876 F.2d 501 (5th Cir. 1989), 88-3510, Nicor Supply Ships Associates v. General Motors Corp.

Docket Nº:88-3510.
Citation:876 F.2d 501
Party Name:NICOR SUPPLY SHIPS ASSOCIATES, Nicor Supply Ships, Inc., Acadian Supply Ships Associates, A Limited Partnership, through its general partner Acadian Supply Ships, Inc. and Digicon, Inc., and Digicon Physical Corporation, Plaintiffs-Appellants, v. GENERAL MOTORS CORPORATION, Stewart & Stevenson Services, and Halter Marine, Defendants-Appellees.
Case Date:July 05, 1989
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 501

876 F.2d 501 (5th Cir. 1989)

NICOR SUPPLY SHIPS ASSOCIATES, Nicor Supply Ships, Inc.,

Acadian Supply Ships Associates, A Limited

Partnership, through its general partner

Acadian Supply Ships, Inc.

and

Digicon, Inc., and Digicon Physical Corporation, Plaintiffs-Appellants,

v.

GENERAL MOTORS CORPORATION, Stewart & Stevenson Services,

and Halter Marine, Defendants-Appellees.

No. 88-3510.

United States Court of Appeals, Fifth Circuit

July 5, 1989

Page 502

C. Gordon Starling, Jr., G. Beauregard Gelpi, New Orleans, La., for Digicon, Inc.

David L. Carrigee, Kimbley A. Kearney, New Orleans, La., for Nicor, et al.

Kevin R. Tully, W.K. Christovich, New Orleans, La., for Stewart & Stevenson.

Thomas Otman Kuhns, Frank Cicero, Jr., Douglas J. Kurtenbach, Chicago, Ill., Stephen K. Conroy, Metairie, La., for General Motors.

Charles E. Lugenbuhl, Stanley J. Cohn, Stefan Kazmierski, New Orleans, B. Ralph Bailey, Collins C. Rossi, Metairie, La., for Halter Marine.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before CLARK, Chief Judge, RUBIN, and DAVIS, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

The district court rendered summary judgment dismissing the claims of both the boat-owner and the time-charterer of a vessel that the builder of the vessel and the manufacturer and distributor of its engines were liable in tort for loss of the vessel and other property allegedly damaged by the explosion of the vessel's engine. We affirm the judgment dismissing the vessel-owner's claim for damage to the vessel. We reverse, however, the judgment dismissing the time-charterer's claim for damage to property it had placed on board the vessel since this property, removable when the charter ended, was not part of the vessel itself.

I.

In 1980, Nicor Supply Ships purchased the M/V Acadian Sailor, a 216-foot, diesel-electric powered, offshore supply vessel built by Halter Marine, Inc., with a one-year warranty for its engines. A year later, Nicor time-chartered the vessel to Digicon, Inc. for a base period of two years with annual options to renew for a maximum of six years.

Digicon engaged Newpark Shipyard in Houston, Texas, to modify the vessel for oceanographic research by welding a superstructure on the stern deck and creating a reel deck and heliport. Digicon also placed seismic equipment--guns, cables, reels, computers, and compressors--on the vessel. The structural changes and added equipment cost more than $7.8 million. The charter agreement provided that Digicon might remove the installed structures and equipment at the end of the charter, and return the vessel to Nicor in its pre-charter condition. Nicor did not assign to Digicon any of its rights or warranties against the builder of the vessel or the manufacturer of its parts. Digicon, in turn, had no obligation to repair or maintain the vessel. Throughout the term of the charter, Nicor supplied a crew and retained operational control of the vessel.

Early on an April morning in 1984, off the coast of Galveston, Texas, a fire erupted in the vessel's engine room near the No. 2 main engine. The fire, which incapacitated the ship and burned out of control for three days, caused more than $2 million in damage to the vessel and approximately $8 million in damage to the equipment Digicon

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had installed on it. While the district court did not establish the cause of the fire in its findings of fact, Nicor contends, based on its post-casualty investigation, that the fire was caused by a faulty fuel injector and fuel-cooling system in the No. 2 main engine, a Series 149 Detroit Diesel Allison.

Nicor and Digicon sued several parties: General Motors Corp., the manufacturer of the Series 149 Detroit Diesel Allison; Halter Marine, Inc., the shipbuilder which installed the engine; Stewart & Stevenson Services, the regional distributor of General Motors' engine which, with Halter, installed the engine; Kennedy Engine Co., the manufacturer of the fuel injectors used in the engine; and Williams Diesel Services, Inc., the last party to have overhauled the No. 2 main engine before the casualty. Nicor claimed that the defendants were liable in tort for damages to the vessel, and Digicon sought to recover for damage to its equipment and its loss of profit from being unable to use the vessel.

The district court dismissed Nicor's claim for damage to the vessel as barred by the Supreme Court's decision in East River Steamship Corp. v. Transamerica Delaval, Inc. 1 and this court's decision in Shipco 2295, Inc. v. Avondale Shipyards, Inc. 2 Six months later, upon discovering that General Motors knew of a defect or design flaw in the No. 2 main engine--that the fuel injectors used in the engine could not withstand hot fuel--Nicor sought to reinstate its cause of action, claiming that General Motors had failed to warn Nicor of this defect. The district court denied Nicor's motion, and dismissed Digicon's tort claims against General Motors, Halter, and Stewart & Stevenson. Both Nicor and Digicon appeal.

II.

In East River Steamship Corp. v. Transamerica Delaval, the Supreme Court held that a ship-owner may not recover from the builder of a vessel or the manufacturer of its parts for damage to the vessel's engine allegedly caused by the defective design of its turbines, stating:

a manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself. 3

The Court found that the "tort concern with safety is reduced when an injury is only to the product itself," and that actions to recover for such economic damage should be "most naturally understood as a warranty claim ..., mean[ing] simply that the product has not met the customer's expectations." 4

In East River, the Supreme Court addressed only the negligent manufacture of a product; it did not discuss whether the purchaser of a vessel may recover in tort against the manufacturer for failing to warn of a defect in that product. The Court, in fact, noted that "[w]e do not reach the issue whether a tort cause of action can ever be stated in admiralty when the only damages sought are economic." 5

Nicor attempts to avoid the East River bar by claiming that General Motors was guilty of a different sort of negligence--"knowingly placing a defective.... [e]ngine into the stream of commerce and ...negligently failing to warn [Nicor] of the known dangers inherent in its use." Nicor contends that the Court's circumscription of cognizable tort claims in East River permits it to recover for failure to warn of a defect, as distinguished from negligence in the manufacture of the product.

Page 504

Two courts, the Eleventh Circuit in Miller Industries v. Caterpillar Tractor Co., 6 acting before East River, and a New Jersey District Court in McConnell v. Caterpillar Tractor Co., 7 acting after East River, have distinguished between a manufacturer's negligence occurring "as part of the manufacturing process" and a manufacturer's negligent failure to warn of a known defect. 8 Miller Industries, upon which the McConnell court relied, held that the purchaser of the defective product may recover in tort for the manufacturer's negligent failure to warn of a defect, at least when the manufacturer has "discovered [the defect] after the engine was already on the market," and "the warranty does not expressly disclaim negligence." 9 Both courts reasoned that a manufacturer's negligence after manufacture has been completed "goes not to the quality of the product that the buyer expects from the bargain, but to the type of conduct which tort law governs as a matter of social and public policy." 10

In both Miller Industries and McConnell, the failure-to-warn claim was predicated on knowledge gained by the manufacturer after the product had been delivered. In this case, while we, of course, credit Nicor's allegations that General Motors knew that its Series 149 engine was defective and that this defect caused the fire that damaged the M/V Acadian Sailor, 11 Nicor has neither asserted nor adduced any evidence to support an inference that General Motors discovered the defect in the engine subsequent to its manufacture. Moreover, the warranty under which Nicor purchased the M/V Acadian Sailor stated that it was "expressly in lieu of ... any non-contractual liabilities including product liabilities based upon negligence or strict liability." Because Nicor has not alleged that General Motors discovered the defect after manufacture and that its negligence, therefore, occurred apart from the manufacturing process, and because the contract between General Motors and Nicor expressly disclaimed General Motors' liability for negligence arising out of the purchase of the engine, Nicor's claim does not fall into the possible exception to East...

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