United States Court of Appeals,

Third Circuit.

NORTHLAND INSURANCE COMPANY

v.

LINCOLN GENERAL INSURANCE COMPANY; J.H.M. Enterprises, Inc.; Vernice L. Statts;

Sherill J. Mulligan; Denis A. Mulligan; Robert E. Krapf; Ute L. Hetland Clark,

as Administrators of the Estate of Karin Clifford; Patricia R. Clifford,

Administrator of the Estate of Robert R. Clifford Woolever Brothers

Transportation, Inc., 3^rd Party Defendant

Lincoln General Insurance Company, Appellant.

Argued Oct. 20, 2005.

Decided Oct. 27, 2005.

On Appeal from the United States District Court for the Middle District of Pennsylvania. (D.C. Civil No. 01-cv-0763). District Judge: Honorable Yvette Kane.

Before SCIRICA, Chief Judge, VAN ANTWERPEN and ALDISERT, Circuit Judges.

OPINION OF THE COURT

 

VAN ANTWERPEN, Circuit Judge.

Appellant Lincoln General Insurance Company (“Lincoln”) appeals from an order and judgment of the District Court dated August 26, 2003, as amended August 3, 2004 and August 6, 2004, in favor of Appellee Northland Insurance Company (“Northland”). The District Court had jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). We have jurisdiction pursuant to 28 U.S.C. § 1291 and will affirm.

We pause to confirm our jurisdiction. Although unclear from the parties’ jurisdictional statements in their briefs, oral argument confirmed that the “in excess” requirement of 28 U.S.C. § 1332 is satisfied because Northland’s complaint sought, inter alia, attorney’s fees in the underlying litigation arising from the accident. In addition, the in excess requirement is satisfied because Lincoln, in answering the complaint, asserted a $675,000 compulsory counterclaim. Such counterclaims may be considered for purposes of calculating the amount in controversy. See, e. g., Spectacor Mgmt. Group v. Brown, 131 F.3d 120, 121 (3d Cir.1997) (holding where defendant “elects not to file a motion to dismiss for lack of jurisdiction, but answers a complaint by asserting a compulsory counterclaim, the amount of that counterclaim may be considered by the court in determining if the amount in controversy exceeds the statutory requirement for diversity jurisdiction”). Our jurisdiction is thus proper.

I.

On November 17, 1995, a tractor trailer truck operated by Lincoln’s insured, J.H.M. Enterprises, Inc. (“JHM”) was involved in a motor vehicle accident in Hometown, Pennsylvania, resulting in two fatalities. At the time of the accident, Lincoln provided coverage for the vehicle on behalf of JHM, while Northland provided coverage for the same vehicle on behalf of its insured, Woolever Brothers Transportation Company (“Woolever”). Specifically, the vehicle involved in the accident was insured by both Northland and Lincoln for an overlapping period of time that included the date of the accident: Lincoln’s coverage of the vehicle for insured JHM ran from April 18, 1995 to April 18, 1996 in the amount of $750,000 in liability coverage for each accident or loss, and Northland’s coverage of the vehicle for insured Woolever was in effect from September 1, 1995 to September 1, 1996 in the amount of $2,000,000 in liability coverage for each accident or loss.

In addition to providing coverage for the same vehicle at the same time, Lincoln and Northland had elected to use identical policies possessing identical language. In pertinent part, the language in both JHM’s policy (underwritten by Lincoln) and Woolever’s policy (underwritten by Northland) stated:

a. This Coverage Form’s Liability Coverage is primary for any covered ‘auto’ while hired or borrowed by you and used exclusively in your business as a trucker and pursuant to operating rights granted to you by a public authority. This Coverage Form’s Liability Coverage is excess over any other collectable insurance for any covered ‘auto’ while hired or borrowed from you by another ‘trucker’.

However, while a covered ‘auto’ which is a ‘trailer’ is connected to a power unit, this Coverage Form’s Liability coverage is:

(1) On the same basis, primary or excess, as for the power unit if the power unit is a covered ‘auto’.

(2) Excess if the power unit is not a covered ‘auto’.

b. Any Trailer Interchange Coverage provided by this Coverage Form is primarily for any covered ‘auto’.

c. Except as provided in paragraphs a. and b. above, this Coverage Form provides primary insurance for any covered ‘auto’ you own and excess insurance for any covered ‘auto’ you don’t own.

On the basis of this language, both Northland and Lincoln took the position after the accident that the other was liable as the primary insurer. Ultimately, on June 22, 2000, Northland filed a complaint against Lincoln in the United States District Court for the Eastern District of Pennsylvania seeking a declaratory judgment against Lincoln on grounds that it had the primary obligation to provide coverage for the vehicle at the time of the accident. After a bench trial, the District Court concluded, on the basis of the parties’ policies and the underlying facts, that Lincoln was obligated to provide primary coverage and that Northland was obligated to provided excess coverage. It thereupon ordered Lincoln to pay Northland $75,000, the difference between Lincoln’s policy limit of $750,000 and the $675,000 that Lincoln had already paid to date by settling the underlying claims.

Subsequently, the District Court granted Northland’s motion pursuant to Fed.R.Civ.P. 59(e) to amend the judgment, amending its August 26, 2003 judgment and ordering Lincoln to pay prejudgment interest through that date and to reimburse Northland’s attorney’s fees. Shortly thereafter, the District Court amended its judgment again, requiring Lincoln to pay Northland prejudgment interest through August 6, 2004. After Lincoln’s timely notice on August 25, 2004, this appeal followed.

II.

Lincoln challenges only the District Court’s legal conclusions.As to the correct construction and legal operation of an insurance policy, we exercise plenary review. See, e.g., Westport Ins. Corp. v. Bayer, 284 F.3d 489, 496 (3d Cir.2002); New Castle County v. Hartford Accident & Indem. Co., 970 F.2d 1267, 1270 (3d Cir.1992). Because our jurisdiction is premised upon diversity of the parties, we must apply the substantive law of the state in which the action arises. See, e.g., Colantuno v. Aetna Ins. Co., 908 F.2d 908, 909 (3d Cir.1992) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). In construing a policy, if the words of the policy are clear and unambiguous, we must give them their plain and ordinary meaning. Pac. Indem. Co. v. Linn, 766 F .2d 754, 760-61 (3d Cir.1985). If a term is ambiguous, and the intention of the parties cannot be discerned from the policy, the court may look to extrinsic evidence of the purpose of the insurance, its subject matter, the situation of the parties, and the circumstances surrounding the making of the contract. Id. at 761.

In the first argument of its reply brief, and again at oral argument, Lincoln expressly abandoned any challenge it had to the District Court’s factual findings. Even were this not so, our review of the record confirms that none of the District Court’s findings were clearly erroneous. See, e.g., Int’l Ass’n of Machinists & Aerospace Workers v. U.S. Airways, Inc., 358 F.3d 255, 259 (3d Cir.2004) (reiterating that we review a district court’s factual findings for clear error).

III.

Lincoln first contends that a 1990 lease found inside the vehicle on the date of the accident proves that Woolever was the lessor of the vehicle, and argues from this that JHM did not use the vehicle exclusively on the date of the accident. This argument is unpersuasive for the reason stated by the District Court, which is supported by our review of the record: the parties reformed their contract and abandoned the 1990 lease prior to 1995, such that the 1990 lease does not accurately reflect the actual course of lease dealings between JHM and Woolever as of the date and time of the accident. As the District Court correctly found, in addition to the fact that the 1990 lease was no longer in effect when the accident occurred, the applicable trip lease had ended, by its own terms, the morning of the date of the accident. Because our review of the record confirms that these findings of the District Court are not clearly erroneous, the parties’ following policy language controls:

c. Except as provided in paragraphs a. and b. above, this Coverage Form provides primary insurance for any covered ‘auto’ you own and excess insurance for any covered ‘auto’ you don’t own.

Drawing upon an alternative suggestion made by the District Court, Lincoln argues next that a sub-lease was created prior to the accident, whereby JHM’s use of the vehicle at the time of the accident was not exclusive. Yet even assuming arguendo that the 1990 lease were still in effect and that the vehicle had been returned to JHM’s possession at the time of the accident pursuant to a sub-lease, we agree with Northland that the outcome would be the same, as this time the parties’ following policy language would control:

a. This Coverage Form’s Liability Coverage is primary for any covered ‘auto’ while hired or borrowed by you and used exclusively in your business as a trucker and pursuant to operating rights granted to you by a public authority. This Coverage Form’s Liability Coverage is excess over any other collectable insurance for any covered ‘auto’ while hired or borrowed from you by another trucker.

As a result, we conclude that the District Court’s factual finding that JHM was in exclusive possession of the vehicle at the time of the accident necessarily controls our analysis under section (a.) or, alternatively, section (c.) of the parties’ relevant policy provisions.

To the extent Lincoln argues that the parties’ policy language is ambiguous, the District Court correctly found that the Northland and Lincoln policies contain identical terms, because both utilized the same standard contract form. We have discussed the critical language of these identical policies above, and find no ambiguity.

. As the District Court correctly observed, the policies do not define the words “borrow” and “exclusive.” Because these words are clear and unambiguous, as is the paragraph in which they appear, we are obligated to give them their plain and ordinary meaning. See Pac. Indem. Co., 766 F.2d at 760-61. Webster’s defines “borrow” to mean “to take from another by request and consent, with a view to return the thing taken and return it or its equivalent”; and “exclusively” to mean “to the exclusion of all others.” It is based, of course, on the root “exclusive,” which means, not surprisingly, “excluding all others” and, more precisely, “not shared or divided; sole; single.” Webster’s New Universal Unabridged Dictionary 211, 638 (2d ed.1983).

Because the parties’ policy language is both identical and unambiguous, the District Court correctly determined that this dispute turns on the factual question of which entity owned (or, alternatively, hired or borrowed) the vehicle, and whether such possession was exclusive. Our review of the record as to the relevant findings of the District Court reveals no error, and certainly not clear error. We thus conclude that Lincoln’s contentions with respect to the significance of the 1990 lease–and the alleged errors with respect to the District Court’s alternative sub-lease analysis–are without merit.

Lincoln next contends that JHM and Woolever memorialized purported modifications to the 1990 lease after the 1995 accident, resulting in fraudulent misrepresentations that void Lincoln’s coverage obligations. We find this argument unpersuasive for two reasons. First, as discussed above, Lincoln may not now be heard to complain that the District Court erred in its factual findings about alleged misrepresentations in the trip leases and logs that JHM and Woolever memorialized after the accident. Second, review of the record confirms that the District Court’s findings here are not clearly erroneous. See, e.g., United States v. Roman, 121 F.3d 136, 140 (3d Cir.1997) (factual findings are clearly erroneous only if they are unsupported by substantial evidence, lack adequate evidentiary support, are against the clear weight of the evidence, or if a district court has misapprehended the weight of the evidence). None of these circumstances exists here as to Lincoln’s claim of false statements. We therefore need not reach the question of whether such a statement was material and made knowingly and in bad faith. See, e.g., Tudor Ins. Co. v. Township of Stowe, 697 A.2d 1010, 1017 (Pa.Super.Ct.1997) (summarizing requirements under Pennsylvania law for fraudulent representation).

In sum, we find no error with the District Court’s conclusion that Lincoln’s coverage obligation is primary, and that Northland’s coverage obligation is excess to Lincoln’s.

Lincoln’s final argument is that the District Court erred in awarding prejudgment interest through August 6, 2004, the date of its second amended judgment. Contending that the basis for the award was established by the District Court’s verdict almost a year earlier, on August 26, 2003, Lincoln argues prejudgment interest should have only been calculated through that date.

Where, as here, subject matter jurisdiction is premised on the parties’ diversity of citizenship, the question of whether a party is entitled to prejudgment interest is one of state law. See Jarvis v. Johnson, 668 F.2d 740, 741 (3d Cir.1982). Here, the law of Pennsylvania controls. We have previously observed that “[p]re-judgment interest in Pennsylvania contract cases is a matter of right and is calculated from the time the money becomes due or payable.” Am. Enka Co. v. Wicaco Mach. Corp., 686 F.2d 1050, 1056 (1982) (citing Penneys v. Pa. R.R. Co., 183 A.2d 544 (Pa.1962)). Certainly, then, the District Court did not err in concluding that Northland was entitled to prejudgment interest as a matter of law. Id. at 1056-57; see also Barris v. Bob’s Drag Chutes & Safety Equip., 717 F.2d 52 (3d Cir.1983). Nor, we conclude, did it err in determining that Pennsylvania law allows such interest to be calculated through the date of the second amendment to the judgment, dated August 6, 2004.

First, we are unaware of any requirement under Pennsylvania law necessitating the tolling of prejudgment interest in this circumstance. Certainly we have been cited to no such authority by Lincoln. Of the two potential grounds for such an outcome–tolling of prejudgment interest during the pendency of an appeal, see, e.g ., Arthur v. Kuchar, 682 A.2d 1250, 1255 (Pa.1996), and tolling of prejudgment interest where a defendant has secured a “favorable final judgment from the trial court,” Barris, 717 F.2d at 57–plainly neither applies here. Second, as to any remaining question of when the District Court’s judgment became final, we observe that the District Court amended its August 26, 2003 judgment on August 3, 2004 and again on August 6, 2004 in response to a motion timely filed by Northland pursuant to Fed.R.Civ.P. 59(e). We have previously stated that “[a] Rule 59(e) motion …, in effect, ‘suspends’ the finality of the initial judgment” until the District Court either grants or denies the motion. Fed. Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 348 (3d Cir.1986). For these reasons, we conclude that Lincoln’s prejudgment interest argument is without merit and the District Court did not err in awarding prejudgment interest through August 6, 2004.

Accordingly, the order of the District Court dated August 26, 2003, as amended August 3, 2004 and August 6, 2004, is affirmed.

United States District Court,

S.D. New York.

TOKIO MARINE AND FIRE INSURANCE CO., LTD. and Mitsubishi International

Corporation, Plaintiffs,

v.

FEDERAL MARINE TERMINAL, INC., Defendant.

Federal Marine Terminal, Inc., Third-party Plaintiff,

v.

ADM Cocoa, Inc. and Nestle USA, Inc., Third-party Defendants.

Nov. 9, 2005.

MARRERO, District Judge.

Plaintiffs Tokio Marine and Fire Insurance Company, Ltd. (“Tokio”) and Mitsubishi International Corporation (“MIC”) (collectively “Plaintiffs”) brought an action in New York State Supreme Court against defendant Federal Marine Terminal, Inc. (“FMT”) alleging breach of contract, breach of bailment, negligence, and conversion based on the alleged disappearance of approximately 46 metric tons of MIC’s cocoa during FMT’s storage and delivery of the cocoa. The case was removed to this Court pursuant to 28 U.S.C. § 1441. FMT moves for summary judgment on all claims, and Plaintiffs cross-move for summary judgment on all claims. The Court denies both motions for summary judgment in their entirety for the reasons set forth below.

I. BACKGROUND

A. THE PARTIES

MIC purchases cocoa from suppliers in cocoa-producing countries and sells to manufacturers in the United States, Japan, and Europe. Tokio is the insurer of the cocoa at issue in this proceeding pursuant to a marine open cargo policy. FMT is a marine terminal operator providing services including cargo loading and unloading, handling, and storage at the Port of Albany in Albany, New York.

On October 19, 2004, FMT filed a Third-Party Complaint against ADM Cocoa, Inc. and Nestle USA, Inc. ADM Cocoa, Inc. and Nestle USA, Inc., were customers of MIC and received deliveries of MIC’s cocoa from FMT during the period in which the cocoa at issue in this proceeding was stored by FMT. On June 8, 2005, Plaintiffs, FMT, and third-party defendant ADM Cocoa, Inc., stipulated to a discontinuance of the action as against ADM Cocoa, Inc.

B. THE CLAIMS

The claims in this proceeding arise from the alleged disappearance of approximately 46 metric tons of MIC’s cocoa stored in FMT’s terminal warehouse at the Port of Albany. The cocoa arrived at the Port of Albany on May 14, 2001, aboard the M/V PRITZWALK. FMT accepted the cocoa shipment into its terminal warehouse for storage and reported receipt of 91,938 bags of cocoa into its warehouse from the shipment. During the following twelve months, FMT periodically re-packaged portions of the stored cocoa into 2,000-pound sacks referred to as “supersacks” and delivered the supersacks to MIC’s customers.

In July, 2002, FMT discovered that although its inventory records showed that 737 bags of cocoa remained from the PRITZWALK shipment, no cocoa remained in its warehouse. FMT subsequently reported the 737 bag shortage to MIC. The 737- bag shortage represents a deficit of approximately 46 metric tons of cocoa.

Plaintiffs allege breach of contract, breach of bailment, negligence, and conversion arising out of the 737-bag shortage. FMT moves for summary judgment on the grounds that Plaintiffs’ claims are time-barred pursuant to a time limitation set out in FMT’s 2000 Marine Terminal Operator Schedule (“MTO Schedule”), a schedule of rates and practices maintained by FMT pursuant to the Ocean Shipping Reform Act of 1998 (“OSRA”). FMT argues that the MTO Schedule is enforceable against MIC as an implied contract between FMT and MIC pursuant to OSRA § 1707(f). Plaintiffs assert that the MTO Schedule is not enforceable as an implied contract because FMT and MIC entered into an actual contract for storage and delivery of the cocoa which superceded the MTO Schedule pursuant to 46 C.F.R. 525.2(a)(3).

Plaintiffs cross-move for summary judgment on the ground that Plaintiffs have made a prima facie showing of conversion and that FMT has failed to adequately rebut the presumption of conversion that arises from Plaintiffs’ prima facie case. The Court finds triable issues of material fact that preclude summary judgment on any claim. Accordingly, the Court denies both motions for summary judgment in their entirety.

II. SUMMARY JUDGMENT STANDARD

Federal Rule of Civil Procedure 56(c) authorizes the granting of summary judgment when the evidence “show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is material if it “might affect the outcome of the suit under the governing law.” Id. A factual dispute is genuine where “the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Id. The party moving for summary judgment bears the initial burden of showing the absence of a genuine dispute over any issues of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). After such a showing, the burden shifts to the non-moving party to provide evidence of “specific facts showing that there is a genuine issue for trial.” Fed. R. of Civ. P. 56(e). In considering a motion for summary judgment, the Court must ” ‘construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant.’ ” Williams v. R.H. Donnelley, Corp., 368 F.3d 123, 126 (2d Cir.2004) (quoting Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir.2003)).

III. DISCUSSION

A. FMT’S MOTION FOR SUMMARY JUDGMENT

1. Applicability of FMT’s MTO Schedule

FMT moves for summary judgment on the ground that Plaintiffs’ claims are time-barred pursuant to the terms of FMT’s MTO Schedule. As noted above, an MTO Schedule is a publicly-available schedule of the rates and practices of a marine terminal operator maintained by the operator pursuant to OSRA § 1707(f). See 46 U.S.C. app. § 1707(f). FMT alleges that the terms of its MTO Schedule are enforceable against MIC as an implied contract pursuant to OSRA § 1707(f).

OSRA § 1707(f) provides:

A marine terminal operator may make available to the public … a schedule of rates, regulations, and practices, including limitations of liability for cargo loss or damage, pertaining to receiving, delivering, handling, or storing property at its marine terminal. Any such schedule made available to the public shall be enforceable by an appropriate court as an implied contract without proof of actual knowledge of its provisions.

Id. However, an MTO schedule “shall not be enforceable as an implied contract” where the parties have an “actual contract” covering the services rendered by the marine terminal operator. 46 C.F.R. § 525.2(a)(3) (emphasis added).

FMT is a marine terminal operator as defined in OSRA. See 46 U.S.C. app. § 1702(14). FMT alleges that at the time MIC and FMT entered into an agreement regarding storage of the PRITZWALK shipment, FMT’s MTO Schedule was available to the public and complied with the requirements set out in OSRA § 1707. FMT argues that the MTO Schedule must therefore be deemed an implied contract between FMT and MIC pursuant to OSRA § 1707(f).

FMT’s MTO Schedule includes the following provision:

[T]he MTO shall be discharged from all liability in respect of loss or damage unless suit is brought within nine (9) months after delivery of the cargo to FMT and only if written notice describing the general nature of the loss or damage has been given to the MTO within five (5) business days of the date of delivery of said cargoes from FMT. The only exception shall be if arrangements for storage are made in writing and agreed upon by all parties…. In the event such arrangements are made, suit must be brought within nine (9) months of the date set forth in the written agreement for delivery of the cargo from FMT.

(MTO Schedule at 16.) FMT argues the nine-month time limitation and the five-day written notice requirement contained in the MTO Schedule bar the Plaintiffs’ claims because Plaintiffs initiated the suit on May 19, 2004, more than nine months after both the delivery of the cocoa to FMT on May 14, 2001 and the completion of delivery of the cocoa from FMT to MIC’s customers on July 23, 2002, and because Plaintiffs allegedly failed to provide written notice of the loss within five business days of delivery of the cocoa from FMT.

Plaintiffs contend that the MTO Schedule is not enforceable as an implied contract because MIC and FMT entered into an actual contract for storage of the cocoa that superceded the MTO Schedule pursuant to 46 C.F.R. § 525.2(a)(3). Plaintiffs allege that rates for storage were negotiated and agreed to without reference to the MTO Schedule and that this agreement constitutes an actual agreement superceding the MTO Schedule. While FMT concedes that FMT quoted storage rates to MIC and that MIC agreed to those rates, FMT contends that the agreement as to rates for storage was “subject to” the MTO Schedule and did not constitute an actual contract that superceded the MTO Schedule.

To establish that FMT and MIC entered into an actual contract for storage, Plaintiffs must prove that the agreement concerning storage included all of the essential elements of contract formation, including “offer, acceptance, consideration, mutual assent and intent to be bound.” Oscar Productions, Inc. v. Zacharius, 893 F.Supp. 250, 255 (S.D.N.Y.1995) (citing Restatement (Second) of Contracts § § 24, 50, 71 (1981)). The evidence in the record, construed in the light most favorable to the non-moving party, demonstrates that there are genuine issues of fact concerning whether FMT and MIC entered into an actual contract for storage of the PRITZWALK cocoa. Evidence in the record supports Plaintiffs’ allegation that FMT provided a “rate quote” to MIC representatives (see Email from Bill Ring to Michael Kelly, undated, attached as Exhibit 3 to Plaintiffs’ Deposition Exhibits, Volume I), that Plaintiffs accepted the rate, and that both parties assented to and intended to be bound by the agreement regarding storage and delivery of the cocoa. (See, e.g., Federal Marine Terminals, Inc. invoices to Mitsubishi International, dated January 15, 2002, February 6, 2002, and March 11, 2002, attached as Exhibit 11 to Plaintiffs’ Deposition Exhibits, Volume I.) The Plaintiffs’ allegations raise issues of fact as to whether the parties entered into an actual contract and as to the specific terms incorporated into such contract. Thus, FMT’s motion for summary judgment on the ground that Plaintiffs’ claims are barred pursuant to the liability limitation provisions of the MTO Schedule must be denied.

2. Plaintiffs’ Conversion Claim

FMT also moves for summary judgment on Plaintiffs’ conversion claim. FMT asserts that the conversion claim is governed by federal law because the claim “arises out of the international carriage of goods by air or seas.” (FMT’s Mem. at 10.) Under federal law, the party asserting a conversion claim has the burden of establishing that the defendant is “responsible for the loss due to some willful or intentional conduct.” Lerakoli, Inc. v. Pan American World Airways, Inc., 783 F.2d 33, 37 (2d Cir.1986). FMT alleges that Plaintiffs’ conversion claim must be dismissed as a matter of law because Plaintiffs do not allege that FMT’s misconduct was willful or intentional. FMT’s argument fails because the federal rule does not apply to Plaintiffs’ conversion claim. Pursuant to the Second Circuit’s holding in Colgate Palmolive Co. v. S/S Dart Canada, the Court finds that New York law, not federal law, governs Plaintiffs’ conversion claim. See 724 F.2d 313, 315-16 (2d Cir.1983).

In Colgate, the plaintiff brought a conversion claim against a marine terminal operator for loss of goods stored at a terminal warehouse. The parties had contracted to extend the limitations on liability contained in the Carriage of Goods by Sea Act to limit liability for storage of goods prior to loading the goods onto a vessel. A central issue in Colgate was whether the contractually extended statutory limitations on liability were enforceable against the plaintiff. The Second Circuit held that state law applied to plaintiff’s conversion claim and further found that, pursuant to state law, the contractual limitations on liability were not enforceable because the plaintiffs had proven conversion. See id. at 315-16.

The Court finds that the Second Circuit’s holding in Colgate is controlling and accordingly concludes that state law applies to Plaintiffs’ conversion claim. See id. Under New York law, conversion can be established without a showing of willful or intentional conduct. See I.C.C. Metals, Inc. v. Municipal Warehouse Co., 50 N.Y.2d 657, 431 N.Y.S.2d 372, 409 N.E.2d 849, 853-54 (1980). Thus, Plaintiffs’ failure to allege intentional or willful misconduct does not render their conversion claim insufficient as a matter of law. Accordingly, FMT’s motion for summary judgment on the conversion claim is denied.

B. PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT

Plaintiffs move for summary judgment on the ground that Plaintiffs have established a prima facie showing of conversion and that FMT failed to adequately rebut the presumption of conversion arising from Plaintiffs’ prima facie case. To establish a prima facie case of conversion under New York law, a plaintiff must prove delivery of the stored property to the warehouse and the warehouse’s failure to return that property upon proper demand. See I.C.C. Metals, 40 Ill.Dec. 645, 406 N.E.2d at 851. Where a plaintiff establishes a prima facie case of conversion, the burden shifts to the defendant to provide an adequate explanation as to why it was unable to properly return the stored property. See id. at 853-54. The explanation proffered by the warehouse in such case “must be supported by sufficient evidence and cannot be merely the product of speculation and conjecture.” Id. at 854. If the warehouse cannot provide a sufficiently supported explanation, the plaintiff is entitled to summary judgment on the conversion claim. See id. at 856. Furthermore, where a plaintiff establishes a prima facie case of conversion, any liability-limiting provision in any contract governing the storage relationship is rendered inapplicable. See id. at 852.

The Court finds that the FMT is a “warehouseman” as defined by the New York Uniform Commercial Code § 7-102. N.Y. U.C.C. Law § 7-102; see also Colgate, 724 F.2d at 316. The Court is further persuaded that the record before it contains sufficient evidence to establish a prima facie case of conversion. However, FMT has provided an explanation for the loss of at least a portion of the cocoa that is sufficiently supported by the record to raise a question of fact. FMT alleges that the disappearance of the cocoa can be attributed, in part, to: (1) weight loss caused by the evaporation of moisture from the cocoa, and (2) loss due to handling. The record includes a report commissioned by T.M. Claims Service, Inc., an agent of Tokio, that states that .164 percent of FMT’s stored cocoa may have been lost through “normal shrinkage” caused by either moisture loss or handling loss. (Davison Rep. at 8.) Although moisture loss and handling loss are not alleged to account for the entire loss, the explanations offered by FMT are sufficient to raise questions of fact precluding summary judgment on Plaintiffs’ conversion claim.

FMT also asserts that part of the loss can be explained by FMT’s accidental over-filling of supersacks during the repackaging of the cocoa and delivery of the overweight supersacks to MIC’s customers. However, this explanation for the loss of cocoa does not constitute a defense against Plaintiffs’ conversion claim because misdelivery resulting in loss of goods constitutes conversion under New York law. See David Crystal, Inc. v. Cunard S.S. Co., 223 F.Supp. 273, 284-87 (S.D.N.Y.1963) (“A bailee who transfers goods in a manner inconsistent with an owner’s instructions is liable for conversion to his bailor.”); Fireman’s Fund Insurance Co. v. Wagner Fur, Inc., 760 F.Supp. 1101, 1105 (S.D.N.Y.1991) (finding that bailee could be liable for conversion for misdelivery of goods even if misdelivery was “merely a mistake” and bailee “received no benefits from the misdelivery.”).

Although FMT’s accidental misdelivery explanation does not constitute a defense against Plaintiffs’ conversion claim, FMT’s moisture loss and handling loss explanations are sufficient to raise questions of fact precluding summary judgment. Therefore, Plaintiffs’ summary judgment motion is denied.

IV. ORDER

For the reasons stated above, it is hereby

ORDERED that the motion of defendant Federal Marine Terminal, Inc. for summary judgment (Docket No. 25) is denied; and it is hereby further

ORDERED that the cross-motion of plaintiffs Tokio Marine and Fire Insurance Company, Ltd. and Mitsubishi International Corporation for summary judgment (Docket No. 30) is denied.

SO ORDERED.

. The factual recitation set forth below derives from the following documents on the record of the parties’ motions: Plaintiffs’ Consolidated Local Rule 56.1 Statement of Material Facts in Support of Its FRCP 56 Cross-Motion for Summary Judgement and Local Rule 56.1 Statement of Additional Material Facts In Opposition to Defendant Federal Marine’s FRCP Motion for Summary Judgment, dated April 28, 2005; Verification of Sandford E. Balick Pursuant to 28 U.S.C. 1746, dated April 18, 2005; Federal Marine Terminals, Inc. MTO Schedule for the Port of Albany, effective April 1, 2000, attached as Exhibit A to Declaration of Keith Flagg in Support of Federal Marine Terminals, Inc.’s Motion for Summary Judgment, dated February 18, 2005; Third Party Complaint, dated October 4, 2004; Memorandum of Law in Support of Federal Marine Terminals, Inc.’s Motion for Summary Judgment, dated March 9, 2005 (“FMT’s Mem.”); Plaintiffs’ Memorandum of Law in Opposition to Defendant Federal Marine Terminal’s Rule 56 Motion for Summary Judgment, dated April 29, 2005 (“Pls.’ Mem. in Op.”); FMT’s Local Rule 56.1 Counter Statement of Material Facts, dated May 27, 2005 (“FMT’s Ct. St.”); Plaintiffs’ Memorandum of Law in Support of Plaintiffs’ Rule 56 Cross-Motion for Summary Judgment, dated April 29, 2005 (“Pls.’ Mem.”); Declaration of William J. Ring III in Support of Federal Marine Terminals Inc.’s Motion for Summary Judgment, dated February 17, 2005 (“Ring Dec.”); FMT’s Memorandum of Law in Opposition to Plaintiffs’ Cross-Motion for Summary Judgment, dated May 27, 2005 (“FMT’s Mem. in Op.”); Deposition of William J. Ring, III, dated April 11, 2005, attached as Exhibit 10 to Verification of Thomas M. Grasso Pursuant to 28 U.S.C. 1746, dated April 28, 2005 (“Ring Dep.”); and Report of T.D. Davison, Certified Public Accountant, P.C., dated June 20, 2003 (“Davison Rep.”), attached as Exhibit 1 to Verification of Sanford E. Balick Pursuant to 28 U.S.C. 1746. Unless specifically quoted or otherwise cited as necessary, no other citation to these documents will be made.

. OSRA defines a marine terminal operator as “a person engaged in the United States in the business of furnishing wharfage, dock, warehouse, or other terminal facilities in connection with a common carrier, or in connection with a common carrier and a water carrier subject to subchapter II of chapter 135 of title 49, United States Code.” 46 U.S.C. app. § 1702(14).