East River Steamship Corp v. Transamerica Delaval, Inc

• Decision Date: 16 June 1986
• Docket Number: No. 84-1726,84-1726
• Citation: 106 S.Ct. 2295,476 U.S. 858,90 L.Ed.2d 865
• Parties: EAST RIVER STEAMSHIP CORP., et al., Petitioners v. TRANSAMERICA DELAVAL, INC
• Court: U.S. Supreme Court

476 U.S. 858

106 S.Ct. 2295

90 L.Ed.2d 865

EAST RIVER STEAMSHIP CORP., et al., Petitioners

v TRANSAMERICA DELAVAL, INC.

No. 84-1726.

Argued Jan. 21, 1986.

Decided June 16, 1986.

Syllabus

A shipbuilder contracted with respondent to design, manufacture, and supervise the installation of turbines that would be the main propulsion units for four oil-transporting supertankers constructed by the shipbuilder. After each ship was completed, it was chartered to one of the petitioners. When the ships were put into service, the turbines on all four ships malfunctioned due to design and manufacturing defects. Only the products themselves were damaged. Petitioners filed a five-count admiralty complaint in Federal District Court against respondent, alleging tortious conduct based on a products-liability theory and seeking damages for the cost of repairing the ships and for income lost while they were out of service. The District Court granted summary judgment for respondent. The Court of Appeals affirmed, holding that petitioners' dissatisfaction with product quality did not state a claim cognizable in tort.

Held:

1. The fourth count should have been dismissed on the ground that the petitioner who chartered the ship referred to in that count lacked standing to bring the claim. P. 863.

2. The torts alleged in the other counts clearly fall within admiralty jurisdiction. Pp. 863-864.

3. Admiralty law, which already recognizes a general theory of liability for negligence, also incorporates principles of products liability, including strict liability. Pp. 864-866.

4. But whether stated in negligence or strict liability, no products-liability claim lies in admiralty when a commercial party alleges injury only to the product itself resulting in purely economic loss. Such a claim is most naturally understood as a warranty claim. Pp. 866-876.

752 F.2d 903, affirmed.

BLACKMUN, J., delivered the opinion for a unanimous Court.

Thomas E. Durkin, Jr., Newark, N.J., for petitioners.

Robert E. Smith, for respondent.

Justice BLACKMUN delivered the opinion of the Court.

In this admiralty case, we must decide whether a cause of action in tort is stated when a defective product purchased in a commercial transaction malfunctions, injuring only the product itself and causing purely economic loss. The case requires us to consider preliminarily whether admiralty law, which already recognizes a general theory of liability for negligence, also incorporates principles of products liability, including strict liability. Then, charting a course between products liability and contract law, we must determine whether injury to a product itself is the kind of harm that should be protected by products liability or left entirely to the law of contracts.

I

In 1969, Seatrain Shipbuilding Corp. (Shipbuilding), a wholly owned subsidiary of Seatrain Lines, Inc. (Seatrain), announced it would build the four oil-transporting supertankers in issue—the T.T. Stuyvesant, T.T. Williamsburgh, T.T. Brooklyn, and T.T. Bay Ridge. Each tanker was constructed pursuant to a contract in which a separate wholly owned subsidiary of Seatrain engaged Shipbuilding. Shipbuilding in turn contracted with respondent, now known as Transamerica Delaval Inc. (Delaval), to design, manufacture, and supervise the installation of turbines (costing $1.4 million each, see App. 163) that would be the main propulsion units for the 225,000-ton, $125 million, ibid., supertankers. When each ship was completed, its title was transferred from the contracting subsidiary to a trust company (as trustee for an owner), which in turn chartered the ship to one of the petitioners, also subsidiaries of Seatrain. Queensway Tankers, Inc., chartered the Stuyvesant; Kingsway Tankers, Inc., chartered the Williamsburgh; East River Steamship Corp. chartered the Brooklyn; and Richmond Tankers, Inc., chartered the Bay Ridge. Each petitioner operated under a bareboat charter, by which it took full control of the ship for 20 or 22 years as though it owned it, with the obligation afterwards to return the ship to the real owner. See G. Gilmore & C. Black, Admiralty §§ 4-1, 4-22 (2d ed. 1975). Each charterer assumed responsibility for the cost of any repairs to the ships. Tr. of Oral Arg. 11, 16-17, 35.

The Stuyvesant sailed on its maiden voyage in late July 1977. On December 11 of that year, as the ship was about to enter the Port of Valdez, Alaska, steam began to escape from the casing of the high-pressure turbine. That problem was temporarily resolved by repairs, but before long, while the ship was encountering a severe storm in the Gulf of Alaska, the high-pressure turbine malfunctioned. The ship, though lacking its normal power, was able to continue on its journey to Panama and then San Francisco. In January 1978, an examination of the high-pressure turbine revealed that the first-stage steam reversing ring virtually had disintegrated and had caused additional damage to other parts of the turbine. The damaged part was replaced with a part from the Bay Ridge, which was then under construction. In April 1978, the ship again was repaired, this time with a part from the Brooklyn. Finally, in August, the ship was permanently and satisfactorily repaired with a ring newly designed and manufactured by Delaval.

The Brooklyn and the Williamsburgh were put into service in late 1973 and late 1974, respectively. In 1978, as a result of the Stuyvesant's problems, they were inspected while in port. Those inspections revealed similar turbine damage. Temporary repairs were made, and newly designed parts were installed as permanent repairs that summer.

When the Bay Ridge was completed in early 1979, it contained the newly designed parts and thus never experienced the high-pressure turbine problems that plagued the other three ships. Nonetheless, the complaint appears to claim damages as a result of deterioration of the Bay Ridge's ring that was installed in the Stuyvesant while the Bay Ridge was under construction. In addition, the Bay Ridge experienced a unique problem. In 1980, when the ship was on its maiden voyage, the engine began to vibrate with a frequency that increased even after speed was reduced. It turned out that the astern guardian valve, located between the high-pressure and low-pressure turbines, had been installed backwards. Because of that error, steam entered the low-pressure turbine and damaged it. After repairs, the Bay Ridge resumed its travels.

II

The charterers' second amended complaint, filed in the United States District Court for the District of New Jersey, invokes admiralty jurisdiction. It contains five counts alleging tortious conduct on the part of respondent Delaval and seeks an aggregate of more than $8 million in damages for the cost of repairing the ships and for income lost while the ships were out of service. The first four counts, read liberally, allege that Delaval is strictly liable for the design defects in the high-pressure turbines of the Stuyvesant, the Williamsburgh, the Brooklyn, and the Bay Ridge, respectively. The fifth count alleges that Delaval, as part of the manufacturing process, negligently supervised the installation of the astern guardian valve on the Bay Ridge. The initial complaint also had listed Seatrain and Shipbuilding as plaintiffs and had alleged breach of contract and warranty as well as tort claims. But after Delaval interposed a statute of limitations defense, the complaint was amended and the charterers alone brought the suit in tort. The nonrenewed claims were dismissed with prejudice by the District Court. Delaval then moved for summary judgment, contending that the charterers' actions were not cognizable in tort.

The District Court granted summary judgment for Delaval, and the Court of Appeals for the Third Circuit, sitting en banc, affirmed. East River S.S. Corp. v. Delaval Turbine, Inc., 752 F.2d 903 (1985). The Court of Appeals held that damage solely to a defective product is actionable in tort if the defect creates an unreasonable risk of harm to persons or property other than the product itself, and harm materializes. Disappointments over the product's quality, on the other hand, are protected by warranty law. Id., at 908, 909-910. The charterers were dissatisfied with product quality: the defects involved gradual and unnoticed deterioration of the turbines' component parts, and the only risk created was that the turbines would operate at a lower capacity. Id., at 909. See Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1169-1170 (CA3 1981). Therefore, neither the negligence claim nor the strict-liability claim was cognizable.

Judge Garth concurred on "grounds somewhat different," 752 F.2d, at 910, and Judge Becker, joined by Judge Higginbotham, concurred in part and dissented in part. Id., at 913. Although Judge Garth agreed with the majority's analysis on the merits, he found no strict-liability claim presented because the charterers had failed to allege unreasonable danger or demonstrable injury.

Judge Becker largely agreed with the majority's approach, but would permit recovery for a "near miss," where the risk existed but no calamity occurred. He felt that the first count, concerning the Stuyvesant, stated a cause of action in tort. The exposure of the ship to a severe storm when the ship was unable to operate at full power due to the defective part created an unreasonable risk of harm.

We granted certiorari to resolve a conflict among the Courts of Appeals sitting in admiralty.¹ 474 U.S. 814, 106 S.Ct. 56, 88 L.Ed.2d 45 (1985).

III

A.

Initially, we conclude that the fourth count should have been dismissed because Richmond Tankers, Inc., the charterer of the Bay Ridge, lacks standing to bring a claim relating to the defective ring that was removed from the Bay Ridge when it was still under construction. The ring was installed in the Stuyvesant where it remained until April 1978, when it was removed due...