Shipco 2295, Inc. v. Avondale Shipyards, Inc.

• Decision Date: 28 August 1987
• Docket Number: No. 86-3305,86-3305
• Citation: 825 F.2d 925
• Parties: , 5 UCC Rep.Serv.2d 59, Prod.Liab.Rep.(CCH)P 11,526 SHIPCO 2295, INC., Shipco 2296, Inc., Shipco 2297, Inc., Shipco 2298, Inc., and SPC Shipping, Inc., Plaintiffs-Appellants, v. AVONDALE SHIPYARDS, INC., and Allgemeine Elektricitats Gasellschaft Telefunken, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 925

825 F.2d 925

1988 A.M.C. 2035, 5 UCC Rep.Serv.2d 59,

Prod.Liab.Rep.(CCH)P 11,526

SHIPCO 2295, INC., Shipco 2296, Inc., Shipco 2297, Inc. Shipco 2298, Inc., and SPC Shipping, Inc. Plaintiffs-Appellants, v. AVONDALE SHIPYARDS, INC., and Allgemeine Elektricitats Gasellschaft Telefunken, Defendants-Appellees.

No. 86-3305.

United States Court of Appeals Fifth Circuit.

Aug. 28, 1987.

Antonio J. Rodriguez, J. Barbee Winston, Sean F. Murphy, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for plaintiffs-appellants.

John V. Baus, Michael A. Chernekoff, Jones, Walker, Waecther, Poitevent, Carrere & Denegre, New Orleans, La., for Avondale.

John P. Hammond, John C. Person, Montgomery, Barnett, Brown, & Read, New Orleans, La., for Allgemeine.

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

Before POLITZ, JOHNSON and DAVIS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Appellants challenge the district court's dismissal of their action against Avondale Shipyards, Inc. (Avondale) and Allgemeine Elektricitats Gasellschaft Telefunken (AEG) for damage to appellants' vessels resulting from construction defects. 631 F.Supp. 1123. We affirm.

I.

Standard Oil Company of Ohio (SOHIO) entered into six separate but identical contracts with Avondale for the construction of six tankers bearing Avondale Hull Nos. 2295-2300. Defects in four of those tankers bearing Hull Nos. 2295-2298 are at issue in this litigation.

In 1977, SOHIO assigned its rights under the construction contracts to a trust. The trustee, as shipowner, entered into separate bareboat charters for each of the vessels. The chartering entities were four Shipco companies, each named according to the tanker hull number they represent; under the bareboat charter the trustee assigned its rights under the construction contracts to each Shipco company. A long-term time charter for each of the four vessels was simultaneously executed between each Shipco company, as charter-owner, and SPC Shipping, Inc., as time charterer.

Avondale designed, assembled, and constructed the vessel hull and all vessel systems relevant to this litigation except the steering system, which was designed by AEG. Avondale purchased the steering system design from AEG, assembled the AEG designed system, and incorporated it into the vessels.

SOHIO accepted delivery of the four vessels in question between 1977 and 1978. The warranty periods for each of the four vessels expired on the following dates:

Hull No. 2295 (S/T ATIGUN PASS)--December 11, 1978; Hull No. 2296 (S/T KEYSTONE CANYON)--Feb. 27, 1979; Hull No. 2297 (S/T BROOKS RANGE)--May 12, 1979; and Hull No. 2298 (S/T THOMPSON PASS)--September 8, 1979.

Upon expiration of the warranty period, various repair items remained unresolved. SOHIO and Avondale continued negotiations in an attempt to resolve SOHIO's warranty claims; on December 9 and 10, 1981, an agreement was reached. The agreement between the parties confirmed "full and final settlement of all ASI [Avondale] obligations under the contract for Hulls 2295, 2296, 2297 and 2298" and "final settlement of the construction contracts."

After the settlement was bound, appellants assert that various defects in the vessels came to their attention. On December 11, 1981, a casualty occurred on the S/T ATIGUN PASS. Shipco contends that faulty casting of the propeller caused the propeller blades to break off which in turn damaged the rudder and line shaft assembly. In the spring and summer of 1982, structural fractures in hull members appeared on all four vessels. Shipco alleges that the fractures resulted from Avondale's improper design and construction of brackets which permitted vibrations to radiate from the bracket connection to the hull members. Two of the vessels also experienced damage to their steering systems. Shipco alleges that this damage stemmed from a defectively designed or manufactured cap screw which sheared off, damaging the steering gear engine along with pumps and valves in the hydraulic system.

Shipco sought recovery of its repair costs from Avondale and AEG under both warranty and tort theories. The time charterer of the vessels, SPC Shipping, sought to recoup from Avondale and AEG on tort and warranty theories the charter hire it was required to pay while the vessels were laid up for repairs.

The district court, ruling on Avondale's motion for summary judgment and AEG's motion for judgment on the pleadings, held that: (1) all of Shipco's warranty claims arising out of the vessel's construction were barred by the 1981 settlement agreement between SOHIO and Avondale; (2) plaintiffs had no maritime tort cause of action as a matter of law; and (3) SPC Shipping's claims as a time charterer are barred by Robins Drydock & Repair Co. v. Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 (1927), and its progeny. The district court entered judgment in favor of Avondale and AEG and dismissed appellants' suit.

II.

A.

On appeal, Shipco and SPC do not contest the district court's denial of relief to them on a warranty theory. The critical issue, on which this appeal turns, is whether the district court erred in rejecting appellants' claims in tort against Avondale and AEG.

The issue presented by this appeal can be stated as follows: Is Avondale, as the vessel builder and seller, or AEG, as the designer of a component part of the vessels, liable to the appellants in tort under the general maritime law for damage to the vessels themselves due to vices in their construction? Fortunately, the United States Supreme Court in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986), decided most, if not all, of the questions presented in this appeal.

In East River, Seatrain Shipbuilding Corp. (Shipbuilding) contracted to construct four tankers for four separate subsidiaries of the parent company, Seatrain Lines, Inc. (Seatrain). Shipbuilding in turn contracted with respondent, Transamerica Delaval, Inc. (Delaval) to design, manufacture, and supervise the installation of turbines in all four vessels. When each vessel was completed its title was transferred from the contracting subsidiary to a trust company which in turn chartered the ship to four separate Seatrain subsidiaries which filed the initial action. Each bareboat charterer assumed responsibility for the cost of repairs to the vessels. Three of the vessels sustained turbine damage in varying degrees resulting from disintegration of the first-stage steam reversing ring. The fourth vessel, the BAY RIDGE, also experienced turbine damage as a result of the improper installation of the astern guardian valve.

As in the instant case, the plaintiffs in East River were unable to establish their claims predicated on breach of warranty because of waiver of warranty in the sales instruments and later settlement of the warranty claims. As a result, the Court stated the question to be decided as follows: "In this admiralty case, we must decide whether a cause of action in tort is stated when a defective product purchased in a commercial transaction malfunctions, injuring only the product itself and causing purely economic loss." Id., at ----, 106 S.Ct. at 2296, 90 L.Ed.2d at 869. The Court, after considering the various approaches to this problem adopted by various state and federal courts adopted the majority land-based view "that a manufacturer in a commercial relationship has no duty under a negligence or strict products-liability theory to prevent a product from injuring itself." Id. at ----, 106 S.Ct. at 2302, 90 L.Ed.2d at 877. The Court reasoned that:

Damage to a product itself is most naturally understood as a warranty claim. Such damage means simply that the product has not met the customer's expectations, or, in other words, that the customer has received "insufficient product value."... The maintenance of product value and quality is precisely the purpose of express and implied warranties.... Therefore, a claim of a nonworking product can be brought as a breach-of-warranty action. Or, if the customer prefers, it can reject the product or revoke its acceptance and sue for breach of contract.

Id., at ----, 106 S.Ct. at 2303, 90 L.Ed.2d at 877-78. Because the plaintiffs sought recovery in tort for damage to the product itself, the Court rejected their claims.

The Court, in adopting this view, effectively overruled our own law on the subject articulated in Jigg, III, Corp. v. Puritan Marine Ins. Underwriters Corp., 519 F.2d 171 (5th Cir.1975), in which we held that: "Under the general maritime law a manufacturer/seller owes a purchaser with whom it is in direct and elaborate contractual relationship regarding a product a free-floating duty not to produce a negligently-constructed or designed product.... [T]he manufacturer owes the purchaser (in direct contractual relationship) a duty to produce a product so negligence-free that it cannot harm itself." Id. at 180. The position adopted by the Supreme Court in East River is generally consistent with Judge Gee's dissent in Jigg, III where he stated:

I would hold that the general maritime law should not and does not recognize a tort based product-liability cause of action based either on negligence or strict manufacturer liability when there is privity and when the only loss suffered results from damage to the defective product itself. In holding that it does, we simply withdraw from the parties, and after the fact, a portion of the freedom to contract which the codifiers meant them to keep.

Id. at 181.

B.

Shipco and SPC Shipping argue that the district court erred in dismissing their actions against Avondale because defects in certain components of each vessel caused damage to unrelated components in the same vessel. ¹ Appellants argue that the resulting damage represents damage to "other property" and East River recognizes a purchaser's right to recover economic losses...