McDermott, Inc. v. Clyde Iron, 91-2246

• Citation: 979 F.2d 1068
• Decision Date: 11 December 1992
• Docket Number: No. 91-2246,91-2246
• Parties: , 19 UCC Rep.Serv.2d 465, Prod.Liab.Rep. (CCH) P 13,419 McDERMOTT, INC., Plaintiff-Appellee, Cross-Appellant, v. CLYDE IRON, et al., Defendants, AmClyde, A Division of AMCA International, Inc., and River Don Casting Ltd., Defendants-Appellants, Cross-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1068

979 F.2d 1068

1993 A.M.C. 881, 19 UCC Rep.Serv.2d 465,

Prod.Liab.Rep. (CCH) P 13,419

McDERMOTT, INC., Plaintiff-Appellee, Cross-Appellant, v. CLYDE IRON, et al., Defendants AmClyde, A Division of AMCA International, Inc. and River Don Casting Ltd., Defendants-Appellants, Cross-Appellees.

No. 91-2246.

United States Court of Appeals Fifth Circuit.

Dec. 11, 1992.

Rehearing and Rehearing En Banc

Denied Jan. 25, 1993.

Robert E. Coughig, Jr., Thomas O'Brien, Karen L. Lewis, Adams & Reese, New Orleans, La., for AmClyde, et al.

Arden J. Lea, R. Jeffrey Bridger, Rockne L. Moseley, Lea, Plavnicky & Moseley, New Orleans, La., for plaintiff-appellee, cross-appellant.

Appeal from the United States District Court for the Southern District of Texas.

Before HIGGINBOTHAM and DUHE, Circuit Judges, and HARMON, ^* District Judge.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This is a suit for damage to property resulting from a failure of a large crane on an offshore platform. AmClyde and River Don appeal from a judgment on the jury's verdict urging that AmClyde's contract with McDermott, and general maritime law, protect them from liability in warranty and tort in addition to the limits on tort liability under the East River doctrine and that, in any event, they are entitled to the credit of McDermott's settlement with others. McDermott cross-appeals attacking the application of East River and the denial of recovery for damage to the crane itself. We reverse the judgment against AmClyde. We conclude that River Don is liable to McDermott, but hold that River Don is entitled to full credit for McDermott's settlement.

I.

On January 10, 1986, McDermott contracted to purchase a 5,000 ton Shearleg crane designed and manufactured by AmClyde. The contract covered twenty-five pages and included several provisions purporting to limit potential liability. McDermott intended to use the crane to move the deck portion, the Snapper deck, of an offshore platform used in drilling for oil and natural gas. AmClyde designed the crane's hook. River Don was not a party to the McDermott-AmClyde contract but manufactured the hook under a subcontract with AmClyde.

On October 10, 1986, McDermott was using the crane to lift the approximately 3,950 ton Snapper deck. The crane was mounted aboard the vessel Intermac 600 in the Gulf of Mexico off the coast of Texas. As the crane lifted the deck, one of the prongs on the hook and one of the slings holding the deck broke, and the deck fell onto the barge with serious damage to the crane and deck. This suit followed.

McDermott sued AmClyde, River Don, two manufacturers of the slings, and another sling supplier asserting tort and contract claims. AmClyde filed a third-party claim against Hudson Engineering, the McDermott subsidiary that designed the sling rigging arrangement used for the lift. AmClyde also counterclaimed for the cost of replacing the allegedly defective hook.

AmClyde and River Don moved for partial summary judgment arguing that AmClyde and McDermott agreed in the contract to restrict any tort and contract liability to repair or replacement and that under general maritime law there is no recovery for product damage and resulting economic loss under East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). The magistrate judge denied the motion.

On the eve of trial, McDermott settled with the three sling-related defendants for $1 million. AmClyde and River Don claimed a dollar-for-dollar credit for the $1 million settlement against any judgment against them, citing Hernandez v. M/V RAJAAN, 841 F.2d 582 (5th Cir.1988). In his opening statement, counsel for McDermott told the jury that McDermott accepted responsibility for any part the slings played in causing the damage. The settlement documents were not formally executed until after the jury returned its verdict. That detail disclosed that the settlement agreement attributed one half of the total settlement to crane damages and one half to deck damages.

Shortly after trial began, the magistrate judge, relying on East River, ruled that McDermott could not recover in tort for damage to the product itself, the crane and the hook, but that it could recover in tort for damage to the deck as "other property." At trial then, McDermott's claim for damages to the crane was limited to the remedies provided for in its contract with AmClyde.

The jury found the crane's hook to be defective, that the defect was one of materials or workmanship and misrepresentation, and that this defect was a producing cause of injury. The jury also found that AmClyde breached express and implied warranties that were a producing cause of injury. The jury awarded compensatory damages of $2.1 million for damage to the deck, attributing the cause of the accident 32% to AmClyde, 38% to River Don, 0% to Hudson Engineering and 30% to "McDermott/sling defendants." The jury was not asked to determine separately McDermott's contribution to the accident despite its assumption of any damage caused by the sling defendants. The court later denied AmClyde and River Don's request for a $1 million credit against the verdict and rendered judgment on the jury's verdict against AmClyde in the amount of $672,000.00 and against River Don in the amount of $798,000.00. ¹

AmClyde and River Don appeal, and McDermott cross-appeals. AmClyde and River Don first argue that recovery for damages to the deck cannot be supported by a breach of contract, because the parties disclaimed all warranties, except a limited replacement and repair warranty for materials and workmanship. Second, they contend that McDermott was not entitled to any recovery in tort for damage to the deck, because (1) the McDermott-AmClyde contract waived all tort liability as to AmClyde and River Don, and (2) East River precludes any tort claims for damage to both the crane and the deck. Third, AmClyde and River Don assert that the trial court should have granted their motions for directed verdict and judgment notwithstanding the verdict, because McDermott failed to prove causation. Finally, AmClyde and River Don claim an offset of the $1 million settlement under Hernandez, alternatively, that they are entitled to a new trial because of various erroneous rulings on questions of evidence.

McDermott contends that it is entitled to recover for damage to the crane as well as the deck. McDermott requests a remand for trial on the amount of damages to the crane only, contending that the jury has already determined the liability of AmClyde and River Don. McDermott argues that it should not be limited to the replacement of defective parts under the contract, because (1) AmClyde's refusal to replace the hook free of charge caused the limited warranty to fail of its essential purpose; (2) AmClyde made broad and undisclaimed warranties by incorporating technical specifications into the document; (3) the warranty was modified by later dealings between the parties and assurances from AmClyde that it would "stand behind its product"; (4) the replacement warranty applies only to AmClyde's manufacture of the crane, not to its design and sale. Second, McDermott contends that East River does not bar recovery for damage to the crane, because other property, the deck, along with the crane was damaged. Third, McDermott argues that its claims against River Don should not be governed by the rule of East River because there was no contractual relationship directly between them. Finally, McDermott claims prejudgment interest and urges that the jury's verdict should be corrected to show that the jury allocated causation and not fault.

II.

We are convinced that the contract between McDermott and AmClyde controls AmClyde's liability to McDermott. It is urged that McDermott's recovery in warranty is limited to the replacement/repair warranty in the McDermott-AmClyde contract, and the contract precludes McDermott from recovering in tort. We agree and reverse the judgment against AmClyde. Although we conclude that River Don is not protected by the limited liability provisions in the contract between McDermott and AmClyde, and River Don is liable to McDermott, we find that River Don is entitled to a credit of McDermott's settlement with the sling defendants. We address AmClyde first, then River Don.

III.

The language of the contract is critical to McDermott's recovery against AmClyde in warranty, and we focus on Article XV ². The parties agree that we must look to the law of New York in interpreting this contract. Under New York law, these issues of contract interpretation are considered questions of law. Maio v. Gardino, --- A.D.2d ---, 585 N.Y.S.2d 529, 530 (N.Y.App.Div.1992); Trustco Bank v. 11 North Pearl Assoc., 153 Misc.2d 340, 580 N.Y.S.2d 847, 848 (N.Y.Sup.Ct.1992). Thus, our review is de novo.

A.

In Article XV, AmClyde warrants that equipment of its own manufacture will be free from defects in materials and workmanship and that the exclusive remedy for the breach of this limited warranty will be repair or replacement of defective parts. Such agreed upon limits on remedy are generally valid. N.Y.U.C.C.Law § 2-719 (McKinney 1991) ³; Employers Ins. of Wausau v. Suwannee River Spa Lines, Inc., 866 F.2d 752, 776 (5th Cir.1989); American Elec. Power Co. v. Westinghouse Elec., 418 F.Supp. 435, 452-53 (S.D.N.Y.1976).

The jury found a defect in materials or workmanship, and therefore, a breach of this limited warranty. McDermott attempts to escape the restriction on remedy that it agreed to urging that this remedy "failed of its essential purpose." ⁴

The policy behind the failure of essential purpose rule is to insure that the buyer has "at least minimum adequate remedies." U.C.C. § 2-719 Comment 1. Typically, a limited repair/replacement remedy fails of its essential purpose where (1) the "[s]eller is unsuccessful in repairing or replacing the defective part, regardless of good or...