Saratoga Fishing Co. v. J. M. Martinac & Co., 520 U.S. 875 (1997)

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

No. 95-1764

Argued February 18, 1997
Decided June 2, 1997
520 U.S. 875

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Syllabus

In East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 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. 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, 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. 878-885.

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, post, p. 885. SCALIA, J., filed a dissenting opinion, in which THOMAS, J., joined, post, p. 885.