IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 12-30378

SMITH MARITIME, INCORPORATED

Plaintiff

v.

L/B KAITLYN EYMARD; ET AL

Defendants

ASSOCIATED GAS & OIL COMPANY, LIMITED,

Counter-Claimant - Appellant

v.

TRAM SHIPYARDS, INCORPORATED

Counter Defendant - Appellee

Appeal from the United States District Court

for the Western District of Louisiana

Before DAVIS, JONES and SMITH, Circuit Judges.

PER CURIAM:

In this dispute between the owner of two liftboats, Associated Gas & Oil

Company, Limited (“Associated”), and Tram Shipyards, Incorporated (“Tram”),

a shipyard which performed work on the liftboats, the issue is whether the

economic loss rule of East River Steamship Corp. v. Transamerica Delaval, Inc.,

United States Court of Appeals

Fifth Circuit

F I L E D

January 3, 2013

Lyle W. Cayce

Clerk
No. 12-30378

2

476 U.S. 858 (1986), precludes claims by the vessel owner Associated for

economic loss resulting from the negligence of Tram. We find that East River

and its progeny clearly apply to these facts, barring recovery to Associated under

a products liability or other tort theory and limiting its recovery to its

contractual remedies. 

I. 

On or about February 16, 2010, Associated purchased two self-elevating

liftboats, the L/B KAITLYN EYMARD (“KAITLYN”) and L/B NICOLE EYMARD

(“NICOLE”), from Offshore Marine, Inc.(“OMI”), pursuantto an Asset Purchase

Agreement. Under the Asset Purchase Agreement, OMI agreed to provide

certain spare parts, and to provide and install additional living quarters and

accessories on the two vessels. Since OMI does not own a shipyard, and thus

could not install the additional living quarters and accessories on the liftboats

itself, OMI used its sister corporation, Tram Shipyards, Inc. (“Tram”), to

purchase the materials and perform the installation of the additional living

quarters and accessories. In the course of installing the additional living

quarters on the NICOLE, Tram cut, extended, and re-welded the crane boom

cradle stanchion of the hydraulic pedestal crane mounted aboard the NICOLE.

Associated modified these liftboats to perform work in Nigeria under a

contract Associated had recently won. This required Associated to ship the

vessels from Louisiana to Nigeria. As the flotilla transporting the liftboats to

Nigeria encountered rough seas, the stanchion snapped at the site of the weld,

causing the crane boom on the NICOLE to swing wildly and crash into the

additional living quarters, causing damage. As a result of this damage, the

flotilla had to be diverted to St. Thomas, British Virgin Islands, for evaluation

of the damage. After recommencing the voyage, further rough seas exacerbated

the damage, and the flotilla diverted to Trinidad and ultimately returned to
No. 12-30378

3

Amelia, Louisiana for repairs, where the vessels were located at the time of the

filing of the instant suit. 

Associated alleged in its Counterclaim againstTram thatthe damage from

the swinging crane, the resulting diversions from the planned route for

evaluation of the damage, and the ultimate failure of the liftboats to reach

Nigeria to perform the work for which Associated purchased the liftboats, are all

a direct result of the negligence of Tram in (1) unilaterally deciding to cut and

re-weld the crane boom cradle stanchion aboard the NICOLE; (2) re-welding the

crane boom cradle stanchion with such inferior workmanship that the weld could

not withstand the stresses of mere rough seas; and (3) failing to have the weld

inspected or certified to ensure its structural soundness, integrity, and ability

to survive rough sea conditions. Furthermore, the delays during, and ultimate

failure of, the transport of the vessels to Nigeria, as directly caused by the

negligence of Tram, caused Associated to suffer a crippling loss of profits because

the liftboats were not performing the work for which they were purchased and

were not generating income for Associated during the lengthy repair process in

Louisiana. 

After other parties in this suit settled, Tram filed a motion for summary

judgment claiming that despite any factual dispute, the economic loss rule of

East River precluded Associated from recovering economic losses against Tram.

The district court granted Tram’s motion and dismissed Associated’s

counterclaim. Associated appeals.

II.

The disposition of this case depends on whether the facts require

application of the rule announced by the Supreme Court in East River. In East

River, a shipbuilder contracted with the defendant Delaval to design,

manufacture and supervise the installation of turbines in four supertankers it

was building. 476 U.S. at 859. After the ships were put into service under a
No. 12-30378

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charter to the plaintiffs, the turbines on all four ships malfunctioned due to

design and manufacturing defects. Only the turbines were damaged as a result

of the defects. Id. at 860-61. The Supreme Court held that 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. Id. at 871.

Thus the charterer could not recover for damage to the turbines or resulting

economic losses from Delaval. 

East River has been extended to claims brought against a provider of

professional services (construction supervision) provided to a vessel

manufacturer, Employers Ins. of Wausau v. Suwannee River Spa Lines, Inc., 866

F.2d 752 (5th Cir. 1989), and a repairer of a vessel, Nathaniel Shipping, Inc. v.

General Elect. Co., 920 F.2d 1256 (5th Cir. 1991)(Nathaniel Shipping I). In

Wausau, plaintiff chemical company entered into a contract with a naval

architectural firm and a ship manufacturer for the construction of a vessel to be

used to ship its chemicals. 866 F.2d at 756. On its second voyage, the vessel’s

tug section broke loose from the barge section and sank. Id. The plaintiff filed

suit alleging that the vessel was unseaworthy on delivery. Id. at 757. This court

precluded “recovery in maritime tortfor purely economic loss stemming from the

negligent performance of a contract for professional services where those

services are rendered as part of the construction of a vessel.” Id. at 755.

Plaintiffs were therefore limited to their contractual remedies. Id. 

In Nathaniel Shipping I, the plaintiff shipowner Nathaniel Shipping

contracted with a shipyard, Louisiana Gulf Shipyards (LGS) to replace a

damaged thrust block. 920 F.2d at 1258. LGS contracted with defendant

General Electric to drill holes for the new thrust block. Id. Nathaniel Shipping’s

suit alleged that General Electric negligently drilled the holes and sought

economic damages allegedly caused by the negligence. Id. Even though the

shipowner was not in contractual privity with General Electric, who provided
No. 12-30378

5

repair services rather than construction or manufacture of a vessel, this court

held that the East River economic loss rule precluded the shipowner’s recovery

against General Electric. Id. at 1264-65. In Nathaniel Shipping, Inc. v. General

Elec. Co., 932 F.2d 366 (5th Cir. 1991)(Nathaniel Shipping II) (on petition for

rehearing), this court declined to find a distinction between services for the

manufacture of a new vessel and services related to the repair of an existing

vessel. “Such a distinction would be inconsistent with our reasoning in Wausau.

The public policy concerns underpinning tort duties are not present here, and

the parties are capable of defining satisfactory performance and allocating the

risk of defective performance in their contract.” Id. at 368, n.3. 

Associated argues that this case does not fall within the rule of East River

and the other cases discussed above because it involves, not a vessel’s

manufacture or repair, but the modification of a vessel. We see this as a

distinction without a difference insofar as the applicability ofthe East River rule

is concerned. In the Asset Purchase Agreement with OMI, Associated purchased

two vessels with living quarters installed. Associated took the Purchased Assets

(which is defined as the Vessels and the Living Quarters (Additional Equipment)

“as is, where is”). Associated’s complaint, like those in East River and the other

cases described above, is that it did not receive the benefit of its bargain because

the quality of the product did not meet its expectations. As the Supreme Court

stated in East River, “Damage to a product itself it most naturally understood

as a warranty claim. Such damage means simply that the product has not met

the customer’s expectations, or, in other words, that the customer has received

‘insufficient product value.’” 476 U.S. at 872. Such claims are best governed by

contract law and the law of warranty - not tort. 

Associated also argues that the living quarters that were added to the

liftboats and damaged by Tram’s alleged negligence are “other property” so the

vessel did not damage ‘itself” and its claims are not subject to the East River
No. 12-30378

1 The relevant provisions of the contract follow:

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to acquire

from Seller, the Vessels as defined herein, for a total purchase price for the

Vessels of Thirty-Five Million Two Hundred Thousand and No/100 United

States Dollars ($35,200,000.00 USD) on the terms and conditions specified

herein; 

WHEREAS, In addition to the Vessels, Buyer has agreed to purchase

from Seller additional equipment, specifically Living Quarters and Accessories

as detailed on the ProForma Invoice attached hereto as Exhibit “A” and

incorporatedhereinby reference (hereinafter “AdditionalEquipment”),for an

additional Seven Hundred Twenty Seven Thousand Nine Hundred Twenty

Seven and No/100 United States Dollars ($727,927.00);

6

rule. This argument requires us to define “other property” for this purpose. In

Shipco 2295, Inc. v. Avondale Shipyards, Inc., the plaintiff brought tort claims

against the manufacturer of several vessels for alleged design defects in the

propellers and hull brackets and brought claims against the supplier of the

vessels’ steering systems for alleged defects. 825 F.2d 925, 926 (5th Cir. 1987).

The plaintiffs argued that defects in certain components of each vessel caused

damage to unrelated components in the same vessel. Id. at 928. They argued

that the resulting damage was damage to “other property” and that East River

recognizes a purchaser’s right to recover economic losses resulting from damage

to the product in tort when the defect in the product causes damage to other

property. Id. To determine “what is the product?” this court looked to the object

of the contract or bargain that governs the rights of the parties. Id. This court

found that East River barred plaintiff’s claims against the manufacturer and

againstthe supplier because the “object of the contract” was the completed vessel

and not the component parts of the vessel. Id. 

Associated argues thatthe living quarters are “other property” because the

purchase from OMI set a separate price for that component. The Asset Purchase

Agreement in this case does set separate prices for the vessel and the added

living quarters.1 However, the Asset Purchase Agreement also combines the
No. 12-30378

7

Vessels and other components including the Living Quarters / Additional

Equipment as the “Purchased Assets.” 

1.1 Purchase and Sale of Assets, At the Closing, Seller will sell,

convey, transfer, assign, and deliver to Buyer (i) the Vessels

together with their engines, tackle, winches, cranes, fuel on

board, cordage, general outfit, electronic and navigation

equipment, radio installations, appurtenances, appliances,

inventory, spare parts, stores, tools and provisions on board

each ofthe Vessels; (ii) all Permits (to the extenttransferable)

relating to the Vessels transferred; (iii) all business records

relating exclusively to the Vessels (the “Records”); (iv) any

technical or regulatory documentation already aboard the

Vessels, including classification certificates, loadline

certificates, radio licenses, operating manuals, vessel logs and

preventative maintenance manuals (collectively, the “Vessel

Documentation”); and (v) all drawings and intellectual

property related to each of the Vessels (the “Intellectual

Property”). The assets described in the foregoing clauses (i)

through (v) are hereinafter collectively referred to, together

with the Additional Equipment, as the “Purchased

Assets.” (emphasis added) 

The Asset Purchase Agreement defines the “Purchased Assets”, which are the

object of the contract as subject to the warranty. In para. 3.4, the Purchased

Assets are conveyed “as is, where is.” Accordingly, the Living Quarters are not

“other property” for purposes of this analysis and Associated cannot avoid

application of the rule from East River. 

III. 

The crane boom cradle stanchion and the living quarters that were

damaged were integral parts of the vessel as it was sold to Associated. The

economic losses Associated suffered as a result ofthe damage are not recoverable
No. 12-30378

8

under tort theories from Tram. Under East River,the plaintiff is relegated to its

rights under the contract. The district court properly dismissed Associated’s

claims on summary judgment. AFFIRMED.