Appeal From the United States District Court For the District of New Jersey.
Higginbotham, Becker, Circuit Judges, and Newcomer,*fn* District Judge
1. The issue on this appeal, considered by the court in banc, is whether, under admiralty law, damage to a product caused by a design defect is recoverable in tort. We hold that such damage is not recoverable in tort where the design defect does not pose an unreasonable risk of harm to persons or property other than the product itself, as measured by the nature of the design defect, the manner in which the defect manifests itself, and the nature of the inherent risk, if any, created by the design defect.
2. The plaintiffs-appellants ("the charters") are bareboat charterers of four supertankers, who seek recovery for losses caused by allegedly defective turbines designed and manufactured by defendant-appellee Delaval Turbin, Inc. ("Delaval"), and installed on the supertankers. Component parts on the turbines of all four shops were replaced after problems in operation arose, causing loss to the charterers in the nature of costs of replacement and repair, and lost profits from "down-time." No personal injury or property damage, however, other than to the turbine parts, resulted from the malfunctions.
3. The four supertankers were constructed by Seatrain Shipbuilding Corporation ("Seatrain") in Brooklyn, New York, and were christened the STUYVESANT, the WILLIAMSBURGH, the BROOKLYN, and the RAY RIDGE. Seatrain contracted with Delaval to provide high pressure turbines to serve as the main propulsion units in these vessels, and to supervise the installation of the turbines.
4. The STUYVESANT was completed on or about July 1, 1977, and commenced service. In December 1977, near the port of Valdez, Alaska, the STUYVESANT's high pressure turbine malfunctioned. Superheated steam was leaking from the junction between the turbine's casing and the steam inlet control valve chest. Interim repairs were made at Valdez, but problems with the high pressure turbine recurred shortly after the STUYVESANT departed from the port. The charterers allege that these problems, which lowered turbine pressure and reduced the ship's speed, endangered the STUYVESANT during a storm that it encountered off the coast of Alaska. An unsworn document submitted by the charters in opposition to summary judgment represents that because of the lack of power and "mountainous seas," estimated to be at least 65 feet high, the vessel drifted toward the lee shore of the Gulf of Alaska. The STUYVESANT eventually made headway, however, and continued on a seven-week journey to Panama. After leaving Panama and upon further traveling to San Francisco, an inspection of the STUYVESANT revealed damage to several parts of the turbine, including the first stage steam reversing ring. The damaged parts were replaced by parts taken from the BAY RIDGE, which was still under construction.
5. In April 1978, following another voyage, the first stage steam reversing ring of the STUYVESANT's high pressure turbine, which had been taken from the BAY RIDGE, was found to have deteriorated, and was replaced by another ring taken from the BROOKLYN. In August 1978, the ring was again replaced -- this time by a newly-designed ring manufactured by Delaval, which presumably corrected the defect in the earlier ring.
6. The BROOKLYN was completed in December 1973, and the WILLIAMSBURGH was completed in December 1974. After the inspection of the STUYVESANT turned up problems with its turbine, both the BROOKLYN and WILLIAMSBURGH, which were already in service, were inspected. These inspections revealed damage similar to that found in the STUYVESANT'S high pressure turbine. The damaged parts were repaired and reinforced by Delaval. Subsequently, in the summer of 1978, the first stage steam reversing rings of both ships were replaced by newly-designed rings identical to the one placed in the STUYVESANT. Between December 8, 1979, and January 24, 1980, additional repairs were made on the WILLIAMSBURGH's low pressure turbine. All of these repairs and replacements took place in port.
7. The BAY RIDGE was completed in early 1979. Although its high pressure turbine operated with one of Delaval's newly designed rings, its low pressure turbine suffered damage in March 1980, allegedly as a result of the improper installation of the vessel's astern guardian valve. The BAY RIDGE was temporarily repaired in Talcahuano, Chile, after which it resumed its journey to Valdez.
8. The charterer's second amended complaint contains five counts. The first four counts allege strict liability in tort, based on the alleged defects in the turbines manufactured by Delaval for the STUYVESANT, the WILLIAMSBURGH, the BROOKLYN, and the BAY RIDGE, respectively. The fifth count alleges negligence in the installation of the astern guardian valve of the BAY RIDGE. The second amended complaint invokes jurisdiction on the basis of Fed. R. Civ. P. 9(h) (admiralty), and the district court treated all of the counts of the complaint as being governed by federal maritime law. Delaval moved for summary judgment, arguing that the charterers' claims were solely for economic loss, and that such loss was not recoverable in tort.
9. In an opinion filed on October 5, 1982, the district court adopted the majority common-law position that losses caused by qualitative product defects are not recoverable in tort absent unreasonable risk of harm to persons or property other than the product. See Pennsylvania Glass Sand v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir. 1981). The court granted summary judgment on counts one through four on the basis that the strict liability allegations failed to state a cause of action in admiralty with respect to any of the vessels. The district court denied summary judgment on the negligence claim at that time, but in an opinion and order filed on January 24, 1983, reversed itself and granted Delaval's motion for summary judgment in its entirety. We affirm.
10. The first issue we must decide is whether the charterers' claims are within the maritime jurisdiction of the federal courts. 28 U.S.C. § 1333(1) (1982). The district court found that all five counts were within maritime jurisdiction because the "nature of the vessels as mammoth oil tankers engaged in international commercial trade places them and the functioning vel non of their turbines close to the heart of federal admiralty concerns." (A-259). We agree.
11. In Executive Jet Aviation, Inc. v. Cleveland, 409 U.S. 249, 34 L. Ed. 2d 454, 93 S. Ct. 493 (1972), the Supreme Court set forth a flexible two-part test for determining whether a claim is maritime in character and hence within the admiralty jurisdiction of the federal courts. First, there must be a "maritime locale" to the event that led to the litigation, and second, there must be a relationship between the wrong and traditional maritime activity. Addressing the second test first, we believe it undisputable that a close nexus exists between a malfunctioning turbine in a sea-going supertanker and the traditional maritime activity of shipping. The alleged wrong in this case involves commercial facets of maritime activity, and also implicates the traditional maritime concern of safe shipping. See, e.g., Sperry Rand Corp. v. Radio of America, 618 F.2d 319 (5th Cir. 1980).
12. We also find that that a "maritime locale" is involved in all five counts of the charterers' second amended complaint. The parties agree that the events that form the basis for the first and fifth counts occurred at sea. The damage to the STUYVESANT's high pressure turbine (first count) and the BAY RIDGE's low pressure turbine (fifth count) occurred while the turbines were in use and while the ships were at sea, and was discovered while the ships were at sea. Similarly, although the damage to the BROOKLYN (second count) and WILLIAMSBURGH (third count) turbines was not discovered until the ships were in port, the damage in fact occurred at sea while the turbines were in use, and thus a maritime locale exists.*fn1 Finally, although the question is close, we find that a maritime locale also exists for the claim arising from damage to the BAY RIDGE's high pressure turbine (fourth count), even though the BAY RIDGE itself was never put to sea.
13. The charterers of all four supertankers allege the same basic claim: an alleged defect existed in each high pressure turbine's first stage steam reversing ring, which caused the ring to deteriorate and disintegrate in operation, with resulting damage to other component parts of the turbines. (App. at 26-31). This defect manifested itself over a period of time during the turbines' operation. After the STUYVESANT experienced initial problems with its turbine while at sea, an inspection was made, and the defective and damaged parts were removed, including the first stage steam reversing ring. Instead of ordering new parts from Delaval, arrangements were made to transfer certain component parts from the BAY RIDGE turbine, which was then in construction, to the STUYVESANT.(App. at 198-99). These allegedly defective component parts, from which flow the basis of the BAY RIDGE claim for damages, were then installed in the STUYVESANT. The STUYVESANT went back to sea, and again experienced problems with its turbine. Upon docking and inspection, it was discovered that the first stage steam reversing ring, the ring originally installed in the BAY RIDGE, had deteriorated and was thus damaged. (App. at 199). Thus, as with the other three supertankers, the defect in the central component part of the BAY RIDGE turbine manifested itself while the part was in operation on the ...