachusetts
law would consider the prior course of dealing between the parties.
Because the district court's conclusions about the prior course of
dealings are well supported by the evidence, we affirm
The district court found the following facts all of which
are supported by the record. Between 1997 and 2001, Rational engaged

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Sterling to move items between its various Massachusetts facilities
over 200 times. For each move, Sterling issued Rational a bill of
lading. The bill contained a section for a Rational representative
to sign acknowledging that the goods were delivered as previously
agreed. The bill also included a liability-limiting section. This
section appeared in bold print and read: "Unless A Different Value
Is Declared, The Shipper Hereby Releases The Property To A Value Of
$.60 Per Pound Per Article." Immediately after this provision, there
was a space for Rational to declare a higher value.
In addition to the bill of lading, the sixty cent per pound
limitation was stated in Sterling's Commodity Rate Tariff, which was
filed with the Massachusetts Department of Telecommunications and
Energy. The tariff stated that, if a shipper wanted to declare a
different value for its goods, it had to enter the value on the bill
of lading. The tariff was referenced in every bill of lading that
Sterling issued to Rational.
Besides written notification, Sterling orally advised its
customers of the liability limitation. Sterling told its customers
that if they wanted additional insurance for their property they
could either declare a higher value for the goods and pay Sterling
a commensurately higher price or purchase additional coverage from
another insurer.
Rational's moving needs for its Massachusetts facilities
were managed by Michael Horn. For each delivery, Horn or another

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Rational employee signed the bill of lading's delivery acknowledgment
section. The liability-limiting provision was initialed by a
Rational employee on only three occasions. On the remaining bills,
this section was left blank. Rational never declared a value for its
goods in excess of sixty cents per pound.
Sterling, through Terrence Deignan, the employee
responsible for the Rational account, had informed Horn about the
liability limitation well before the February 2001 move. Horn does
not dispute that he knew about the limitation on February 1, 2001.
Indeed, Horn testified that he knew that "if [Rational] wanted more
insurance [it] could either buy it through [its] own insurance
company or through [Sterling's] insurance company." Horn
acknowledged that "it was [his] understanding that [Rational's]
relationship with [Sterling was] such that [Rational] would be
insured for sixty cents per pound unless [Rational] paid more."
On February 1, 2001, Horn contacted Deignan to request that
Sterling move the computer between two of Rational's facilities in
Lexington, Massachusetts. Horn did not know the value of the
computer when he ordered the move.
When Sterling's employees arrived to pick up the computer,
they did not present Rational with a bill of lading. During the
move, Sterling's employees damaged the computer by dropping it.
Shortly afterwards, Horn received a bill of lading for the move. The
bill was identical to the bills used in the preceding 200 moves but

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stated that the computer had suffered as yet undetermined damage
because of the accident. Horn signed the bill in the delivery
acknowledgment section and (as usual) left the liability-limiting
section blank.
Soon after the accident, Horn learned that the computer was
far more valuable than he initially had thought. During one of their
early discussions about the accident, Deignan reminded Horn that
Sterling's liability was limited to sixty cents per pound because
Rational had not declared a higher value for the computer. Horn
testified that he had not declared a higher value for the computer
because he did not know its value, and, in any event, thought that
Rational had its own insurance for the computer.
Eventually Rational brought a negligence action against
Sterling to recover the full value of the computer. The parties
stipulated that Sterling was negligent in handling the computer and
that the computer was worth $250,000. The district court held a two-
day bench trial to decide whether Sterling had effectively limited
its liability to sixty cents per pound.
In a published opinion, the district court held that
Sterling had effectively limited its liability. See Rational
Software Corp. v. Sterling Corp., 311 F. Supp. 2d 203 (D. Mass.
2004). The court based its judgment on two independent grounds: (1)
through its prior course of dealings with Sterling, Rational was
aware of and accepted the liability limitation in advance of the

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February 2001 move, and (2) in any event, Rational accepted the
liability limitation when it, through Horn, acknowledged delivery of
the bill of lading without declaring a higher value for the computer.
See id. at 209-11. We address only the first ground of decision as
it supplies a sufficient basis to affirm the judgment.
We review the district court's legal rulings de novo, see
Watson v. Deaconess Waltham Hosp., 298 F.3d 102, 108 (1st Cir. 2002),
mindful that we must "determine whether the decision below is
reasonable in light of the entire record," Persson v. Scotia Prince
Cruises, Ltd., 330 F.3d 28, 31 (1st Cir. 2003). In conducting our
review, we accord "respect to the district court's 'opportunity to
hear the testimony, observe the witnesses' demeanor, and evaluate the
facts first hand.'" Id. (quoting United States v. Nee, 261 F.3d 79,
84 (1st Cir. 2001)).
The only issue presented on appeal is whether the district
court supportably conclude that Sterling had limited its damages
liability to sixty cents per pound. Because the move in which the
damages occurred took place within Massachusetts, the dispute is
governed by Massachusetts law, specifically Mass. Gen. Laws ch. 106,
§ 7-309(2). The Uniform Commercial Code establishes the requirements
for a carrier who wishes to limit its liability for goods damaged
during a move. The statute provides:
Damages may be limited by a provision that
the carrier's liability shall not exceed
a value stated in the document if the
carrier's rates are dependent upon value

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and the [shipper] by the carrier's tariff
is afforded an opportunity to declare a
higher value or a value as lawfully
provided in the tariff, or where no tariff
is filed he is otherwise advised of such
opportunity.
Mass. Gen. Laws ch. 106, § 7-309(2). The "document" referenced in
§ 7-309(2) is a "document of title," which includes "a bill of
lading." See Mass. Gen. Laws ch. 106, § 7-102(e); Mass. Gen. Laws
ch. 106, § 1-201(15).
Rational concedes that Sterling had in place all of the
mechanisms required by § 7-309(2) to limit its liability: Sterling's
rates were dependent on value, Sterling used a bill of lading
containing a liability limitation, and Sterling filed a tariff
containing a liability-limiting provision. But Rational contends
that Sterling did not effectively implement these mechanisms because
Sterling did not issue the bill of lading until after the accident.
Rational also argues that the tariff's liability-limiting provision
should not apply because Sterling regularly varied from the tariff
requirements in its dealings with Rational. Sterling counters by
reiterating the argument on which it prevailed below: that regardless
of when the bill of lading was delivered and whether it adhered to
the terms of its tariff, Rational knew from the parties' prior course
of dealings that Sterling's liability was limited to sixty cents per
pound.
Massachusetts courts have not previously interpreted Mass.
Gen. L. ch. 106, § 7-309(2) in this context. But because § 7-309(2)

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is part of the Uniform Commercial Code, we look to other
jurisdictions for guidance. See Canter v. Schalger, 267 N.E.2d 492,
494 (Mass. 1971); Capital Corp. v. M&S Liquidating Corp., 542 N.E.2d
603, 605 (Mass. App. Ct. 1989).
A prior course of dealing between the parties is
"admissible to show the practice of the parties of limiting
liability" in a transaction for the shipment of goods. 7A Ronald A.
Anderson, Uniform Commercial Code, § 7-309:10 (3d ed. 2001); see also
Ins. Co. of N. Am. v. NNR Aircargo Serv. USA Inc., 201 F.3d 1111,
1113 (9th Cir. 2000); Capitol Converting Equip., Inc. v. LEP
Transp., Inc., 965 F.2d 391, 395-96 (7th Cir. 1992); Calvin Klein v.
Trylon Trucking Corp., 892 F.2d 191, 194 (2d Cir. 1989).
Massachusetts law relies on prior course of dealings in analogous UCC
contexts. See Falvey Cargo Underwriting, Ltd. v. Metro Freezer &
Storage, LLC, No. 0004428, 2002 WL 31677198 (Mass. Super. Ct. Nov.
1, 2002) (looking toward the parties' course of dealing to conclude
that, under the UCC, a warehouseman established that the bailor had
agreed to accept a limitation on the warehouseman's liability for
damaged goods under his control), aff'd 810 N.E.2d 1290 (Mass. App.
Ct. 2004) (unpublished disposition). "A course of dealing is a
sequence of previous conduct between the parties to a particular
transaction which is fairly to be regarded as establishing a common
basis of understanding for interpreting their expressions and other
conduct." Mass. Gen. L. ch. 106, § 1-205(1).

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The evidence in this case supports the district court's
conclusion that the parties, through their prior course of dealing,
understood and agreed that Sterling's liability would be limited to
sixty cents per pound unless Rational declared a higher value. Prior
to the February 2001 move, Rational had engaged Sterling for over 200
jobs. For each move, Rational received a bill of lading which
prominently displayed the liability limitation and referenced
Sterling's tariff (which, as set forth above, contained the liability
limitation). Moreover, Deignan, Sterling's employee in charge of the
Rational account, had orally informed Horn, the responsible Rational
employee, of the limits on Sterling's liability well before the move.
Horn confirmed that he had been so informed and that he knew of his
obligation to declare a higher value should Rational wish to avoid
application of the liability-limiting provision. In view of these
facts, the court did not err in enforcing the provision.
This case is much like the Calvin Klein case decided by the
Second Circuit. In Calvin Klein, the shipper had engaged the carrier
to deliver hundreds of shipments over a three-year period. 892 F.2d
at 192. After each shipment, the carrier provided the shipper with
an invoice declaring that liability for the shipment was limited to
$50 unless the shipper declared a higher value and paid a
correspondingly higher price for the delivery. Id.
After the carrier lost one of the shipments, the shipper
sued for the full value of the lost goods, arguing that there was no

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limitation on the carrier's liability because the invoice for the
lost shipment was not delivered until after the loss. Id. at 193.
Interpreting New York's version of UCC § 7-309(2) (which is identical
to Massachusetts' version), the Second Circuit held that the parties'
course of dealing served to put the shipper on notice of the
liability limitation notwithstanding the date of the delivery of the
invoice. Id. at 194. There are other cases to similar effect. See
e.g., Ins. Co. of N. Am., 201 F.3d at 1113-14 (holding carrier's
liability limitation valid, despite late delivery of invoice, because
of prior course of dealing involving 47 transactions).
Affirmed.

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