On appeal from Superior Court of New Jersey, Law Division, Somerset County.
Before Judges Baime, Braithwaite and Bilder, t/a.
The opinion of the court was delivered by: Baime, P.j.a.d.
At issue is whether plaintiff Howard Goldson and his subrogee Continental Insurance Company (Continental) may recover from defendants Carver Boat Corporation (Carver) and Johnson & Towers, Inc. (Johnson & Towers) in negligence and strict liability for economic loss caused by a defect in a power boat that caught fire while docked at a marina. Plaintiff had purchased the boat "as is" at a public auction with full disclaimers of all express and implied warranties. We must decide whether a cause of action in tort was stated where the only damage caused by the defect was to the product itself. We hold that under both federal admiralty principles and New Jersey decisional law the economic loss resulting from the product defect was not subject to tort remedies.
On May 13, 1992, plaintiff purchased a 1987 model Trojan convertible forty foot powerboat at a public sale. The boat was manufactured by Bertram-Trojan, Inc. in 1986, and was sold to the original purchaser under a security agreement. The boat was repossessed in 1992 and sold to plaintiff in its "as is" condition the following year. Before buying the boat, plaintiff had it inspected by a marine surveyor who in his report identified its twin engines as having been converted to maritime use by Johnson & Towers.
Several months prior to the sale, Bertram-Trojan filed a voluntary petition for bankruptcy seeking Chapter 11 reorganization in the United States Bankruptcy Court for the Southern District of Florida. The district court subsequently approved the sale of Trojan Division's name and assets to Carver, "free and clear of any and all liens, encumbrances, or restrictions of any kind." The order recited that Carver was not "bound by or liable for, any claims, warranties, obligations, suits against or liabilities of the Debtor . . . of any kind or nature, whether absolute, accrued, contingent or otherwise and whether due or to become due . . . ."
On August 19, 1993, plaintiff and his son completed a "long hard run" from Port Washington to Montauk, Long Island. When they arrived at their destination, plaintiff docked the boat at the Montauk Yacht Club. According to plaintiff, the boat had performed well, and he had not noticed any problems or malfunctions during the passage. After registering the boat with the club, plaintiff returned and noticed a spark emanating from the engine compartment. Upon opening the forward hatch, plaintiff found the engine compartment enveloped in smoke. The fire department and Coast Guard were summoned, and were ultimately able to extinguish the fire, but the boat was severely damaged. Plaintiff subsequently sold the boat for scrap to several different salvage companies.
Paul Tobin, plaintiff's adjuster and expert, examined the remains of the boat and determined that the fire started "in the decking directly above the starboard side turbo charger." Tobin concluded the "cause of loss was a fire in the decking directly above the starboard side turbo charger," and the principal problem pertained to the "improper installation of the engine." Although Tobin found "numerous contributive factors" causing the fire, the problem was accentuated by the fact that "the decking was almost touching, if not in direct contact with, the engine." Although the "failure" of the turbo charger was caused by the "bvious lack of proper maintenance," Tobin concluded that the boat would "still [have been] safe from fire hazards" but for the improper installation of the engine and its proximity to the decking.
Plaintiff filed a claim against Bertram-Trojan in the bankruptcy court. The record does not disclose whether plaintiff pressed his claim or whether he was in any way successful. On January 20, 1995, plaintiff filed a complaint in the Law Division against Carver based upon negligent design of the boat, strict liability in tort and breach of express and implied warranties. Plaintiff asserted that Carver, as successor-in-interest to Bertram-Trojan, was responsible for his economic loss consisting solely of the damage to the boat. Subsequently, on September 3, 1996, plaintiff filed an amended complaint in which he added Johnson & Towers as a defendant. Plaintiff asserted that Johnson & Towers improperly "marinized" the boat's engines, which had been manufactured by General Motors Corp. Plaintiff's claims against Johnson & Towers mirrored those he advanced against Carver. Specifically, plaintiff asserted that Johnson & Towers negligently designed the manner in which the engines were installed and was also liable under product liability and express and implied warranty principles.
Carver and Johnson & Towers filed separate motions for summary judgment. Carver asserted that contract, rather than tort law, was applicable because the only harm suffered was to the product itself. Carver contended additionally that plaintiff's action for breach of warranty should be dismissed because the boat was purchased in its "as is" condition and because the four year statute of limitations had expired. Carver also argued that it could not be held liable as a successor-in-interest under any theory because the federal bankruptcy order provided specifically that its purchase of Bertram-Trojan's assets was "free and clear" of all claims. Johnson & Towers' approach was somewhat different. Johnson & Towers argued that federal admiralty law was preemptive, and that the doctrine of laches applicable under maritime principles impelled dismissal of plaintiff's claims.
The Law Division granted both defendants' motions for summary judgment. Applying New Jersey decisional law, the court dismissed plaintiff's claims against Carver for negligent design and strict liability in tort. Although plaintiff advanced a claim for consequential damages at argument, the court found nothing in the complaint or in the various certifications, affidavits and depositions suggesting some harm resulting from the defect other than that to the boat itself. Applying Alloway v. General Marine Industries, L.P., 149 N.J. 620 (1997), the court concluded that the principles of contract law governed. Because the boat had been purchased with complete disclaimers of all express and implied warranties, the court dismissed plaintiff's cause of action for breach of contract.
In granting Johnson & Towers' motion for summary judgment, the court applied federal admiralty law. More specifically, the court found that plaintiff's action against Johnson & Towers was barred by the doctrine of laches. The Judge noted that plaintiff knew "as early as 1992" that Johnson & Towers engines were installed in the boat, because the marine surveyor specifically included this information in his report. The court concluded that ...