Opposition Brief — Saratoga Fishing Co. v. JM Martinac & Co.

No. 95-1764 ~ ED

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Supreme Court of the United States-———

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October Term, 1995

SARATOGA FISHING CO.,

Petitioner,

vs.

J.M. MARTINAC & CO.;

MARCO SEATTLE, INC.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

DUNCAN KOLER DANIEL B. MacLEOD

KOLER & PROWS, P.C. Attorney for Respondent

Attorneys for Respondent Marco Seattle Inc.

J.M. Martinac & Co. 1202 Kettner Boulevard

3033 Fifth Avenue Suite 4400

Suite 300 San Diego, California 92101

San Diego, California 92103 (619) 234-7000

(619) 683-2944

8757

M niga (800) 3 APPEAL + (800) 5 APPEAL + (800) BRIEF 21

ervices, inc. |

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i

J. M. Martinac & Co. (“Martinac”) is a privately held

Washington corporation.

Marco Seattle, Inc. (“Marco”) is a Washington corporation

wholly owned by Marine Construction & Design Co., Inc., a

privately held Washington corporation.

Saratoga Fishing Company, Inc. (“Saratoga”), was a

privately held California corporation which has since formally

dissolved, but retains the legal authority to litigate this matter

under California Corporations Code § 2010.

TABLE OF CONTENTS

Opinions Below ............ccccccccccccccscscess

Statement of Jurisdiction .............6--eeeee eens

Statutory Provisions ............05eeeeeeeeeeeeees

Reason for Submission of Response ................

es i a sewee coee

A. There Is An Inter-Circuit Conflict Which Requires

Resolution By This Court. ............-..5..

B. There Is Significant Confusion In The Scope Of

Damages Available Under The Maritime Law Of

Strict Products Liability To The Owner Of A

Product Which Destroys Itself. ..............

10

iii

Contents

Page

TABLE OF CITATIONS

Cases Cited:

Barker v. Lull Engineering Co., 20 Cal. 3d 423(1978) . 9

East River SS Corp. v. TransAmerica Delavel, 476 U.S.

FRE OTT ETS, TT TTT TTT TTT Tee 5,8,9

Employers’ Ins. of Wassau v. Suwannee River Spa Lines,

Inc., 866 F.2d 752 (Sth Cir. 1989) ............4... 6

Kaiser Steel Corp. v. Westington Electric Corp., 55 Cal.

SET UEE cocccdedbrocésecoscceccoeoes 9

Louis Dreyfus Corp. v. 27,956 Long Tons of Corn, 830 F.3d

DED ccdeccedéedeseesececsocooces 6

McKee v. Brunswick Corp., 354 F.2d 577 (7th Cir. 1965)

FS PE AEP Tee) EYP errr rTerrrrrrTTrrrryiy 6

Miller v. American President Lines, Lid., 989 F.2d 1450

+ ccrneonbdesesenteneseeseeqseses 6

Nicor Supply Ships Associates v. General Motors, 876

PEED UD ccccoccccccceoccctoceses 5,6

Palvides v. Galvaston Yacht Basin, 726 F.2d 330 (Sth Cir.

DT shh nddaaneaypedeeencoooocceeséeoecooses 6

Pan Alaska Fisheries, Inc., v. Marine Const. & Design

Co., 565 F.2d 1129 (9th Cir. 1977) 2.2... cece ees 8

iv

Contents

Page

Vickers v. Chiles Drilling Co., 822 F.2d 535 (Sth Cir. 1987) ,

Statutes Cited:

Pe CED cccoccnncocctocosenasedsouecose 2

DPE coccccccccevedonveccsveceaebese 2

PPEMIEEED snccodrvicscsetokdesbocsecasenes 2

California Corporations Code § 2010 ............... i

Other Authority Cited:

Restatement (Second) of Torts §402A ............ 6,8,9,10

1

OPINIONS BELOW

Trial of this matter was held in the Southern District of

California before James M. Fitzgerald, Senior United States

District Judge, sitting without a jury. The District Court entered

written “Findings on Liability” (Petitioner's Appendix E) and

later delivered oral “Findings on Damages” (Petitioner's

Appendix F). All parties appealed to the Court of Appeals for the

Ninth Circuit.

This matter was argued and submitted at Pasadena,

California, on February 8, 1995, before a Ninth Circuit panel

composed of Robert R. Beezer and John T. Noonan, Jr., Circuit

Judges, and David Alan Ezra, District Judge, sitting by

designation.

Upon receipt of the initial decision by the Court of Appeals

dated April 26, 1995, affirming the decision of the trial court

J. M. Martinac & Co. (“Martinac”) and Marco Seattle, Inc.,

(“Marco”) filed a petition for rehearing with suggestion for

rehearing en banc. The petition for rehearing was granted and the

suggestion for rehearing en banc was rejected. A first amended

decision by the Court of Appeals was filed on August 4, 1995,

affirming in part, reversing in part, and remanding the matter to

the trial court.

Thereupon Saratoga Fishing Company, (“Saratoga”) filed

a petition for rehearing and suggestion for rehearing en banc. On

October 26, 1995, the first amended decision was withdrawn and

a second amended decision was filed adding a separate

concurring and dissenting opinion by Circuit Judge Noonan.

(Petitioner's Appendix B). A formal order denying the petition

for rehearing and suggestion for rehearing en banc was entered

on November 13, 1995.

2

Saratoga then filed a second petition for rehearing and

suggestion for rehearing en banc on November 16, 1995. That

petition was denied by the Court of Appeals in an Order filed

January 30, 1996. (Petitioner's Appendix A).

STATEMENT OF JURISDICTION

All of the parties below, by petition or cross—petition, seek

review of the judgment of the Court of Appeals for the Ninth

Circuit dated and entered October 26, 1995. A petition for

rehearing filed by Saratoga was denied by an order filed January

30, 1996. Cross—petitions for certiorari were filed timely. This

Court's jurisdiction is pursuant to 28 U.S.C. § 1254(1). The

district court had jurisdiction of this admiralty case under 28

U.S.C. §§ 1333 and 1291.

STATUTORY PROVISIONS

The case involves the general maritime law of the United

States. No statutory provisions are directly affected by the issues

raised in the cross—petitions.

REASON FOR SUBMISSION OF RESPONSE

The Respondents filed a petition for certiorari (No. 96-

1763) and the present petitioner filed the present cross—petition

for certiorari. By letter dated August 16, 1996, the Clerk

requested the respondents file a response to the cross—petition by

September 16, 1996.

STATEMENT OF THE CASE

This is a product liability action brought by acommercial

fishing enterprise to recover its commercial losses following a

shipboard fire and the sinking of a 14 year-old 200 foot steel tuna

3

seiner custom-built for a professional user who provided

significant design input. The product performed safely until its

professional user radically changed the product's design. Even

then the product did not fail until the user operated the product

with a failed component known to need replacement and with

knowledge of the likelihood of imminent failure with

catastrophic results. When the product failed — predictably — the

only injuries were consequential commercial losses.

Martinac built the m/v saratooa in 1971 to order for Mr.

Joseph Madruga. The m/v saratoca was the third in a series of

seven multi-million dollar vessels built for Mr. Madruga by

Martinac. Mr. Madruga negotiated with Martinac regarding

specifications for the ship, selection of the ship’s machinery,

warranties, and the risk of loss (Petitioner's Appendix E, pp.

118a—119a) Mr. Madruga also selected Marco brand hydraulic

machinery which Martinac purchased from Marco. (Petitioner's

Appendix B, p. 12a; Petitioner's Appendix E, pp. 118a—120a).

The m/v SARATOGA was delivered in 1972 and captained by

Madruga’s protégé, Manuel Vargas. In 1974 Madruga sold the

m/V SARATOGA to Manual Vargas’ corporation, Saratoga Fishing

Company. Madruga and Vargas also negotiated the risk of loss

and Saratoga purchased the vessel “as 1s” without any warranty.

(Petitioner's Appendix B, p. 12a; Petitioner's Appendix E, pp.

124a—122a).

The hydraulic system as designed and installed met well—

established marine practice and the design requirements of

commercial and naval vessels, including all regulatory

requirements and standards accepted and followed in the

shipbuilding industry, including those enacted long after her

completion. (Petitioner's Appendix B, p. 16a; Petitioner's

Appendix E, pp. 124a—127a. 132a).

4

During the M/v saraToca’’s 14 years of service, her hydraulic

system suffered extensive deterioration through lack of

maintenance .and radical modification for the purpose of

significantly increasing power output. These changes materially

increased the rate of failure of hydraulic components and the

probability of a catastrophic system failure. (Petitioner's

Appendix B, p. 13a; Petitioner's Appendix E, pp. 132a—135a).

On January 16, 1986, a few hours prior to the fire, the m/v

SARATOGA’S Chief engineer noticed that one of the 3 major

hydraulic supply hoses for the primary hydraulic system was

leaking around its fitting. He recognized the need for immediate

replacement of the hose and the significant risk of complete

failure during operations, (Petitioner's Appendix B, p. 14a), and

that if the hose failed, it presented an extreme fire danger.

(Petitioner's Appendix E, pp. 140a—141a). The m/v saratoca had

an available back-up hydraulic drive unit that would have taken

about ten minutes to engage and would have by-passed the

leaking hose. Nevertheless, the Captain, being fully informed

about the leaking hose, elected to commence fishing operations

using the primary hydraulic drive without replacing the leaking

hose. (Petitioner's Appendix B, p. 14a). This hose failed

resulting in the fire and foundering of the vessel.

Despite the commercial setting of this case, the substantial

changes to the product by professional users, the open and

obvious nature of the claimed defect, and the professional users’

complete awareness of the danger presented by their conduct, the

trial court found the proximity of hydraulic supply hoses to the

diesel engine to be a design flaw, and awarded damages to

Saratoga composed of the value of the catch of fish, fuel, net,

skiff, fishing equipment, and spare parts aboard the vessel at the

time of her loss. This amount was reduced by 2/3 based upon the

Saratoga’s comparative fault. (Petitioner's Appendix B, p. 16a).

5

The Ninth Circuit by its amended decision reversed the

damages for loss of the skiff, net, fishing equipment and fuel, but

affirmed the award as to the value of the lost catch on board at the

time of the loss.

DISCUSSION

The parties agree (1) that the present decision places the

Ninth Circuit into conflict with the Fifth Circuit; and (2) that the

applicable law is confused and uncertain; and (3) a definitive

decision from this court would be of immense help to the

maritime bar, as well as to maritime insurers, vessel operators,

and marine risk managers.

Beyond that, the parties have radically divergent views of

the current state of the law, and form which the law should take.

A. There Is An Inter-Circuit Conflict Which Requires

Resolution By This Court.

That portion of the Ninth Circuit's opinion affirming the

District Court’s judgment is predicated upon the cargo aboard

the vessel being “other property” and therefore not subject to the

limitation on tort recovery imposed by this Court's decision in

East River SS Corp. v. TransAmerica Delavel, 476 U.S. 858

(1986). Similarly the partial reversal is predicated upon the net,

speed boats, skiff and other fishing equipment acquired by

Saratoga when it purchased the vessel not being “other

property.”

If Saratoga’s expansive view of “other property,” derived

from an examination of “what-the—defendant-sold” is adopted,

then as noted by Circuit Judge Noonan in his dissent, the present

case, insofar as it restricts damages recoverable by the plaintiff,

is in conflict with the Fifth Circuits decision in Nicor Supply

6

Ships Associates v. General Motors, 876 F.2d 501, 505-506 (Sth

Cir. 1989). However, if a more restrictive definition of “other

property” is used, then the present decision holding that the

cargo is “other property” and therefore a recoverable element of

damages, is in conflict with the Fifth Circuit's decisions in Louis

Dreyfus Corp. v. 27,956 Long Tons of Corn, 830 F.2d 1321 (Sth

Cir. 1987), and Employers’ Ins. of Wassau v. Suwannee River Spa

Lines, Inc., 866 F.2d 752 (Sth Cir. 1989); both of which state,

without discussion or explanation, that cargo is not “other

property.”

Although the present decision pays lip service to the

Restatement, it explicitly abandons the “consumer expectation”

test set forth in Comment i to Restatement (Second), Torts,

§ 402A, as the touchstone or test for strict product liability and

substitutes an alternative, retrospective “risk—utility” analysis

at the option of the plaintiff, because as the court admits,

application of the § 402A consumer expectation test would

preclude recovery. (Petitioners Appendix B at p. 25a). In doing

80, it places the Ninth Circuit in conflict with the Fifth,' Sixth and

Seventh Circuits which accept § 402A as the definitive statement

of the maritime law of strict product liability. Vickers v. Chiles

Drilling Co., 822 F.2d 535, 538 (Sth Cir. 1987); Miller v.

American President Lines, Ltd., 989 F.2d 1450, 1462 (6th Cir.

1993); McKee v. Brunswick Corp., 354 F.2d 577, 584 (7th Cir.

1965).

1. The Ninth Circuit relies upon Palvides v. Galvaston Yacht Basin, 727

F.2d 330, 337 (Sth Cir. 1984), for the proposition the risk-utility test applies in

admiralty. However, 3 years later in Vickers, supra, the Fifth Circuit reaffirmed

the proposition that the official comments of § 402A, specifically including

comment i — the statement of the consumer expectation test — sets forth the

test for application of the doctrine of strict products liability. 822 F.2d at 538.

7

B. There Is Significant Confusion In The Scope Of Damages

Available Under The Maritime Law Of Strict Products

Liability To The Owner Of A Product Which Destroys

Itself.

This case arose out of the murky mush between contract and

tort. The maritime law has borrowed the concept of strict product

liability in tort from the American Law Insiitute’s Restatement

(Second) of the general, land—based, law of torts. It works well

in the consumer and personal injury context for which it was

designed and which law it “restates.”

The maritime law has also borrowed the warranty law

codified by the Uniform Commercial Code, to govern the

relationship between commercial entities. It, too, works well in

the context of commercial relationships. When these

conceptually distinct bodies of law occasionally overlap, as in

the present case, choices must be made based on overriding

public policy concerns, both to promote uniformity and to

preserve the role of contract in commercial maritime

transactions.

The Petitioner seeks to have this Court define “other

property” associated with a commercial transaction in a broad

way to permit tort recovery in purely commercial cases. This

would mean that every future case would turn on semantics. That

is, every frustrated commercial plaintiff who found the contract/

warranty remedy inapplicable, would turn to tort, narrowly

define the product, claim injury to “other property” and thereby

obtain recovery for all identifiable ancillary items appended to

or used with the commercial property for which recovery was

barred or otherwise unavailable under contract/warranty law.

This case highlights the widely diverse legal interpretations

that can be gleaned from the existing body of maritime law

applying strict products liability. The Ninth Circuit’s opinion

herein only compounds that confusion. This confusion may wel.

stem from the “square peg/round hole” problem posed by trying

to apply consumer-based legal principles to purely commercial

transactions. The fit is poor, but to the extent the square peg is

small enough to fit in the round hole, there are enough discrete

spaces left to preclude uniformity.

East River assumed principles of strict product liability can

be applied in commercial maritime transactions, but noted the

need to significantly limit the application of these principles in

acommercial context lest“. . . contract drown ina sea of tort.”

476 U.S. at 866. While lower courts and commentators have read

a great deal into the East River decision, the fact remains that the

Court did not define either “the product itself’ or “other

property” or the associated concept of “economic loss.” So,

although the Court’s message to preserve preeminence of

contract law in commercial maritime law was stated clearly, the

reluctant implementation of that message has left the law

ambiguous and inconsistent. Ten years later, East Riveris widely

cited and discussed, with the divergent interpretations of

numerous courts, like those of the litigants herein, juxtaposed.

Strict products liability, contract, warranty, the Uniform

Commercial Code, and the goal of uniformity in the law are not

concepts or legal embodiments unique to maritime law. East

River is more widely cited by state courts interpreting their own

law of strict products liability than by the lower federal courts

applying maritime law. The goal of uniformity in maritime law

should embrace, wherever possible, uniform land-based

principles. Indeed, § 402A is a land-based iteration grafted onto

the maritime law, first by the Ninth Circuit in Pan Alaska

Fisheries, Inc. v. Marine Const. & Design Co., 565 F.2d 1129

(9th Cir. 1977) and then by this Court in East River, supra.

9

In the ten years since East River, strict product liability cases

have provided a battleground between those who would expand

the concept to make all manufacturers insurers of any losses

involving goods they place in the stream of commerce, and those

who seek to entirely eliminate the liability of manufacturers for

defects in their products. Caught in the middle of this struggle are

a multitude of maritime enterprises. The predictable contract-

based method of doing business endorsed by East River is being

eroded, if not gutted, by the Ninth Circuit's expansion of strict

product liability law.

It is now of critical importance that this Court decide: (1)

what iteration of strict product liability is to be followed by

federal maritime law, and (2) which commercial losses, if any,

can be recovered under strict products liability under federal

maritime law, and which are recoverable only in contract or

pursuant to a warranty. The latter question involves preserving

the role of contract in commercial maritime intercourse.

What the Ninth Circuit has done is to utilize California's

rational extrapolation of strict product liability extending to

personally injured consumers a choice of “tests” for a defective

product, Barker v. Lull Engineering Co., 20 Cal. 3d 423, 432

(1978), to justify its departure from the consumer expectation

test of § 402A. However, the Ninth Circuit failed to recognize

that a California court would have denied liability in this case

because a California strict products liability remedy is

unavailable when commercial parties of relative equal

bargaining strength bargain the specifications of a commercial

product. Kaiser Steel Corp. v. Westinghouse Electric Corp., 55

Cal. App. 2d 737, 748 (1976). This is a solution suggested by East

River, 476 U.S. at871 fn. 6, but not as yetexplicitly implemented

in the maritime law.

10

CONCLUSION

The Respondents agree with the Petitioner that the case

presents important questions of maritime law which should be

settled by this Court for the benefit of the commercial maritime

community. However, the Respondents believe the pertinent

questions upon which certiorari should be granted are not as set

forth by the Petitioner, but rather are:

1. Cana plaintiff state aclaim under the admiralty and

maritime law of the United States for “strict product

liability” when a custom manufactured product fails and

only consequential commercial losses are sustained?

2. Does § 402A of the Restatement (Second) Torts

provide the definitive statement of the maritime law of

“strict product liability” or are other legal regimes also a

part of the maritime law?

3. Is lost fish harvest aboard a factory fishing vessel

an “economic loss” or “other property” when the vessel

destroys itself, i.e., can a tort claim be stated against the

manufacturer or is the vessel owner’s only potential remedy

in warranty?

Marine builders, contractors, subcontractors, and non-

maritime companies making occasional sales of goods destined

for maritime use, lack a clear definition of their duties and

liabilities under existing strict product liability precedent. It is

beyond question that strict product liability principles grew out

of the need to protect consumers. But, there is no sound public

policy basis supporting their application in maritime commerce

where contract law provides a more predictable and satisfactory

system for adjusting commercial losses.

11

Marco Seattle, Inc., and J.M. Martinac & Co. therefore pray

this Court issue a Writ of Certiorari to review the decision of the

United States Court of Appeals for the Ninth Circuit.

Respectfully submitted,

DANIEL B. MacLEOD

Attorney for Respondent

Marco Seattle, Inc.

1202 Kettner Blvd.

Suite 4400

San Diego, California 92101

(619) 234-7000

DUNCAN B. KOLER,

KOLER & PROWS, P.C.

Attorney for Respondent

J. M. Martinac & Co.

3033 Fifth Avenue

Suite 300

San Diego, California 92103

(619) 683-2944