Tuesday, December 31, 2013

East River v Transamerica case brief

East River v Transamerica case brief summary
Supreme Court 1986

Facts
  • In 1996 Shipbuilding, a wholly owned subsidiary of Seatrain, announced it would build the four oil-transporting supertankers in issue (Stuyvesant, Williamsburgh, Brooklyn and Bay Ridge).
  • Shipbuilding contracted with respondent, known as Transamerica Delaval to design, manufacture and supervise the installation of turbines.
  • East River chartered the Brooklyn.
  • Each petitioner operated under a bareboat charter by which it took full control of the ship for 20 or 22 years as though it owned it, with the obligation to return the ship to the real owner.
  • Each charter assumed responsibility for the cost of any repairs.

Procedural Posture
  • Complaint filed alleges tortuous conduct on the part of Delaval and seeks $3.03 million in damages for the cost of repairing the ships. The first four counts allege that Delaval is strictly liable for the design defects in the turbines. The 5th count alleges that Delaval negligently supervised the installation of a valve in the Bay Ridge.
  • The first, second, third and fifth counts clearly fall within the admiralty jurisdiction. The claims satisfy the locality requirement from The Plymouth. The injuries of the turbines of the Stuyvesant and the Bary Ridge happened in high seas. The injury of the Williamsburgh and Brooklyn was discovered in port.
  • Maritime nexus: when it happens in high seas there’s no need to establish the nexus. It is clearly met for the ships were engaged in maritime commerce.

Issue
Whether a commercial product injuring itself is the kind of harm against which public policy requires manufacturers to protect, independent of any contractual obligation. In other words, whether injury to a product itself may be brought in tort.

Holding
No it may not be brought in tort.
A strict products-liability theory or recovery is unavailable to the charters.

Rule
  • No products-liability claim lies in admiralty when the only injury claimed is economic loss.
  • 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 (Seely case).
  • Product value and quality are the purpose of express and implied warranties.
  • A claim of non-working product would be brought as a breach-of-warranty action or the customer could reject the product and sue for breach of contract.

Rationale
  • Products Liability: Products liability is part of maritime law, including strict liability. People need more protections from dangerous products than is afforded by the law of warranty.
  • In the traditional property damage cases, the defective product damages other property. In this case there was no damage to “other” property. Rather, the defectively designed turbine damaged only the turbine itself.
  • The installation of Delaval was wrongly done.
  • Two poles of cases:
    • Seely: the law of warranty precludes imposing tort liability if a defective product causes purely monetary harm
    • Santor: a manufacturer’s duty to make non-defective products encompassed injury to the product itself, whether or not the defect created an unreasonable risk of harm. Safety and insurance rationales behind strict liability apply equally where the losses are purely economic. There’s no difference between economic loss and personal injury because they are caused by the defendant’s conduct.
  • Between the two poles are various cases that would permit a products-liability action under certain circumstances when a product injures only itself. They differentiate between the disappointed users and the endangered ones. And only for the endangered ones permit the use of tort.
  • The court adopts Seely. Damage to a product itself is most naturally understood as a warranty claim. Such damage means that the product has not met the customer’s expectations or it received insufficient product value.
    • Product value and quality are the purpose of express and implied warranties.
    • A claim of non-working product would be brought as a breach-of-warranty action or the customer could reject the product and sue for breach of contract.
  • The manufacturer can restrict its liability.
  • The charterers took the ships in “as is” and assumed full responsibility for them. The contractual responsibilities were clearly laid out.   

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