MTU of North America, Inc. v. Raven Marine, Inc.

• Decision Date: 16 July 1992
• Docket Number: No. 90,90
• Citation: 603 So.2d 803
• Parties: MTU OF NORTH AMERICA, INC. and MTU Friedrichshafen v. RAVEN MARINE, INC., Transocean Marine, Inc. and Bernard A. Favret. CA 1702.
• Court: Court of Appeal of Louisiana — District of US

Page 803

603 So.2d 803

MTU OF NORTH AMERICA, INC. and MTU Friedrichshafen v. RAVEN MARINE, INC., Transocean Marine, Inc. and Bernard A Favret.

No. 90 CA 1702.

Court of Appeal of Louisiana First Circuit.

July 16, 1992.

Boris F. Navratil, Mangham, Hardy, Rolfs & Abadie, Baton Rouge, for plaintiffs/appellants.

John Haas Weinstein, Ltd., Opelousas, Raven Marine, Inc.

B.J. Rawls, Morgan City, for Transocean Marine, Inc.

Before WATKINS, CARTER, FOIL, GONZALES and WHIPPLE, JJ.

WATKINS, Judge.

This is a suit by the manufacturer of marine diesel engines to recover the balance due on the purchase price of 20 engines; defendants filed a reconventional demand for redhibitory defect.

In 1982 suit was filed in the 16th Judicial District Court for the Parish of St. Mary by MTU Friedrichshafen (MTU-F), a German corporation with its principal place of business in Germany; and MTU of North America, Inc. (MTU-NA), a Delaware corporation with its principal place of business in the State of Texas (collectively MTU). ¹ The suit named as defendants Bernard A. Favret, an individual domiciled in Morgan City, Louisiana; and Raven Marine, Inc. (Raven) and Transocean Marine, Inc. (Transocean), both Louisiana corporations with their principal place of business in Morgan City, Louisiana. The petition alleged that Mr. Favret was the president of Raven and that Transocean was owned and controlled by him. ²

MTU's demand was for the balance of the purchase price of 20 marine diesel engines purchased on credit by Raven. MTU alleged that Mr. Favret, as president of Raven, had given several promissory notes for the purchase price of the engines, which amounted to $1,529,244.79 in globo, calculating principal and interest. The plaintiffs also claimed an additional balance of the purchase price owed of 1,630,837.44 DM (deutsch marks). Further demand was made for $167,282.00 for repair work on the diesel engines between October, 1979, and May, 1982.

Because Raven, serving as general contractor, had the engines placed in 10 crew/supply boats which were constructed by Swiftships, Inc., and because after construction of the vessels, Transocean took title to the vessels, the plaintiffs sued Mr. Favret, Raven, and Transocean. Plaintiffs prayed for a receiver to be appointed to liquidate Raven and Transocean and that they be enjoined from disposing of property. The plaintiffs sought judgment against Raven, Transocean, and Mr. Favret, in solido, dissolving the sales of the 20 engines, ordering the defendants to return the engines, and compelling the defendants to pay the difference in market value that had resulted from the use of the engines. In the alternative, plaintiffs sought a money judgment and recognition of their vendor's liens on the engines.

After having been sued by MTU, Mr. Favret filed for bankruptcy individually and for Transocean. ³

Following a trial on the merits, the court rendered judgment in favor of MTU and against Raven for $1,529,244.79 and $815,418.50, the latter amount representing the court's conversion into dollars of the claim for deutsche marks. ⁴ The court also awarded MTU-NA judgment against Transocean for $27,934.20 for repairs. ⁵

On the reconventional demand, the court found MTU liable to Transocean for the following: return of the purchase price, $1,580,972.00; interest on the loans financing the purchase price, $727,143.73; repairs, $507,112.28; and downtime (loss of profit), $169,166.00. Judgment was rendered against MTU-F for the total, $2,984,393.90, plus $424,337.43 for attorney's fees.

MTU-F appealed, ⁶ and Transocean answered the appeal, seeking additional damages. Raven neither appealed nor answered the appeal.

In his articulate reasons for judgment, the trial judge explained the background of the instant litigation:

In the 1970's, as offshore activity increased and became profitable for many marine service companies, competition demanded improved and more efficient means of operation. One of the areas affected was the crew/supply boat industry.

Bernard Favret, by the late 1970's, had set up Raven Marine, Inc., Transocean Marine, Inc., and other corporations to engage in operations related to the offshore industry and more specifically to crewboat operations. Raven Marine's primary function was to act as contractor for the construction of vessels to be sold in the offshore industry. Transocean Marine owned and operated a fleet of vessels used as crew or crew/supply boats. Most of the engines powering TOM's ⁷ vessels were purchased from Raven Marine. Mr. Favret was the majority stockholder and chief executive officer of both Raven and TOM; however, at all times the two companies were separate and distinct corporate entities.

During the period MTU, which manufactured gas turbines, jet engines and diesel engines for marine application, began to attempt to market their engines in the offshore industry and especially to provide engines to the newer 120 to 125 foot crew/supply boats which were bigger, faster and had greater capacity. One of the ways that MTU obtained the names of prospective purchasers was through Swiftships, Inc., a vessel builder that did business with Favret. Favret was initially contacted in 1974 by MTU salesman Olaf Wadehn and Georg Hartmann who stressed the advantages of MTU engines in crew/supply boats such as: greater weight-to-power ratio, permitting greater loading and greater speed, along with "outstanding operating reliability and long operating life" (Plaintiff's Exhibit 22). After convincing owner's (sic) of Bruce Boat Rentals, Inc., Lobert and Paris Broussard of similar assertions, MTU sold the first MTU engines in crew/supply boats around 1975.

In November 1977, Raven Marine, through Favret, contracted with MTU-F to provide ten engines of MTU's 331 series. In early 1978, Raven entered into a contract with Swiftships to build five vessels to be powered by these engines. MTU partially financed the sale of the engines to Raven. In 1979, Raven contracted with Swiftships to build an additional six vessels to be powered by two MTU engines each. Raven, in its capacity as contractor, never ... operated any of the vessels involved in this litigation ... but Raven did purchase all of the engines involved.... MTU-F designed, manufactured and sold all of these engines. MTU-NA, a wholly owned subsidiary of MTU-F, was and is in the business of distribution, marketing and maintenance of MTU-F products in the United States....

TOM alleges that the engines were not suitable for use in its crew/supply boat application, despite the assurances of MTU that they would provide outstanding operating reliability and long operating life. Mr. Favret contends that the engines failed to deliver the number of operating hours promised by MTU before major overhaul, and that repairs and overhauls were so much more costly than projected by MTU that with the additional problem of downtime, TOM was ruined financially. MTU contends however that TOM's problems were the result of abuse and neglect and not defects in their equipment.

The original lawsuit was filed against Raven, TOM and Bernard Favret for failure to pay balance due on the engine sales. TOM reconvened claiming redhibitory defects in the engines.

Preliminary Dispositions

MTU's original suit against Raven, TOM and Favret arose out of Raven's default on the debt owed for the engines purchased from MTU. MTU attempted to recover from Favret by piercing the corporate veil. However, no evidence was presented indicating that this was warranted; therefore, the Court dismissed MTU-F's case against TOM and Favret.... By stipulation however (A-1), Raven owes $1,529,244.79 as balance due to MTU on six promissory notes. Raven also purchased ten engines for 2,693,860 Deutschmarks (sic) (DM). It paid MTU-F 1,063,023 DM leaving a balance due of 1,630,837 DM (Stipulation A-2). Using an exchange rate of 2:1, Raven owes a balance on this of $815,418.50. The Court finds Raven liable to MTU for $1,529,244.79 plus $815,418.50 for a total of $2,344,663.29.

MTU makes the threshold assertion that the trial court erred in applying state law instead of the federal law of admiralty to the issue of whether the absence of privity bars an action in redhibition by an ultimate buyer against the manufacturer. We find no merit to this argument. MTU relies on East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986) for the proposition that absent privity, federal admiralty law does not allow suit for purely economic loss. However, the United States Supreme Court noted (476 U.S. at 872, n. 7, 106 S.Ct. at 2303, n. 7) that if the plaintiffs' claims had been in breach-of-warranty actions, they would not have been in the admiralty jurisdiction, but state law would have governed the actions. Consequently, the trial court correctly applied the Louisiana law of redhibition in the instant case.

MTU also urges that Louisiana's redhibition law is misapplied in this case because: (1) Transocean had no privity of contract with MTU; (2) the engines were component parts of an untried system; (3) the sale should have been viewed as 20 separate sales instead of in globo; and (4) as charterer, Transocean had no right of action for redhibition for two of the vessels.

REDHIBITION

A party who seeks recovery for a defective product has two options: he can sue for a rescission of the sale and the return of the purchase price, [LSA-C.C. art. 2531; Rey v. Cuccia, 298 So.2d 840 (La.1974) ] or he can sue for a reduction of the purchase price. LSA-C.C. art. 2541; Sanders v. Sanders Tractor Co., Inc., 480 So.2d 913 (La.App. 2d Cir.1985). Under either option he cannot recover damages and attorney's fees from a seller in good faith. However, a manufacturer is presumed to know the defects of the products it places in the chain of commerce. Thus, a manufacturer who is amenable to suit by a buyer has potential liability for damages and...