Saratoga Fishing Co. v. J M Martinac & Co.

• Decision Date: 02 June 1997
• Docket Number: 951764
• Citation: 138 L.Ed.2d 76,117 S.Ct. 1783,520 U.S. 875
• Parties: SARATOGA FISHING COMPANY, Petitioner, v. J.M. MARTINAC & COMPANY and Marco Seattle Inc
• Court: U.S. Supreme Court

520 U.S. 875

117 S.Ct. 1783

138 L.Ed.2d 76

SARATOGA FISHING COMPANY, Petitioner,

v J.M. MARTINAC & COMPANY and Marco Seattle Inc.

No. 95-1764.

Supreme Court of the United States

Argued Feb. 18, 1997.

Decided June 2, 1997

Syllabus ^*

In East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865, this Court held that an admiralty tort plaintiff cannot recover for the physical damage a defective product causes to the "product itself,'' but can recover for physical damage the product causes to "other property.'' The parties here agree that the "product itself'' consists at least of a ship as built and outfitted by its original manufacturer and sold to an initial user. Respondent J.M. Martinac & Co. built the fishing vessel M/V Saratoga, installing a hydraulic system designed by respondent Marco Seattle Inc. Joseph Madruga, the Initial User, bought the ship new, added extra equipment, used the ship, and resold it to petitioner Saratoga Fishing Co., the Subsequent User, who used it until it caught fire and sank. In this admiralty tort suit against respondents, the District Court found that the hydraulic system had been defectively designed and awarded Saratoga Fishing damages, including damages for the loss of the equipment added by Madruga. The Ninth Circuit reversed, holding that the added equipment was part of the ship when it was resold to Saratoga Fishing, and, for that reason, the equipment was part of the defective product that itself caused the harm.

Held: Equipment added by the Initial User before he sold the ship to the Subsequent User is "other property,'' not part of the product that itself caused physical harm. This Court held in East River that an injury to the defective product itself, even though physical, was a kind of "economic loss,'' for which tort law did not provide compensation. 476 U.S., at 871, 106 S.Ct., at 2302. Reasoning that " [c]ontract law, and the law of warranty in particular, is well suited'' to setting the responsibilities of a seller of a product that fails to perform its intended function, id. at 872-873, 106 S.Ct., at 2303, the Court found that, given the availability of warranties, the courts should not ask tort law to perform a job that contract law might perform better, ibid. The Ninth Circuit's holding that recovery should be denied for added equipment because the Subsequent User could have asked the Initial User for a warranty creates a tort damage immunity beyond that set by any relevant tort precedent. Had the ship remained in the Initial User's hands, the added equipment's loss could have been recovered in tort, and there is no suggestion in state or federal law that these results would change with a subsequent sale. Indeed, other things being equal, a rule that diminishes liability because of resale would diminish a basic incentive of defective-product tort law: to encourage the manufacture of safer products. East River provides an unsatisfactory answer to the question why a series of resales should progressively immunize a manufacturer from liability for foreseeable physical damage that would otherwise fall upon it, since the Subsequent User does not contract directly with the manufacturer, and it is likely more difficult for a consumer to offer the appropriate warranty on used products. While nothing prevents a user/reseller from offering a warranty, respondents have not explained why the ordinary rules of a manufacturer's tort liability should be supplanted merely because the user/reseller may in theory incur an overlapping contract liability. The holding here does not affect East River's rule that it is not a component part, but the vessel-as placed in the stream of commerce by the manufacturer and its distributors-that is the "product'' that itself causes the harm. Nor does the holding impose too great a potential tort liability upon a manufacturer or a distributor. It merely maintains liability, for equipment added after the initial sale, despite the presence of a resale by the Initial User. Pp. ____-____.

69 F.3d 1432, reversed.

BREYER, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and STEVENS, KENNEDY, SOUTER, and GINSBURG, JJ., joined. O'CONNOR, J., filed a dissenting opinion. SCALIA, J., filed a dissenting opinion, in which THOMAS, J., joined.

Keith Zakarin, San Diego, CA, for petitioner.

Daniel B. Macleod, San Diego, CA, for respondents.

Justice BREYER delivered the opinion of the Court.

The issue before us concerns limits upon the damages that a tort plaintiff in admiralty can recover for physical damage to property caused by a defective product. In East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986), the Court held that an admiralty tort plaintiff cannot recover for the physical damage the defective product causes to the "product itself''; but the plaintiff can recover for physical damage the product causes to "other property.'' In this case all agree that the "product itself'' consists at least of a ship as built and outfitted by its original manufacturer and sold to an initial user. This case asks how this corner of tort law treats the physical destruction of extra equipment (a skiff, a fishing net, spare parts) added by the initial user after the first sale and then resold as part of the ship when the ship itself is later resold to a subsequent user. Is that added equipment part of the "product itself,'' in which case the plaintiff cannot recover in tort for its physical loss? Or is it "other property,'' in which case the plaintiff can recover? We conclude that it is "other property.'' Hence (assuming other tort law requirements are satisfied) admiralty's tort rules permit recovery.

I

This case arises out of an engine room fire and flood that led to the sinking of the fishing vessel M/V Saratoga in January 1986. We must assume that a hydraulic system defectively designed by respondent Marco Seattle Inc. was one significant cause of the accident. About 15 years before the accident, respondent J.M. Martinac & Co. had built the ship, installed the hydraulic system, and sold the ship new to Joseph Madruga. Madruga then added extra equipment-a skiff, a seine net, and various spare parts-and used the ship for tuna fishing. In 1974, Madruga resold the ship to the petitioner, Saratoga Fishing Co., which continued to use the ship for fishing. In 1987, after the ship caught fire and sank, Saratoga Fishing brought this tort suit in admiralty against Marco Seattle and J.M. Martinac.

The District Court found that the hydraulic system had been defectively designed, and it awarded Saratoga Fishing damages (adjusted to reflect Saratoga Fishing's own partial fault). Those damages included damages for the loss of the equipment that Madruga had added after the initial purchase of the ship.

The Ninth Circuit held that the District Court should not have awarded damages for the added equipment. Saratoga Fishing Co. v. Marco Seattle Inc., 69 F.3d 1432, 1445 (C.A.9 1995). A majority noted that the equipment, though added by Madruga, was part of the ship when Madruga resold the ship to Saratoga Fishing, and, for that reason, the majority held, the added equipment was part of the defective product that itself caused the harm. Applying East River's distinction between the product that itself caused the harm and "other property,'' the majority concluded that Saratoga Fishing could not recover in tort for the loss. A dissenting judge believed that the "product itself'' was the ship when launched into the stream of commerce by Martinac, its original builder. Consequently, the added equipment was "other property.'' We granted certiorari to resolve this uncertainty about the proper application of East River. We now agree with the dissenting judge.

II

The facts before us show: (1) a Component Supplier who (2) provided a defective component (the hydraulic system) to a Manufacturer, who incorporated it into a manufactured product (the ship), which (3) the Manufacturer sold to an Initial User, who (4) after adding equipment and using the ship, resold it to a Subsequent User (Saratoga Fishing). The applicable law is general maritime law, "an amalgam of traditional common-law rules, modifications of those rules, and newly created rules,'' drawn from both state and federal sources. East River, supra, at 865, 106 S.Ct., at 2299; see also Fitzgerald v. United States Lines Co., 374 U.S. 16, 20, 83 S.Ct. 1646, 1650, 10 L.Ed.2d 720 (1963); Kermarec v. Compagnie Generale Transatlantique, 358 U.S. 625, 630, 79 S.Ct. 406, 409-410, 3 L.Ed.2d 550 (1959). The context is purely commercial. The particular question before us requires us to interpret the Court's decision in East River: does the term "other property,'' as used in that case, include the equipment added by the Initial User before he sold the ship to the Subsequent User? We conclude that it does: When a Manufacturer places an item in the stream of commerce by selling it to an Initial User, that item is the "product itself'' under East River. Items added to the product by the Initial User are therefore "other property,'' and the Initial User's sale of the product to a Subsequent User does not change these characterizations.

East River arose at the intersection of two principles that govern recovery in many commercial cases involving defective products. The first principle is that tort law in this area ordinarily (but with exceptions) permits recovery from a manufacturer and others in the initial chain of distribution for foreseeable physical harm to property caused by product defects. See Restatement (Second) of Torts §402A (1965); W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts §101 (5th ed.1984); East River, supra, at 867, 106 S.Ct., at 2300. The second principle is that tort law in this area ordinarily (but with exceptions) does not permit recovery for purely economic losses, say, lost...