the Paper Magic Group, Inc v. J. B. Hunt Transport, Inc

PRECEDENTIAL
Filed January 16, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-3500
THE PAPER MAGIC GROUP, INC.
v.
J. B. HUNT TRANSPORT, INC.,
Appellant
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 00-cv-05590)
District Judge: Honorable Norma L. Shapiro
Argued June 24, 2002
Before: BECKER, Chief Judge, ALITO and
AMBRO, Circuit Judges
(Opinion filed: January 16, 2003)
James A. Wescoe, Esquire (Argued)
Timothy J. Abeel, Esquire
Rawle & Henderson LLP
One South Penn Square
The Widener Building
Philadelphia, PA 19107
Attorneys for Appellant
Charles L. Howard, Esquire
Gollatz, Griffin & Ewing
Two Penn Center
6th Floor
Philadelphia, PA 19102
George Carl Pezold, Esquire
Raymond A. Sevaggio, Esquire
(Argued)
Augello, Pezold & Hirschmann, P.C.
120 Main Street
Huntington, NY 11743
Attorneys for Appellee
OPINION OF THE COURT
AMBRO, Circuit Judge:
This case involves an award of damages against a carrier

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caused by a four-month delay in its delivery of a shipment
of seasonal goods. The District Court awarded the shipper
the entire invoice value for damages. The carrier appeals,
arguing that the award constituted impermissible special
damages. Because the award represents actual (or general)
damages, we affirm.
I. Background
The Paper Magic Group, Inc. ("Paper Magic"), a maker of
greeting cards and seasonal paper goods, delivered a
shipment of boxed Christmas cards and related holiday
merchandise, specially developed and packaged for Paper
Magic’s customer, Target Stores, Inc. ("Target"), to J. B.
Hunt Transport, Inc. ("Hunt") on October 16, 1998. Hunt
was to transport the goods from Danville, Pennsylvania, to
Target in Oconomowoc, Wisconsin. The shipment’s invoice
value was $130,080.48. Shipments of this nature are
usually delivered within two to three days, but the bill of
lading did not specify a delivery time or indicate that the
goods were time-sensitive in nature.
This shipment got lost in the shuffle. Hunt located it on
February 5, 1999, almost four months after it received the
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goods, at its facility in Chicago, Illinois. It then notified
Paper Magic, which had been unaware of the delay because
Target was not scheduled to pay for the goods until March
1999. Hunt offered to deliver the goods first to Target, and
then to Paper Magic, but both refused--the goods were
worthless to Target because it was now after Christmas,
and worthless to Paper Magic because the cards were
packaged with Target’s private label and could not therefore
be sold to other vendors.
Paper Magic was a regular Hunt customer, and their
relationship was governed by a 1995 transportation
agreement. This agreement set out Hunt’s liability, in the
case of a shipment being "lost, damaged, or destroyed," as
"the price charged by Shipper to its customers" with
reasonable salvage value of any damaged goods deducted
from the price paid. This presumes that the shipper, rather
than the carrier, sold the goods for their salvage value, a
presumption that, as noted below, did not occur.
On April 26, 1999, Paper Magic demanded the full invoice
price from Hunt for the lost shipment. In June of that year,
Hunt sold the goods at salvage for $49,645.96. It offered
this amount "as a full and final settlement" of Paper Magic’s
claim. Paper Magic rejected the offer, and filed an action
against Hunt under 49 U.S.C. S 14706, the Carmack
Amendment to the Interstate Commerce Act, seeking the
full contract price in damages. Both parties moved for
summary judgment. The District Court granted Paper
Magic’s motion, awarding $130,080.48 plus interest, and
denied Hunt’s cross-motion. Hunt appealed.1

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II. Discussion
The Carmack Amendment governs the liability of
common carriers on bills of lading. A bill of lading is a
transportation contract between a shipper/consignor (i.e., a
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1. 49 U.S.C. S 14706 and 28 U.S.C. S 1337(a) gave the District Court
jurisdiction, because the action arises under a federal statute regulating
commerce, and the matter in controversy exceeds $10,000. We have
appellate jurisdiction over the District Court’s final order pursuant to 28
U.S.C. S 1291, and exercise plenary review over the District Court’s grant
of summary judgment. Tse v. Ventana Medical Sys. Inc., 297 F.3d 210,
217-18 (3d Cir. 2002).
3
seller of goods) and a carrier. EF Operating Corp. v.
American Bldgs., 993 F.2d 1046, 1050 (3d Cir. 1993). The
person named in the bill of lading as the person"to whom
or to whose order the bill promises delivery" is the
consignee. U.C.C. S 7-102 (2002). To establish a prima facie
case against a carrier under the Carmack Amendment, a
shipper must prove "(1) delivery of goods to the initial
carrier in good condition, (2) damage of the goods before
delivery to their final destination, and (3) amount of the
damages." Beta Spawn, Inc. v. FFE Trans. Serv., Inc., 250
F.3d 218, 223 (3d Cir. 2001) (citation omitted). The burden
then shifts to the carrier to prove it was not negligent and
the damage was caused entirely by "[an] act of God[,] . . .
the public enemy[,] . . . the act of the shipper [itself,] . . .
public authority[,] . . . or the inherent vice or nature of the
goods." Id. at 226.
Under the Carmack Agreement, the measure of damages
in the event that goods are damaged or delivery is delayed
is "the difference between the market value of goods at the
time of delivery, and the time when they should have been
delivered." Starmakers Publ’g Corp. v. Acme Fast Freight,
Inc., 615 F. Supp. 787, 791 (S.D.N.Y. 1985) (Starmakers I).
This measure of damages is reflected in the transportation
agreement between Paper Magic and Hunt, which, as noted
above, describes the measure of damages as the invoice
price minus the salvage price. Because the invoice value
conforms to the market value of the cards at the time they
should have been delivered, and the salvage value conforms
to the market value of the cards at the time they were
delivered, the two measures of damages produce the same
results.
There is no question as to the first element of Paper
Magic’s claim. The goods were delivered in good condition.
As for the second element, Hunt does not appeal the
District Court’s finding that the delay made the goods’
value equivalent to nothing beyond their salvage value and
that they were so diminished in value by the four-month
delay that the late delivery was "in effect a non-delivery."
The only issue on appeal is the District Court’s

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calculation of damages. Hunt alleges that by awarding
Paper Magic the full invoice amount of $130,080.48, the
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District Court awarded special, instead of general,
damages. General damages are those "foreseeable to a
reasonable [person]." Hector Martinez & Co. v. Southern Pac.
Transp. Co., 606 F.2d 106, 109 (5th Cir. 1979). Special
damages are "those that a carrier did not have a reason to
foresee as ordinary, natural consequences of a breach when
the contract was made." Contempo Metal Furniture Co. v.
East Tx. Motor Freight Lines, Inc., 661 F.2d 761, 765 (9th
Cir. 1981). The common law rule is that "special, or
consequential, damages are not usually recoverable in an
action for breach of contract." Id.; see also Main Road
Bakery, Inc. v. Consol. Freightways, Inc., 799 F. Supp. 26,
28 (D.N.J. 1992). The Carmack Amendment did not alter
that rule; courts award special damages only where a
shipper actually notified the carrier that the goods required
special handling of some kind, thereby giving the carrier
notice and making the damages foreseeable. Id.
The distinction between "special" and "general" damages
has a distinguished lineage in the common law, including
chestnuts such as that favorite of first-year law casebooks
--Hadley v. Baxendale, Ex. 341, 156 Eng. Rep. 145, 5 Eng.
Rul. Cas 502 (1854). In Hadley, the business of a mill
ground to a halt when the crankshaft of the steam engine
broke. The carriers caused a delay in shipping the new
crankshaft, and the mill owners sued for lost profits.
Because the mill owners had not informed the carriers of
how crucial the crankshaft was to their business, the lost
profits were not foreseeable, and the mill owners could not
recover special damages.
Recent cases analyzing the distinction are Main Road
Bakery, Inc., 799 F. Supp. at 26; Starmakers Publ’g Corp. v.
Acme Fast Freight, Inc., 646 F. Supp. 780 (S.D.N.Y. 1986)
(Starmakers II); and Starmakers I, 615 F. Supp. at 787. In
Main Road Bakery, Inc., a new bake oven was damaged in
transit, and the shipper bakery was without a functional
oven for several days. 799 F. Supp. at 27. The Court
rejected as impermissible special damages its claim of lost
profits as a result of being without a functional oven. Id. at
28. The Court dismissed in Starmakers II the claim that a
"later delivery resulted in a total loss of value." 646 F.
Supp. at 782. In Starmakers I, the Court dismissed a claim
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for lost business stemming from the delivery of movie
posters five weeks late (and after the release of the movie
that was their subject) as special damages. 615 F. Supp. at
791.
Paper Magic is not seeking special damages. It is not
seeking recovery for its loss of use, its lost future profits, or

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its additional labor. Instead, it is seeking actual damages:
the loss in value of the shipment due to Hunt’s delay. We
do not think that the District Court erred in concluding
that Hunt can be charged with foreseeing that a four month
delay would cause harm to Paper Magic. A carrier has
reason to believe that a delay of four months will
substantially diminish a shipment’s value, particularly
when the shipper, with whom the carrier has an ongoing
business relationship, is in the business of producing
seasonal paper goods.
Hunt argues that Paper Magic should have sued for"the
difference between the full price and the market value of
the shipment on the date of actual tender." Appellant’s Br.
at 13. Instead, Paper Magic claimed the entire invoice price.
Hunt reasons that this amounts to a claim for special
damages because it is, in essence, a claim for loss of
market value due to delay. Hunt is mistaken. The
transportation agreement required that Hunt pay Paper
Magic the invoice price, less "reasonable salvage value."
Hunt was able to sell the goods at salvage, for $49,645.96,
and kept that amount. Therefore, its payment of
$130,080.48 resulted in a net loss to it of $80,434.52. This
difference is precisely what the transportation agreement
provides--the invoice price less salvage value. Hence, these
are not special damages, but general damages, i.e., the
difference between the invoice price and the best evidence
of the value on the date of delivery.
As in any other action for contract damages, a
buyer/consignee is ordinarily under a duty to accept the
shipment from the carrier, and a shipper/consignor is
ordinarily under a duty to mitigate its loss. See Fraser-
Smith Co. v. Chicago, Rock Island & Pacific R.R. Co. , 435
F.2d 1396, 1399 (8th Cir. 1971) ("The law is well settled
that where goods are shipped by common carrier and
become damaged in transit, the consignee nevertheless has
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the duty to accept the shipment."); M. Golodetz Export Corp.
v. S/S Lake Anja, 751 F.2d 1103, 1112 (2d Cir. 1985)("A
shipper is under a duty to mitigate his losses."). However,
neither duty applies when the goods are deemed worthless,
which is understood as occurring when the goods are
"worthless for their intended purpose" or"worth only their
salvage value." Oak Hall Cap and Gown Co. v. Old Dominion
Freight Line, 899 F.2d 291, 294-95 (4th Cir. 1990) (citing
Fraser-Smith Co., 435 F.2d at 1399).
In this case, the District Court’s finding was that the
cards were worthless to Target and to Paper Magic because
they were 1998 Christmas cards, specially packaged for
Target, that were found by Hunt in February of 1999. Paper
Magic Inc. v. J.B. Hunt Transport, Inc., 2001 WL 1003052,
at *2 (E.D. Pa. Aug. 29, 2001).2
The duty to accept and mitigate is "predicated upon very
practical considerations," namely the fact that a buyer/

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consignee (or, conversely, a seller/shipper/consignor) "will
often be a dealer or trader in the type of goods involved and
thus may be in a much better position to dispose of those
damaged goods than the carrier who is not in the business
of buying and selling the type of goods involved." Long
Prairie Packing Co. v. Midwest Emery Freight System, Inc.,
429 F. Supp. 201, 203 (D. Mass. 1977) (citing Fraser-Smith
Co., 435 F.2d at 1399). But when the goods can only be
sold at salvage, the carrier is likely as well-equipped to
make such a sale as the seller or buyer because no special
knowledge of the product or of likely secondary markets is
required to dispose of the goods as profitably as possible.
Moreover, Hunt does not argue that Paper Magic should
have accepted the shipment and mitigated its damages.
Hunt did not argue in the District Court, and has pointed
to no evidence, that Paper Magic could have obtained a
higher value for the goods than did Hunt. Thus, we will not
lessen Paper Magic’s award for failure to accept the
shipment.3
(Text continued on page 9)
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2. As pointed out in note 3 below, Judge Becker would dispute this
conclusion.
3. Judge Becker joins in the opinion of the Court on the following
understanding. He acknowledges that the case was presented on appeal
7
as a general/special damages controversy, and that the opinion of the
Court properly disposes of that issue. He makes the following
observations in order to set forth his understanding of the relative
obligations of shippers, carriers, and consignees under the Carmack
Amendment, which he believes are not fairly reflected by the result in
this case (or the Court’s opinion) because the carrier failed to make the
correct argument.
The transportation agreement between Paper Magic and Hunt provided
that:
[I]f a shipment or any part thereof is lost, damaged or destroyed,
[Hunt] shall pay to [Paper Magic] the price charged by [Paper Magic]
to its customers for the kind and quantity of commodities lost,
damaged or destroyed [,] . . . but [Paper Magic] shall deduct from
such invoice to [Hunt] the reasonable salvage value of any damaged
commodities.
(A 179) (emphasis added).
The opinion of the Court acknowledges that this contract "presumes
that the shipper, rather than the carrier, sold the goods for their salvage
value, a presumption that . . . did not occur." The presumed event did
not occur because the shipper, Paper Magic, refused to accept the cards
and sell them for salvage after Target rejected the shipment. Hunt, the
carrier, thus became stuck with the cards, and it was able to sell them
at a salvage value of $49,645.96. The opinion concludes from this merely

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that the salvage value wound up in the wrong hands-- the
transportation agreement assumed that Paper Magic would sell the
cards, retain their salvage value, and recover the difference from Hunt,
yielding an "expectation" recovery which in this case would be
$130,080.48. Instead, the opinion reasons, Hunt"retained" the salvage
value, so it should have to return it to Paper Magic along with the
$80,434.52 net loss.
Judge Becker believes this result to be incorrect because the
transportation agreement’s "presumption" that Paper Magic would sell
the cards for salvage value in fact subsumed Paper Magic’s duty to sell
them. Following Target’s rejection, the cards remained Paper Magic’s
property. Target had the right to refuse them since they were useless for
their intended purpose, i.e., to sell in the 1998 holiday season, but its
decision to exercise that right did not somehow vest ownership of the
cards in Hunt. Paper Magic’s refusal to accept them back therefore
amounted to an abandonment of its property. Its abandonment,
however, did not alter the terms of its agreement with Hunt, which was
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The District Court’s award left both parties in their
rightful place. If Paper Magic had conducted a salvage sale,
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still liable to Paper Magic only for the amount of Paper Magic’s net loss,
i.e., $80,434.52. Under this result, Hunt would effectively lose only
$30,788.56 ($80,434.52 minus the $49,645.96 it received when it sold
the cards at salvage price).
Judge Becker notes that awarding Paper Magic $130,080.48 would
implicitly sanction Paper Magic’s decision to foist upon Hunt its duty to
sell the cards for their salvage value. Not only is that result contrary to
the transportation agreement itself, it is undesirable from an efficiency
standpoint. In Fraser-Smith Co. v. Chicago, Rock Island & Pacific Railroad
Co., 435 F.2d 1396 (8th Cir. 1971), the Court noted that "it is generally
considered that a consignee . . . is in a much better position to dispose
of the damaged merchandise than the carrier who is not in the business
of buying and selling the product involved." Id. at 1399. The same logic
applies here. Paper Magic, whose business it is to manufacture and
distribute greeting cards, would be in a far better position than Hunt to
find another buyer for them. It is therefore likely that Paper Magic could
obtain a better price -- it is unrealistic that unused Christmas cards,
even ones that are a year out of date and that are therefore "worthless
for their intended purpose," are worth no more than the paper upon
which they are printed. There is no evidence that the cards were suitable
for sale only in 1998, and there is always a next Christmas. By forcing
Hunt to sell the cards, Paper Magic exposed it to two costs the contract
itself did not contemplate: the cost of actually selling the goods as
salvage, which Hunt expected Paper Magic to bear, and the "lack of
expertise" cost, which is created because the salvage price Hunt obtained
is likely lower than the price Paper Magic could have obtained. Under the
transportation agreement, of course, Hunt is liable to Paper Magic for
the expected sales price of $130,080.48, less the salvage price, so the
lower the salvage price, the higher Hunt’s payout.
Judge Becker concludes that under the contract Paper Magic was
entitled to two distinct means of compensation: it retained ownership of
the damaged goods themselves, which had some salvage value, and it

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could seek compensation from Hunt for its net loss. By refusing to take
back its cards, which were its property and which it could sell at least
for salvage value, Paper Magic abandoned part of its compensation; Hunt
did not decide simply to "retain" that compensation. Paper Magic’s
decision to abandon its property could not logically affect the sum of
money that Hunt owes to Paper Magic, as that sum properly reflects only
the amount by which the cards depreciated.
Judge Becker does not advocate this result here in view of Hunt’s
failure to advance it. However, he makes these observations in order to
9
it presumably would have obtained $49,645.96, and sued
Hunt for the remaining $80,434.52, netting the full invoice
_________________________________________________________________
set forth his understanding of the relative obligations of shippers,
carriers, and consignees under the Carmack Amendment.
Judges Ambro and Alito do not believe that the language of the
transportation agreement creates any such duty; rather, it merely
codifies the appropriate measure of damages under the Carmack
Agreement and is, as are all measures of damages under contract law,
designed to put the injured party back in as good a position as it was
before the contract was breached. See Mitsubishi Shoji Kaisha v. Davis,
291 F. 882, 885 (S.D.N.Y. 1922) (Hand, J.) (reasoning that underlying
consideration in calculating damages for shipper against carrier is "the
reasonable consequences of the wrong done"). Given this purpose, the
general rule is that when goods are lost or destroyed the shipper is
entitled to damages in the form of the payment of the entire invoice
price. See Robert Burton Assoc., Inc. v. Preston Trucking Co., Inc., 149
F.3d 218, 221 (3d Cir. 1998) ("[O]rdinarily when the carrier is
responsible for the loss of the goods in transit, the shipper is entitled to
recover the contract price from the carrier."). In this case, as the District
Court noted, the late delivery of the goods was, in essence, a non-
delivery. Paper Magic Group, Inc., 2001 WL 1003052, at *2. Of course,
when goods are damaged, returned to the shipper, and the shipper sells
them for salvage, then payment of the entire invoice price would result
in a windfall to the shipper. See Novelty Textile Mills, Inc. v. C.T. Eastern,
Inc., 743 F. Supp. 212, 220-21 (S.D.N.Y. 1990). This we do not permit.
Using the same principle of fairness, allowing Hunt to retain the
salvage value of the cards because Paper Magic did not attempt to
mitigate its damages essentially double counts the reduction of the
salvage value by both subtracting the salvage value to prevent a windfall
to Paper Magic, and then subtracting the same value again as
punishment for Paper Magic’s failure to mitigate. Subtraction of the
salvage value of the cards is not an appropriate way to penalize Paper
Magic for its failure to mitigate. Corbin on Contracts, S 1039 at 242
(interim ed. 2002), explains that the duty to mitigate is a misnomer
because "there is no judicial penalty for [the injured party’s] failure to
make this effort. His recovery against the defendant will be exactly the
same whether he makes the effort and mitigates his loss, or not." Judges
Ambro and Alito do not find that the language of the transportation
agreement indicates an intent to provide for such a penalty. Hunt is not
entitled to pay less than the damages it caused (here measured by the
invoice price minus the salvage value, or $130,080.48 - $49,645.96)
because of Paper Magic’s failure to mitigate its damages.

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10
amount of $130,080.48. Instead, Hunt retained the
$49,645.96 salvage value, and paid Paper Magic
$130,080.48. The bottom line remains the same: Hunt’s net
loss is $80,434.52, and Paper Magic receives $130,080.48
(plus interest). Changing the salvager’s identity does not
somehow transmute general into special damages.
******
Because Hunt retained the benefit of the salvage value of
the goods, we conclude that the District Court awarded
Paper Magic general, and not special, damages. We
therefore affirm.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
Judge Becker also argues that by refusing to accept the delivery, Paper
Magic has, in essence, abandoned its property. Just because Hunt is the
one who sold the goods, not Paper Magic, does not mean that Paper
Magic forfeits its right to ownership of the goods and, therefore, to the
proceeds of the resulting sale. The situation here is analogous to the
situation where a buyer rightfully rejects damaged goods, and notifies
the seller, but the seller fails to give the buyer reasonable instructions
about what to do with the goods. Under U.C.C. S 2-604, the buyer has
three illustrative options: it "may store the rejected goods for the seller’s
account or reship them to him or resell them for the seller’s account." As
the Comment to this provision makes clear, this is essentially a salvage
operation. U.C.C. S 2-604 cmt.; see also 3A Duesenberg et al., Sales &
Bulk Transfers under the Uniform Commercial Code, S 14.02[1][c][i], at 14-
25 (2002). These options transpose well to the carrier--Hunt. It resold
the goods for Paper Magic’s account, not its own. If Hunt nonetheless
keeps the salvage proceeds, the equivalent of those proceeds belong to
Paper Magic as part of its damages.
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