Argued and Submitted, Portland, Oregon: October 8,
Appeal from the United States District Court for the District of Oregon. D.C. No. 3:12-cv-01484-ST. Anna J. Brown, District Judge, Presiding.
Reversing the district court's judgment in an admiralty case, the panel held that a vessel owner could sue for the physical damage a defective vessel component caused to property that the owner added to the vessel before the vessel was delivered.
The panel held that the vessel owner's tort claims were not barred by the economic loss doctrine, which precludes recovery against a manufacturer for physical damage that the manufacturer's defective product causes to the " product itself," but allows recovery for physical damage the product causes to " other property."
Brian P.R. Eisenhower, Anthony J. Pruzinsky (argued), Hill Rivkins LLP, New York, New York; David R. Boyajian, Colin J. Folawn, Daniel F. Knox, Schwabe, Williamson & Wyatt, Portland, Oregon, for Plaintiff-Appellant.
Jay W. Beattie (argued), James P. McCurdy, Lindsay, Hart, Neil & Weigler, Portland, Oregon; David W. Lannetti, Edward J. Powers, Vandeventer Black LLP, Norfolk, Virginia, for Defendant-Appellee.
Before: Alex Kozinski, Raymond C. Fisher and Andre M. Davis,[*] Circuit Judges.
KOZINSKI, Circuit Judge:
The economic loss doctrine precludes recovery against a manufacturer for physical damage that the manufacturer's defective product causes to the " product itself." E. River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 866-71, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). But the manufacturer can be sued for physical damage the product causes to " other property." Id. at 867-68. We consider whether a vessel owner may sue for the physical damage a defective vessel component causes to property that the owner adds to the vessel before the vessel is delivered. Put another way, is property added by the owner to a vessel prior to the delivery of the vessel considered " other property" ?
CHMM, LLC is the owner of M/Y JAMAICA BAY, a 59.5-meter luxury yacht. In 2006, CHMM contracted with Nobiskrug GmbH to " construct, equip, launch and complete [the yacht] at [Nobiskrug's] shipyard and to sell and deliver [the yacht] to [CHMM]" for approximately € 34.2 million. Nobiskrug subcontracted with Freeman Marine Equipment for the manufacture of a " weathertight" door for installation in the yacht. This door provided access from the foredeck to the interior of the yacht.
The shipbuilding contract between Nobiskrug and CHMM states that " the Interior Outfit of the Yacht is to be provided by [CHMM]" and that " delivery and installation of the Interior Outfit has to be executed within the time frame laid down in [Nobiskrug's] Construction Schedule." CHMM contracted with third parties for the purchase and installation of the items in the yacht's interior. The yacht that Nobiskrug ultimately delivered to CHMM contained a finished interior outfit.
In 2011, while the yacht was at sea en route to the Bahamas, the Freeman door allegedly malfunctioned, letting in a substantial amount of water. The subsequent flooding severely damaged the yacht and its interior, including woodwork, furniture, carpeting, electrical wiring, and electronics. CHMM estimates it would cost over $18 million to repair the damage.
CHMM sued Freeman, alleging five tort claims--negligence, defect in design, defect in manufacture, failure to properly instruct in the installation and use of the door and negligent misrepresentation. Freeman moved to dismiss on the ground that recovery for physical damage to the yacht's interior was barred by the economic loss doctrine announced in East River Steamship. While this motion was pending, CHMM amended its complaint to add a sixth claim for breach of " contract, quasi-contract and/or warranty."
The magistrate judge construed the motion as against the amended complaint and determined that the economic loss doctrine barred CHMM's five tort claims because the interior of the vessel was " integrated into" the completed vessel and was therefore part of the product itself. The magistrate judge held that the portion of the sixth count that alleged breach of ...