SUPREME COURT OF THE UNITED STATES

                                    --------
                                   No. 95-1764
                                    --------
                     SARATOGA FISHING COMPANY, PETITIONER v.
                                                          __
                       J. M. MARTINAC & COMPANY AND MARCO
                                  SEATTLE INC.


       ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
                                  NINTH CIRCUIT

                                 [June 2, 1997]

  JUSTICE SCALIA, with whom JUSTICE THOMAS joins, dissenting.

  In East River S. S. Corp. v. Transamerica Delaval Inc., 476 U. S. 858 (1986),
     ______________________    __________________________
we adopted as part of admiralty law the so-called "economic loss" rule, which
denies the purchaser of a defective product a tort action against the seller or
manufacturer for purely economic losses sustained as a result of the product's
failure.  Applying this rule, we held that a plaintiff may not recover in tort
when a defective product damages only itself, but may recover for personal
injuries and for damage to other property.  See id., at 871-875.  The present
                                                ____
case involves a relative detail of application of the East River holding:
                                                      __________
whether, and under what circumstances, "other property" can include property
added to the defective product, not by the plaintiff-purchaser himself, but by
some earlier purchaser in the chain of ownership leading back to the
manufacturer.  In the context of the present case, the question is whether a
skiff, a net, and communications and navagational electronics added by Joseph
Madruga to the M/V Saratoga before she was sold to petitioner constitute part of
the product itself (for which recovery is not available) or "other property"
(for which recovery

                                95-1764 - DISSENT

2                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

is available).
  It would have been better, in my view, not to grant certiorari in this case. 
By the time East River was decided, we had a wealth of lower-court development
            __________
to draw upon, including well reasoned opinions taking no less than three
distinct positions on the economic-loss rule.  See id., at 868-871.  We could be
                                                   ____
confident in our decision, knowing that it broke little new ground; the rule we
adopted had been endorsed by a majority of state courts and had been tested for
two decades since its enunciation by Chief Justice Traynor in Seely v. White
                                                              _____    _____
Motor Co., 403 P.2d 145 (1965).  In the present case, by contrast, the Court
__________
sets sail into uncharted seas.  Not a single lower-court decision (other than
the one under review) has addressed the precise question presented: the status
as "other property" of additions made by a prior purchaser who was a user.  I
would feel less uncomfortable about our plying these unknown waters if we were
skilled navigators.  But unlike state courts, we have little first-hand
experience in the development of new common-law rules of tort and contract
governing commercial transactions.  Better to have followed some state-court
pilots than to proceed on our own - and even, perhaps, to lead state courts
aground.  With this disclaimer, and with the admission that I am only modestly
more confident of my resolution of this case than I am of the Court's, I
proceeed (reluctantly) to discussion of the merits.
  The Court's opinion suggests that this is a rather straightforward case.  The
relevant facts - according to the Court - are quite simple, showing: "(1) a
Component Supplier who (2) provided a defective component . . . to a
Manufacturer, who incorporated it into the manufactured product (the ship),
which (3) the Manufacturer sold to an Initial User, who (4) after adding
equipment and using the ship, resold it to a Subsequent User."  Ante, at 3. 
                                                                _____
What the Court's opinion does not disclose

                                95-1764 - DISSENT

                   SARATOGA FISHING CO. v. J. M. MARTINAC CO.                  3
                                        __

is that Madruga - the Court's "Initial User" - was perhaps not only a user of
the boat but also an entrepreneur in the business of designing, assembling and
distributing what might be described as "fully equipped tuna-fishing machines." 
The M/V Saratoga was not an isolated purchase by tuna-fisherman Madruga from
Martinac, but was the third of seven steel-hull tuna seiners Madruga
commissioned.  She was designed, in part by Madruga, specifically for use as a
tuna seiner, and her construction at Martinac's shipyard was supervised
personally by Madruga and by an engineer in Madruga's employ.  Madruga
negotiated over the specifications and equipment for the vessel and ordered
numerous changes to it during the course of construction.  When delivered by
Martinac, the M/V Saratoga was certainly functional as a boat, but it was not
yet capable of performing the task for which it was specially designed.  It was
arguably still just a component of a larger tuna-fishing machine that would not
be complete until Madruga installed the seine, skiff, and elec-
tronic equipment; and arguably a component of a tuna-fishing machine that
Madruga was in the business of marketing.
  As respondent points out, there is no finding in the record as to whether
Madruga was engaged in the business of selling such products and the issue was
never raised or considered.  Brief for Respondent 33, n. 28.  I assume that the
Court disregards this issue (neither resolving it nor remanding for its
consideration) because the Court deems the question irrelevant.  Under the
Court's test, as I understand it, the "product" is fixed when it is sold to an
"Initial User," even if that user is also in the business of modifying and
reselling the product.  In my view, there is little to recommend such a rule.
  The Court is driven to take the position it does by the concern that liability
would otherwise turn on "a

                                95-1764 - DISSENT

4                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

fortuity, namely whether a defective product causes . . . harm to the added
equipment before or after an Initial User (who added the equipment) resells the
product to a Subsequent User."  Ante, at 6.  But the initial-user rule the Court
                                _____
embraces simply makes liability turn on a different fortuity, namely whether the
person who adds additional equipment to the product uses that product before
selling it.  If Madruga was engaged in the business of assembling and
distributing tuna seiners, why should the fact that he briefly used the vessel
before selling it enable petitioner to obtain tort damages that would plainly
not be recoverable if Madruga had simply installed the components and sold the
vessel?  Or put in more commonplace terms: Why should the buyer of a car whose
engine catches fire and destroys the entire vehicle be able to recover in a tort
action against the manufacturer for the value of the dealer-added hi-fi stereo
system if the car was a "demo," but not if the car was brand new?
  One rule that generally avoids making liability turn on either of the above
described "fortuities" is what might be called the "last-402A-seller rule." 
Under this rule, the "product" would be fixed when it is sold by the last person
in the chain of distribution who is, in the words of S402A of the Restatement
(Second) of Torts (1964), "engaged in the business of selling such a product." 
This would offer at least as much predictability as can be expected from the
Court's approach, would ensure that the availability of tort remedies will be
uniform with regard to all end-users, and would avoid making liability turn on
the seemingly irrelevant question of whether the distributor of the product used
it before sale.  The last-402A-seller rule is also more consistent with one of
the principal considerations underlying our decision in East River: the
                                                        ___________
desirability of invoking tort protection only where contract-warranty protection
is infeasible.  Defining the product as what

                                95-1764 - DISSENT

                   SARATOGA FISHING CO. v. J. M. MARTINAC CO.                  5
                                        __

was sold by the last person engaged in the business of selling such products
denies tort recovery for those additions to the originally manufactured product
which the purchaser could have covered by warranty protection (persons in the
business will generally offer warranties covering the entire product; user-
sellers will generally not).
  The last-402A-seller rule appears to me superior to the initial-user rule
adopted by the Court today, but the two are in reality quite similar and will in
most cases produce the same result.  Each essentially attempts to differentiate
between additions made before and after the product has left the market chain of
distribution.  I doubt, however, whether leaving the market chain of
distribution ought to be so momentous an event for the purpose at hand.  So long
as the plaintiff is a commercial entity (and I understand the rule under
consideration to be one applicable only to to commercial, as opposed to
consumer, transactions, see ante, at 3) it seems to me to make no difference
                            ____
whether the purchase was made from a "402A seller" or not.  Commercial entities
do not typically suffer, at the time they make their purchase, a disparity in
bargaining power that makes it impossible for them to obtain warranty protection
on the entire product; nor are they unable to insure the product they have
purchased, including those portions of it added by upstream owners.  Our
decision in East River suggests that in such circumstances there is inadequate
            __________
reason to interfere with private ordering by importing tort liability - that is,
inadequate reason to permit the purchaser to recover any tort damages for loss
                                                     ___
of the product he purchased.  See East River, 476 U. S., at 872-873.
               __                 ____________
  In recognition of that reality, an impressive line of lower court decisions,
applying both federal and state law, has held that the purchaser of a product
damaged by a defective component cannot recover in tort against

                                95-1764 - DISSENT

6                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

the manufacturer of the component on the theory that the remainder of the
product is "other property."  See, e.g., Pulte Home Corp. v. Osmose Wood
                                   ______________________    ___________
Preserving, Inc., 60 F. 3d 734, 741-742 (CA11 1995) (Florida law); American
_________________                                                  ________
Eagle Ins. Co. v. United Technologies Corp., 48 F. 3d 142, 144-145 (CA5 1995)
______________    __________________________
(Texas law) Transport Corp. of America, Inc. v. International Business Machines
            ________________________________    _______________________________
Corp., 30 F. 3d 953, 957 (CA8 1994) (Minnesota law); King v. Hilton-Davis, 855
______                                               ____    ____________
F. 2d 1047, 1051-1053 (CA3 1988) (Pennsylvania law), cert. denied, 488 U. S.
1030 (1989); Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825 F. 2d 925,
             _________________    _________________________
928-929 (CA5 1987) (federal maritime law), cert. denied, 485 U. S. 1007 (1988). 
Although the holdings of these cases are not precisely on point (since the
plaintiff was the initial purchaser-user of the defective product), the
rationale of those decisions is in tension with the Court's holding today, and
supports what might be called an "object-of-the-bargain" rule.  They rest on the
premise that one must look to the product purchased or bargained for by the
plaintiff in determining whether additions constitute "other property."  See,
e.g., King, supra, at 1051 ("In determining whether a product `injures only
___________ _____
itself' for purposes of applying the East River rule . . . one must look to the
                                     __________
product purchased by the plaintiff."); Shipco 2295, supra, at 928; American
                                       ____________ _____          ________
Eagle, supra, at 145; Casa Clara Condominium Assn. v. Charley Toppino and Sons,
______ _____          ____________________________    _________________________
Inc., 620 So. 2d 1244, 1247 (Fla. 1993) ("The character of a loss determines the
_____
appropriate remedies, and, to determine the character of loss, one must look to
the product purchased by the plaintiff, not the product sold by the
defendant."); see also Fox & Loftus, Riding the Choppy Waters of East River:
Economic Loss Doctrine Ten Years Later, 64 Def. Couns. J. 260, 264, n. 29 (1997)
(citing numerous other cases and observing that "[t]he trend in defining `eco-
nomic loss' is to focus on what the plaintiff purchased rather than what the
defendant agreed to provide"). 

                                95-1764 - DISSENT

                   SARATOGA FISHING CO. v. J. M. MARTINAC CO.                  7
                                        __

These courts have adopted this purchaser-oriented approach on the belief, which
I think correct, that it is in accord with the policy judgments underlying our
decision in East River.  As the Third Circuit in King explained:
            __________                           ____

     "As we read East River, it is the character of the plaintiff's loss that
                 ___________
   determines the nature of the available remedies.  When loss of the benefit of
   a bargain is the plaintiff's sole loss, the judgment of the Supreme Court was
   that the undesirable consequences of affording a tort remedy in addition to a
   contract-based recovery were sufficient to outweigh the limited interest of
   the plaintiff in having relief beyond that provided by warranty claims.  The
   relevant bargain in this context is that struck by the plaintiff.  It is that
   bargain that determines his or her economic loss and whether he or she has
   been injured beyond that loss."  855 F. 2d, at 1051.

  There are undoubtedly other rules that can be - and have been--conceived of. 
One recent article describes the current state of the law regarding damage to
"other property" on construction projects as follows:

     "There has been a growing trend in many jurisdictions to interpret
   `economic loss' broadly to include damage that formerly was considered `other
   property.'  Courts that follow this trend have utilized the following
   rationales:
     "*There is no damage to `other property' where the damage extends only to
   property within the confines of the bargain. . . . `Other property' does not
   include damage to property if those losses are direct and consequential
   losses that were within the contemplation of the parties and could have been
   the subject of negotiations between the parties.
     "*The phrase `other property' does not include the type of property that
   one would reasonably expect,

                                95-1764 - DISSENT

8                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

   on a foreseeability test, to be damaged as a direct consequence of the
   failure of the product at issue.
     "*No `other property' has been damaged, because the allegedly defective
   product has been incorporated into the structure that has been damaged.
     "*Losses caused by the inferior quality of the product must be considered
   `economic' and therefore cannot be considered `property.'"  Fox & Loftus,
   supra, at 264-265 (footnotes omitted).
   _____

And there can of course be combinations of the various rules.  For example, one
might adopt an "integrated unit" exception to the initial-user rule that the
Court announces today. 
  As I have confessed above, I have little confidence in my ability to make the
correct policy choice in an area where courts more experienced than we have not
yet come to rest.  I would have been inclined to let the lower federal courts
struggle with this issue somewhat longer, in the hope that there would develop a
common-law consensus to which we could refer for our admiralty rule, as we did
in East River.  Put to a choice, however, I would not select the rule adopted by
   __________
the Court today.  I would adopt the rule proposed by respondents and define the
"product" for purposes of East River's economic-loss rule as the object of the
                          __________
purchaser's bargain.  That was essentially the approach followed by the Court of
Appeals below, and I would accordingly affirm its judgment.
  I respectfully, and indeed diffidently, dissent.