All Alaskan Seafoods v. Raychem Corp.

• Decision Date: 07 December 1999
• Docket Number: No. 98-35540,AAS-DMP,98-35540
• Citation: 197 F.3d 992
• Parties: (9th Cir. 1999) ALL ALASKAN SEAFOODS, INC.;MANAGEMENT PARTNERSHIP; KODIAK MARINE PROTEIN, INC., General Partner; DALMOREPRODUCT, Holding Company; SHIN NIHON GLOBAL COMPANY, LTD., Plaintiffs-Appellants, v. RAYCHEM CORPORATION, Defendant-third-party-plaintiff-Appellee, and MINNESOTA MINING & MANUFACTURING COMPANY, Defendant-Appellee, v. MARINE ELECTRIC, INC., Third-party-Defendant
• Court: U.S. Court of Appeals — Ninth Circuit

Page 992

197 F.3d 992 (9th Cir. 1999)

ALL ALASKAN SEAFOODS, INC.; AAS-DMP MANAGEMENT PARTNERSHIP; KODIAK MARINE PROTEIN, INC., General Partner AAS-DMP; DALMOREPRODUCT, Holding Company; SHIN NIHON GLOBAL COMPANY, LTD., Plaintiffs-Appellants, v. RAYCHEM CORPORATION, Defendant-third-party-plaintiff-Appellee, and MINNESOTA MINING & MANUFACTURING COMPANY, Defendant-Appellee, v. MARINE ELECTRIC, INC., Third-party-Defendant.

No. 98-35540

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted October 4, 1999

Filed December 7, 1999

COUNSEL: Jonathan Meier, Sirianni & Youtz, Seattle, Washington; Steven B. Fisher, Daar, Fisher, Kanaris & Vanek, P.C. (on the briefs) Chicago, Illinois; and Michael H. Williamson, Madden, Poliak, MacDougall & Williamson (on the briefs)Chicago, Illinois, for the plaintiffs-appellants.

Greg Gilchrist, Legal Strategies Group, Emeryville, California, for the defendant-third-party-plaintiff-appellee. Daniel J. Gunter, Graham & James, LLP/Riddell Williams P.S., Seattle, Washington, for the defendant-appellee.

Appeal from the United States District Court for the Western District of Washington; Barbara J. Rothstein, Chief Judge, Presiding. D.C. No. CV-95-00351-BJR

Before: Thomas M. Reavley,¹ Robert Boochever, and Stephen S. Trott, Circuit Judges.

OPINION

REAVLEY, Circuit Judge:

Appellant AAS-DMP Management Partnership ("AASDMP") appeals the judgment in favor of appellees Raychem Corporation ("Raychem") and Minnesota Mining & Manufacturing Co. ("3M"). The district court granted summary judgment for appellees on appellant's claims for product liability arising from a fire aboard the P/V ALL ALASKAN. We reverse and remand.

The following facts are not in dispute. In 1987, All Alaskan Seafoods, Inc. ("All Alaskan") purchased the hull of an oil drill ship, then spent over $25,000,000.00 to build a seafood processing factory on the hull, and named the vessel P/V ALL ALASKAN. All Alaskan built the vessel for its own use and operated the vessel in the Bering Sea to process salmon and crab meat. The first season of operation began in June, 1989. Before the second season, All Alaskan purchased Raychem heating cable in bulk and installed some of the cable on a new drain line on the vessel. An end cap manufactured by 3M was installed on the end of the Raychem heating cable. On July 5, 1994, after operating the ship for another four seasons, All Alaskan transferred title of the ship "as is where is" to AASDMP, created for a joint venture between All Alaskan and a Russian entity, Dalmore product Holding Company. The P/V ALL ALASKAN caught fire on July 24, 1994 while operating in Bristol Bay and suffered substantial damage in the fire.

AAS-DMP alleges that the fire was caused by defects in the Raychem heating cable and the 3M end cap installed between the first and second fishing seasons. The district court granted summary judgment on the ground that under the rule of East River S.S. Corp. v. Transamerica Delaval, Inc.² AAS-DMP could not recover in product liability for economic loss to the vessel.

The Supreme Court in East River recognized product liability, including strict liability, as part of the general maritime law, but the Court limited that liability where a defect damages only the product itself. In East River, defective turbine components damaged only the turbine and interrupted the commercial operation of the vessel. The bareboat charterer of the vessel sought damages in product liability from the turbine manufacturer. The Court restricted this claim to the contractual warranty between the manufacturer and the purchaser, and held that, in the absence of a contractual obligation, a commercial product injuring itself is not the kind of harm against which public policy requires manufacturers to protect.

The Court focused on the exposure of the product manufacturer and held "that a manufacturer in a commercial relationship has no duty under either a negligence or strict productsliability theory to prevent a product from injuring itself." 476 U.S. at 871, 106 S.Ct. at 2302. The Court explained that warranty law sufficiently protects a purchaser by allowing the purchaser to obtain the benefit of his or her bargain. "Thus . . . it is more natural to think of injury to a product itself in terms of warranty." 476 U.S. at 873, 106 S. Ct. at 2295.

The Court applied the East River rule in Saratoga Fishing Co. v. J.M. Martinac & Co.,³ in which Joseph Madruga purchased a vessel built by J.M. Martinac, then added equipment to the vessel before reselling it to Saratoga Fishing. A defect in the hydraulic system caused a fire and the vessel was lost. Saratoga Fishing recovered for the skiff, nets, and spare parts added to the ship by Madruga. The Court rejected the view of the dissent and the Ninth Circuit that would define the "product" for the purposes of the East River economic loss rule as the object of the purchaser's bargain. Instead the Court retained the distinction between components incorporated by a manufacturer before sale to an initial user and those items added by a user of the manufactured product.

The case at bar raises questions in maritime law which have not been addressed. Who is the manufacturer and who is the initial user? What is the "product" for which a tort claim is limited? The Court has not said whether the seller should be considered a manufacturer for East River purposes when, as in the case of All Alaskan, it refurbishes and operates a vessel for its own business before selling the vessel. Likewise, it has not been decided whether East River has any application where the vessel is not sold new or is sold in a commercial transaction where a warranty is not likely; and if East River does not apply in those circumstances, how the "product" is to be determined. We believe that the boundary set by the East River rationale is best observed by treating All Alaskan as a user, not a manufacturer and by treating the items sold by Raychem and 3M as products. The P/V A LL ALASKAN was not the "product" for East River purposes during the four years it was operated by All Alaskan after installation of the heating cable and end cap. We see no justification for changing the characterization of the product upon the sale to AAS-DMP, nor for immunizing Raychem and 3M from tort liability because of the transaction between All Alaskan and AAS-DMP.

Product liability promotes safer products by placing responsibility on the manufacturer, which is the party most able to prevent harm. See Saratoga Fishing, 520 U.S. at 881, 117 S. Ct. at 1787; East River, 476 U.S. at 806, 106 S. Ct. at 2300. Product liability law provides manufacturers with incentives to determine design and quality control specifications in light of the potential exposure to liability for defects. RESTATEMENT THIRD, TORTS: PRODS. LIAB.S 2 cmt. a (1997). Manufacturers can set prices to spread the risk of defects over the entire market for their products. Id.

The economic loss rule serves as a boundary at the intersection of contract and tort law to protect the law of warranty from being absorbed in tort. East River , 476 U.S. at 866-68, 106 S. Ct. at 2300. Under that rule when a defective product damages itself, the only loss is the value of the product, which is the subject of warranty rather than tort law. Id. Protecting warranty regimes from incursions by tort law is important because manufacturers rely on limitations of warranty to make financial decisions regarding costs for product failure. Product liability law provides notice to manufacturers that warranty limitations may not protect against exposure when a defective product causes personal injury or property...