United States District Court, S.D. New York
November 9, 2005.
TOKIO MARINE AND FIRE INSURANCE CO., LTD. and MITSUBISHI INTERNATIONAL CORPORATION, Plaintiffs,
FEDERAL MARINE TERMINAL, INC., Defendant. FEDERAL MARINE TERMINAL, INC., Third-party Plaintiff, v. ADM COCOA, INC. and NESTLE USA, INC., Third-party Defendants.
The opinion of the court was delivered by: VICTOR MARRERO, District Judge
DECISION AND ORDER
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
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
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 (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 (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)).
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).*fn2 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
(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.
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., 409 N.E.2d 849, 853-54 (N.Y. 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, 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
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
re-packaging 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 Steam-ship 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.
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
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.
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