May 13, 2003.

Court of Appeal, Sixth District, California.

FUTURE PACKAGING, INC., Defendant, Cross_Complainant and Appellant,

v.

THREE WAY, INC., Plaintiff, Cross_Defendant and Respondent.

BAMATTRE_MANOUKIAN, Acting P.J.

This appeal raises the single issue whether a carrier's contractual limitation of liability is effective against someone not a party to the shipping contract who seeks equitable indemnity from the carrier. The trial court concluded that the contract's limitation of liability applies and entered judgment accordingly. We agree with the trial court that a carrier's contractual limitation of liability may apply to an equitable indemnity claim. However, by statute a carrier cannot limit its liability for gross negligence. Accordingly, for the reasons stated below we will reverse the judgment.

PROCEEDINGS

On June 30, 1998, a 300 MM semiconductor manufacturing machine owned by Applied Materials, Inc. (Applied) was damaged when it fell off a fork lift operated by Future Packaging, Inc. (packager) at packager's warehouse. The machine fell off the forklift because it was only partly on the forks when a truck driver for Three Way, Inc. (carrier), in an attempt to pick up the machine, pulled away from a loading dock while the fork lift driver was attempting to unload it.

Packager's written contract with Applied recited that packager "is in the business of selling packaging and crating services and provides warehousing facilities related to such services." It agreed to provide services in accordance with attachment 1 to its written agreement. According to attachment 1, the packaging and crating procedure began with a telephone call from Applied. "3. The mainframe is skidded at Applied's site and then the mainframe and complete system is sent to Future via TWI or another carrier selected by Applied."

Carrier's written contract with Applied recited that carrier "is engaged in the business of transporting property in interstate, intrastate and/or foreign commerce." Carrier agreed to provide "certain contract carrier services" to Applied. "Carrier shall be liable to Shipper as at common law" subject to the following limitation of liability. [FN1] "In consideration of the Carrier's rates and charges for Transportation Service(s) provided under this Agreement," if Applied's "Materials" were damaged while in carrier's control due to carrier's performance of its services, carrier's liability was limited to "the lesser of: a) the amount of damage actually sustained or, b) $10.00 per pound per article for Intra California or Intra Texas damages or loss, $12.50 per pound per article for Interstate damage or loss, or 30 cents per pound for damage or loss while in storage at Carrier's or Agent's Facility." The parties agree that the contract here called for intrastate shipping. Applying these contract provisions to the loss of the 300 MM machine limits carrier's liability to $77,107.50.

FN1. Because of this contractual provision, carrier agrees that we need not consider whether it is a contract carrier or a common carrier whose services are offered to the public. (Compare Talsky v. Public Utilities Com. (1961) 56 Cal.2d 151, 162.)

Applied's insurers paid Applied $1,254,949.00 due to the loss of this machine and filed suit for breaches of the contracts of carrier and packager. The complaint also alleged carrier's negligence. Packager cross_complained against carrier for equitable indemnity. Packager alleged in part that it was harmed by carrier's negligence. Carrier's answer alleged several affirmative defenses, including that carrier's liability was limited by its contract with Applied.

The trial court conducted a court trial on this affirmative defense and concluded that carrier's obligation to provide equitable indemnity to packager was subject to the liability limitation in carrier's contract with Allied. The trial court relied on Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal .4th 100 (Western Steamship ) in concluding "that because [Applied] and [carrier] had agreed to limit [carrier's] liability for damages under the contract between [carrier] and [Applied], [carrier's] liability for indemnity damages to [packager] is similarly limited."

Both carrier and packager have settled with Applied's insurers, carrier for $77,107.50, packager for $1,000,000.00. The question posed by this appeal is whether carrier might be liable for more than $77,107.50 on packager's cross_ complaint for equitable indemnity.

EQUITABLE INDEMNITY AND ITS LIMITS

The California Supreme Court has stated: "The obligation of indemnity, which we have defined as 'the obligation resting on one party to make good a loss or damage another has incurred' [citations] may arise under the law of this state from either of two general sources. First, it may arise by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances. Second, it may find its source in equitable considerations brought into play either by contractual language not specifically dealing with indemnification or by the equities of the particular case." (E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506_507.) "[T]he equitable indemnity doctrine originated in the common sense proposition that when two individuals are responsible for a loss, but one of the two is more culpable than the other, it is only fair that the more culpable party should bear a greater share of the loss." (American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 593.) The California Supreme Court has concluded "that the current equitable indemnity rule should be modified to permit a concurrent tortfeasor to obtain partial indemnity from other concurrent tortfeasors on a comparative fault basis." (Id. at pp. 598, 604; Western Steamship, supra, 8 Cal.4th 100, 109.)

Carrier contends that the doctrine of equitable indemnity is inapplicable "where the defendants each had their own separate contracts with the plaintiff, and were sued for breach of those contracts." Carrier overlooks that Applied sued it for negligence as well as breach of contract and that packager's cross_ complaint alleged carrier's negligence. Moreover, negligent breach of a carrier's contract is a tort. (Allred v. Bekins Wide World Van Services (1975) 45 Cal.App.3d 984, 988_989 (Allred ).) "The term 'joint tortfeasor' as used in the comparative equitable indemnity context does not mean the defendants were 'joined' as tortfeasors by the plaintiff; it is a broad term which includes joint, concurrent and successive tortfeasors." (Gem Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 431 .) From the facts it appears that carrier and packager together dropped Applied's machine. This is a sufficient predicate for an equitable indemnity claim.

Western Steamship identified some limitations on equitable indemnity. "Indemnity does not invariably follow fault; it is premised on a joint legal obligation to another for damages. Accordingly, as against the indemnitee, the indemnitor can invoke any substantive defense to liability that would be available against the injured party. The Court of Appeal correctly noted that for certain procedural purposes, such as statutes of limitations, an indemnity claim is an independent action. (See, e.g., E.L. White, Inc. v. City of Huntington Beach [, supra,] 21 Cal.3d 497, 506 .) As to matters of substantive law, however, it is wholly derivative and subject to whatever immunities or other limitations on liability would otherwise be available." (Western Steamship, supra, 8 Cal.4th at pp. 114_115, fn. omitted.) Awarding equitable indemnity involves a policy choice. (Id. at pp. 109_110.)

Western Steamship arose from claims of medical malpractice against two medical staffs, one on a cruise ship and the other in a hospital on land. The patient's legal guardian successfully sued the cruise ship. In turn, the cruise ship sued the treating hospital seeking indemnification. (Id. at pp. 104_ 105.) The question on appeal was "whether Civil Code section 3333.2, limiting recovery of noneconomic damages by an injured party against a health care provider, applies in an action for partial equitable indemnification by a concurrent tortfeasor." (Id. at p. 104.) The statute limits a negligent health care provider to paying $250,000 damages for noneconomic losses.

In answering this question, the California Supreme Court noted that equitable indemnity is unavailable against a tortfeasor who has entered a good faith settlement due to the strong public policy favoring settlement of litigation. (Id. at p. 110.) Workers' compensation law also bars obtaining equitable indemnity from an employer. (Ibid.) The court concluded, "After careful consideration of the public policy underlying the Medical Injury Compensation Reform Act (MICRA), of which section 3333.2 is an integral part," its limitation on noneconomic damages applies to claims for equitable indemnity. (Id. at pp. 104, 111.) The court pointed out that the statute was enacted due to a perceived medical malpractice crisis which threatened to leave injured patients either without medical care or without any medical insurance. (Id. at p. 111.) The policy of promoting health care would be promoted by preventing third party recovery against negligent health care providers in excess of the statutory limits. (Id. at p. 114.)

Western Steamship, supra, 8 Cal.4th at pages 115_116, relied on Colich & Sons v. Pacific Bell (1988) 198 Cal.App.3d 1225 (Colich ). In that case a Pacific Bell customer sued an excavation contractor for business profits lost when its excavation damaged a Pacific Bell telephone cable and interrupted the customer's telephone service. The contractor in turn sued Pacific Bell for equitable indemnity. (Id. at pp. 1230_1231.) Pacific Bell invoked a tariff filed with the Public Utilities Commission (PUC) that limits the telephone company's "liability for ordinary negligence to a credit allowance." (Id. at p. 1233.) The court observed that public utility tariffs have the force and effect of law and that limitations of liability allow the telephone company to charge reasonable rates. (Id. at pp. 1234_1235.) In light of these considerations, the court concluded that the liability limitations apply to claims against the telephone company for equitable indemnity. (Id. at pp. 1234_1236.) The court emphasized that the telephone company was a regulated public utility (id. at pp. 1237, 1239) whose rates are fixed by the PUC mindful of its limited liability (id. at pp. 1236_1237).

Packager seeks to distinguish Western Steamship and Colich on the basis that both involved liability limitations that served public policy. The policy served in Western Steamship was affordable health care. The policy served in Colich was keeping rates reasonable in a regulated industry. Packager contends that there is no such policy served by the private contract limiting liability here.

We have requested and received supplemental briefing about federal and state statutes that authorize a common carrier's contractual limitation of liability. The Carmack Amendment of the Interstate Commerce Act provides in pertinent part: "[A] carrier providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 may, subject to the provisions of this chapter (including with respect to a motor carrier, the requirements of section 13710(a)), establish rates for the transportation of property (other than household goods described in section 13102(10)(A)) under which the liability of the carrier for such property is limited to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation." (49 U.S.C. § 14706, subd. (c)(1)(A).)

The Civil Code provides: "The obligations of a common carrier cannot be limited by general notice on his part, but may be limited by special contract." (Civ.Code, § 2174.) "A common carrier cannot be exonerated, by any agreement made in anticipation thereof, from liability for the gross negligence, fraud, or willful wrong of himself or his servants." (Civ.Code, § 2175.) The Uniform Commercial Code provides: "(2) 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 and the consignor 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; but no such limitation is effective with respect to the carrier's liability for conversion to its own use." (Cal.U.Com.Code, § 7309.)

Under federal law, a carrier's liability limitation is binding on a shipper only if the shipper has reasonable notice of the limitation and was given an opportunity to pay a higher rate in exchange for greater protection. (See Dictor v. David & Simon, Inc. (2003) 106 Cal.App.4th 238, 248.) State law is not as clear. Someone with experience in the business may be bound by a tariff or liability limitation of which he or she had no notice. (Cf. Hischemoeller v. Nat. Ice, etc. Storage Co. (1956) 46 Cal.2d 318 [warehouseman]; see Muelder v. Western Greyhound Lines (1970) 8 Cal.App.3d 319, 332 (Muelder ).) On the other hand, a shipper who is a member of the general public may not be bound by a limitation of which he or she was unaware. (Muelder, supra, 8 Cal.App.3d at pp. 332_335 [tariff]; Allred, supra, 45 Cal.App.3d 984, 992 [bill of lading]; cf. Kitz Corp. v. Transcon Shipping Specialists, Inc. (1996) 89 N.Y.2d 822, 675 N.E.2d 455, 652 N.Y.S.2d 720 [primary carrier].) In any event, a carrier cannot contractually limit its liability for gross negligence. (Muelder, supra, 8 Cal.App.3d at pp. 336_ 338.)

The apparent reason for allowing common carriers to limit their liability is to encourage them to transport a costly item at a price less than the item's value. A carrier can offer a more reasonable rate if it does not expect to pay the total value if the item is damaged or lost. This is the same rationale explained in Colich for limiting the liability of a public utility like the telephone company. At least where the shipper has the opportunity to pay a higher rate in exchange for greater protection, the statutes allow some limitation of the carrier's liability.

Packager contends that these statutes authorizing a common carrier to limit its liability by contract only apply to the parties to the contract and not third parties who never negotiated with the carrier. In our view, it would frustrate this policy promoting reasonable shipping rates to expose a carrier to greater liability to a third party for the same damaged or lost property than the recovery available to the carrier's customer. We conclude that, where packager's indemnity claim arises out of carrier's alleged negligent performance of its carrier contract, among the "immunities or other limitations on liability ... otherwise ... available" (Western Steamship, supra, 8 Cal.4th at p. 115) against packager's indemnity claim is carrier's contractual limitation of liability. By undertaking to transport Applied's 300 MM machine for an agreed limit on liability, carrier did not assume unlimited liability to third parties for damage to or loss of the same machine. In light of this conclusion we need not consider carrier's contention that packager was bound by Applied's contract because in handling Applied's machine packager was Applied's agent.

Our further conclusion is that carrier's limitation of liability is limited by statute. Civil Code section 2175 provides that "[a] common carrier cannot be exonerated, by any agreement made in anticipation thereof, from liability for ... gross negligence." If a carrier cannot escape liability to its customer for gross negligence, the carrier should not, by contractual provisions, be able to avoid liability for gross negligence to a third party who is justified in asserting it as a basis for equitable indemnity.

Our request for supplemental briefing raised the issue whether there is a claim of carrier's gross negligence. The parties had not previously focused on the nature of carrier's alleged negligence. Packager now asserts there is evidence of gross negligence, while carrier denies it. "Gross negligence" has been defined as " 'the want of slight care and diligence.' " (Walther v. Southern Pacific Co. (1911) 159 Cal. 769, 775.) "Gross negligence falls short of a reckless disregard of consequences and differs from ordinary negligence only in degree and not in kind. [Citation.] Thus, negligence and gross negligence are relative terms, proportional to the risk." (Colich, supra, 196 Cal.App.3d at p. 1240.) "Whether there has been such a lack of care as to constitute gross negligence is generally a triable question of fact." (Id. at p. 1241.)

We conclude, as did the trial court, that a carrier's contractual limitation of liability may apply to an equitable indemnity claim. However, by statute a carrier cannot limit its liability for gross negligence. We conclude that this statute applies to a claim of equitable indemnity. Since the nature of carrier's alleged negligence was not considered by the trial court, we believe it is appropriate to reverse and remand for a hearing on this issue.

DISPOSITION

The judgment is reversed.

WE CONCUR: WUNDERLICH and MIHARA, JJ.