Transco Syndicate # 1 v. Bollinger Shipyards, Inc., Civ.A. 96-3334.

• Decision Date: 09 April 1998
• Docket Number: No. Civ.A. 96-3334.,Civ.A. 96-3334.
• Citation: 1 F.Supp.2d 608
• Parties: TRANSCO SYNDICATE # 1, LTD and Barnacle Marine Management, Inc. v. BOLLINGER SHIPYARDS, INC. and Diesel Engine and Parts Co.
• Court: U.S. District Court — Eastern District of Louisiana

1 F.Supp.2d 608

TRANSCO SYNDICATE # 1, LTD and Barnacle Marine Management, Inc. v. BOLLINGER SHIPYARDS, INC. and Diesel Engine and Parts Co.

No. Civ.A. 96-3334.

United States District Court, E.D. Louisiana.

April 9, 1998.

John B. Peuler, McAlpine, Peuler & Cozad, New Orleans, LA, for Transco Syndicate # 1, Ltd., Plaintiff.

G. Edward Merritt, John A. Scialdone, Terriberry, Carroll & Yancey, New Orleans, LA, for Barnacle Marine Management Inc., Plaintiff.

Robert Seth Reich, Lawrence R. Plunkett, Jr., Reich, Meeks & Treadaway, Metairie, LA, for Bollinger Shipyards Inc., Defendant.

William Stevens Bordelon, Houma, LA, for Diesel Engine and Parts Company, Defendant.

W. Gerald Gaudet, Bradley Joseph Schlotterer, Voorhies & Labbe, Lafayette, LA, for Diesel Specialists, Inc., third-party Defendant.

Timothy F. Burr, Jason P. Waguespack, Galloway, Johnson, Tompkins & Burr, New Orleans, LA, for Marine Salvage Inc, third-party Defendant.

ORDER DENYING DIESEL SPECIALISTS, INC.'S MOTION FOR SUMMARY JUDGMENT

VANCE, District Judge.

Before the Court is third-party defendant Diesel Specialists, Inc.'s motion for summary judgment. For the reasons that follow, the motion is DENIED.

I. BACKGROUND

This suit arises from a fire that allegedly occurred on board the M/V LACABI on October 11, 1995. The M/V LACABI is a 78 foot tug that was owned by plaintiff Barnacle Marine Management, Inc. ("Barnacle") at the time of the accident. Barnacle and its insurer Transco Syndicate # 1, Ltd. ("Transco") allege that the fire that consumed the M/V LACABI was caused by a defective fuel hose located in one of the vessel's diesel engines.

In the spring of 1995, Barnacle contracted with Bollinger Shipyard ("Bollinger") to repair and refurbish the M/V LACABI. This refurbishment agreement required the installation of two used "Good Runner" diesel engines that Barnacle had purchased from Diesel Engine & Parts Company ("DEPCO"). DEPCO had acquired one of the two engines that it sold to Barnacle from Diesel Specialists, Inc. ("Diesel"). It is this engine that allegedly caused the M/V LACABI fire.

Plaintiffs Barnacle and Transco brought this suit against Bollinger and DEPCO alleging fault, breach of contract, and/or breach of warranty. DEPCO subsequently filed a third-party complaint against Diesel and a cross-claim demand against Bollinger alleging that the engine it purchased from Diesel was defective and that it was improperly installed by Bollinger.¹ Diesel filed this summary judgment motion asserting that a seller may not be held liable in tort for purely economic damages that a defective product causes to itself. Alternatively, Diesel argues that it cannot be held liable on these facts under Louisiana products liability law.

II. ANALYSIS

A. Standard of Review

Federal Rule of Civil Procedure 56 provides that summary judgment is proper when the moving party shows that there is no genuine issue of material fact and that it is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-movant party," no genuine issue exists for trial. United States v. Robinson, 78 F.3d 172, 174 (5th Cir.1996); see also, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To make this determination, all of the evidence must be viewed in the light most favorable to the nonmoving party. Nichols v. Loral Vought Sys. Corp., 81 F.3d 38, 40 (5th Cir.1996).

B. The Application Of East River

Diesel argues that it cannot be held responsible for the harm caused by the M/V LACABI fire since plaintiffs have only alleged damages for economic harm to the defective product itself. 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 United States Supreme Court held that a plaintiff may not maintain a tort cause of action under admiralty law "when a defective product, purchased in a commercial transaction malfunctions, injuring only the product itself and causing purely economic loss." Id. at 859.

The East River Court reasoned that the loss of the value of a defective product that physically harms itself is equivalent to the loss incurred when a product fails to work properly or to work at all. East River, 476 U.S. at 867-68 ("Obviously, damage to a product itself has certain attributes of a products-liability claim. But the injury suffered — the failure of the product to function properly — is the essence of a warranty action."); see Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, ___, 117 S.Ct. 1783, 1785, 138 L.Ed.2d 76 (1997). Accordingly, the Court held that a "manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself." East River, 476 U.S. at 871. Thus, if a product malfunctions causing damage to itself, its purchaser must rely on contract law to maintain a claim for recovery.

East River, however, did not completely exclude tort claims for economic harm caused by a defective product. See Thomas J. Schoenbaum, Admiralty and Maritime Law § 3-11 at 120 (2d ed. 1994) ("[T]he East River court did not completely exclude tort product liability claims for purely economic losses."). A plaintiff may maintain a tort cause of action in admiralty when a defective product causes damage to "other property." East River, 476 U.S. at 867 ("In this case, there was no damage to `other' property."); Saratoga Fishing, 117 S.Ct. at 1785 ("[A]n admiralty tort plaintiff cannot recover for the physical damage the defective product causes to the `product itself'; [sic] but the plaintiff can recover for physical damage the product causes to `other property.'"). In order to determine what constitutes "other property," the Court must first define what is the allegedly defective "product." See Sea-Land Service, Inc. v. General Electric Co., 134, F.3d 149, 152 (3d Cir.1998).

Diesel argues that Barnacle contracted with Bollinger for a refurbished vessel that included the installation of two "Good Runner" engines. It therefore asserts that the M/V LACABI is the product and that any damage caused to the vessel by one of its component parts — like an engine — is damage to the product itself. Barnacle, on the other hand, asserts that it did not purchase the engine at issue from Bollinger; rather it purchased two used engines directly from DEPCO, one of which caught fire damaging the vessel. DEPCO purchased this allegedly defective engine from Diesel. Barnacle concedes that it may not recover for damage incurred by the engine itself but argues that the M/V LACABI constitutes other property.

Determining what should be defined as the "product" is problematic since "all but the very simplest of machines have component parts" that can be regarded as independent products themselves. East River, 476 U.S. at 867. If every product were dismantled into its components, then virtually every product that damaged itself would also result in damage to "other property," and the distinction between warranty and strict products liability would be eliminated. Saratoga Fishing, 117 S.Ct. at 1788, quoting East River, 476 U.S. at 867.

Fortunately, the Supreme Court has somewhat clarified East River's product — other property dichotomy in Saratoga Fishing Co. v. J.M. Martinac & Co., supra. In Saratoga Fishing, the initial purchaser of a vessel added a skiff, fishing net, and other equipment to the M/V Saratoga before selling the vessel with this additional equipment to a subsequent purchaser. When a defective hydraulic system in the vessel's engine room failed, the vessel caught fire and the ship sank. The secondary owner then filed suit against the manufacturer of the hydraulic system and the company that built the vessel. The issue presented to the Supreme Court was whether the skiff, fishing net, and other equipment added by the initial purchaser constituted "other property" under East River. The Court determined that they did:

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.

Saratoga Fishing, 117 S.Ct. at 1786. The Court therefore distinguished between components added to a product by a manufacturer before its initial sale, see, e.g., East River, 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865; Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825 F.2d 925 (5th Cir.1987), and items added to the product by a subsequent user, see, e.g., Saratoga Fishing, 117 S.Ct. at 1788; Nicor Supply Ships Assocs. v. General Motors Corp., 876 F.2d 501 (5th Cir.1989). See Sea-Land Service, 134 F.3d at 153 (noting the Court's distinction).

This distinction is consistent with the "object of the contract test" adopted by the Fifth Circuit prior to Saratoga Fishing. In Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825 F.2d 925, 928 (5th Cir.1987), the Fifth Circuit stated that "[i]n attempting to identify the product, a court must ask `what is the object of the contract or bargain that governs the rights of the parties?'". Id. The object of the parties' contract constitutes the "product" under East River. See also Petroleum Helicopters, Inc. v. Avco Corp., 930 F.2d 389, 392 n. 9 ("[T]he phrase `other property' is construed by looking to the nature of the contract between the parties, and such a determination hence rests upon a contractual interpretation.").

Diesel asserts that the engine that DEPCO provided to Barnacle must be considered a component of the M/V LACABI — the product. Diesel argues that Barnacle contracted with Bollinger to refurbish the M/V LACABI and...