IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 16, 2008
No. 07-30885
Charles R. Fulbruge III
Clerk
TURBOMECA, S.A.,
Plaintiff-Appellee,
v.
ERA HELICOPTERS LLC,
Defendant-Appellant,
Consolidated with No. 07-30902
ERA HELICOPTERS LLC; UNITED STATES AVIATION
UNDERWRITERS, INC. as Managers on behalf of United States Aircraft
Insurance Group,
Plaintiffs-Appellants,
v.
TURBOMECA, a Division of Labinal; EUROCOPTER SAS,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 6:06-CV-1711
USDC No. 6:07-CV-787
No. 07-30885
Before PRADO, ELROD, and HAYNES, Circuit Judges.
ELROD, Circuit Judge:
The sole issue on appeal is whether this circuit should recognize a post-
sale negligence exception to the maritime “economic loss doctrine” established
in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858
(1986). We decline to do so and affirm the district court’s judgment dismissing
the tort claims alleging a post-sale failure to warn of a pre-sale product defect.
FACTUAL AND PROCEDURAL BACKGROUND
On or about May 13, 2005, the pilot of a helicopter operated by Era
Helicopters LLC (“Era”) experienced engine trouble and made an emergency
landing in the Gulf of Mexico, utilizing the helicopter’s emergency flotation
devices. The pilot and passenger were picked up by a vessel, but the helicopter
rolled and inverted during subsequent recovery efforts. The submersion of the
aircraft in the salt water rendered the helicopter a total loss.
Related lawsuits were filed in Louisiana and Texas and were ultimately
consolidated in the Western District of Louisiana.1 Era alleged, inter alia, that
an engine defect caused its economic losses, which Era sought to recoup from
Turbomeca, S.A., the manufacturer of the engine, and Eurocopter SAS, the
manufacturer of the helicopter. Era claimed that both Turbomeca and
1
Turbomeca filed suit in the Western District of Louisiana seeking a declaration that
it was not liable to Era (the “Turbomeca action”), and that action was consolidated with a
lawsuit filed by the sole passenger on the helicopter, Terrance Boutte (whose lawsuit and
alleged injuries are not part of this appeal). Era and its insurer, United States Aviation
Underwriters, filed a separate action in the Southern District of Texas (the “Era/USAU action”)
alleging post-sale negligence on the part of Turbomeca and Eurocopter. The Era/USAU action
was transferred to the Western District of Louisiana and consolidated with two other cases,
although all three cases were later severed. The parties stipulated that the East River doctrine
was the central issue in both the Era/USAU action and the Turbomeca action, and the district
court thus decided the issue on one set of briefing. The parties agreed to dismiss all claims
sounding in warranty or contract in order to expedite entry of final judgment. The parties
requested and were granted consolidation of the two appeals in this court.
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No. 07-30885
Eurocopter were responsible for monitoring the reliability of their products, for
investigating the causes of catastrophic failures, and for publishing and
updating data used by operators in the maintenance and repair of helicopters
and their engines. Era accused both Turbomeca and Eurocopter of “post-sale
negligent acts or omissions,” including the post-sale failure to warn of a pre-sale
defect.
The defendants sought dismissal of the tort claims, contending that the
case falls under the economic loss doctrine of East River, which restricts a
maritime plaintiff to warranty remedies when a defective product damages only
itself. The plaintiffs, however, argued that a post-sale negligence exception to
East River should be recognized.2 The district court agreed with the
manufacturers, entering judgment in favor of Turbomeca and Eurocopter and
holding that “the great weight of federal jurisprudence considering an exception
for post-sale negligence . . . understand[s] the East River Doctrine to be a broad,
unadulterated bar precluding all negligence claims for economic loss arising out
of damages to a defective product.” Bouttee v. ERA Helicopters, L.L.C., 244
F.R.D. 360, 368 (W.D. La. 2007). We affirm.
2
East River does not apply where a defective product damages “other property” in
addition to the product itself, Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825 F.2d 925, 928
(5th Cir. 1987), but there is no such claim in this case. The parties do not argue, and the case
law does not support, that the helicopter was “other property” that was damaged by the failure
of the engine. See, e.g., Petroleum Helicopters, Inc. v. Avco Corp., 930 F.2d 389, 393 (5th Cir.
1991) (affirming summary judgment for defendants on strict products liability and negligent
design claims because the helicopter and its emergency float were a single product for purposes
of East River, and a defect in a component part that causes damage to a helicopter does not
result in damage to “other property”).
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No. 07-30885
STANDARD OF REVIEW
This is a consolidated appeal in which the district court granted a Federal
Rule of Civil Procedure 12(c) motion for judgment on the pleadings in one case
and a Rule 12(b)(6) motion to dismiss for failure to state a claim in the other
case. For both motions, this court’s standard of review is de novo, and the well-
pleaded facts are viewed in the light most favorable to the plaintiff. In re
Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007), cert. denied,
Chehardy v. Allstate Indem. Co., 128 S. Ct. 1231 (2008) and Xavier Univ. of La.
v. Travelers Cas. Prop. Co. of Am., 128 S. Ct. 1230 (2008).
ANALYSIS
I. East River Economic Loss Doctrine
The Supreme Court held in East River that a maritime plaintiff may not
maintain a tort cause of action against a manufacturer “when a defective product
purchased in a commercial transaction malfunctions, injuring only the product
itself and causing purely economic loss.” 476 U.S. at 859, 876. The Court
analogized the situation of a defective product damaging only itself to the loss
incurred when a product fails to work properly or work at all: “Obviously,
damage to a product itself has certain attributes of a products-liability claim.
But the injury suffered—the failure of the product to function properly—is the
essence of a warranty action, through which a contracting party can seek to
recoup the benefit of its bargain.” Id. at 867-68. The Court concluded 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.
In arguing for an exception for post-sale negligence, the plaintiffs seize
upon a footnote in East River in which the Supreme Court left open the
possibility of exceptions: “We do not reach the issue whether a tort cause of
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No. 07-30885
action can ever be stated in admiralty when the only damages sought are
economic.” Id. at 871 n.6. The bar of East River, however, clearly applies where
the injury is to the product alone. The Court reasoned that “[e]ven when the
harm to the product itself occurs though an abrupt, accident-like event, the
resulting loss due to repair costs, decreased value, and lost profits is essentially
the failure of the purchaser to receive the benefit of his bargain—traditionally
the core concern of contract law.” Id. at 870. Thus, where a defective product
malfunctions and causes damage only to itself, the rule is that a plaintiff can
maintain an economic loss claim only under a warranty or contract theory of
recovery.
Later, in Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875
(1997), the Supreme Court explained the rationale behind the East River rule:
The Court [in East River] reasoned that the loss of the value of a
product that suffers physical harm—say, a product that destroys
itself by exploding—is very much like the loss of the value of a
product that does not work properly or does not work at all. In all
such cases, the Court held, “contract law, and the law of warranty
in particular, is well suited” to setting the responsibilities of a seller
of a product that fails to perform the function for which it was
intended.
Id. at 879-80 (citations omitted). The Court instructed that “[g]iven the
availability of warranties, the courts should not ask tort law to perform a job
that contract law might perform better.” Id. at 880.
II. Post-Sale Negligence Argument for Exception
Era alleges that all or part of its economic damages were caused by
Turbomeca’s “post-sale failure to warn of a defect known only to Turbomeca after
the sale of the helicopter but before the incident at issue.” Era submits that this
court should recognize an exception to the maritime East River economic loss
doctrine in the case of negligence by the manufacturer that is alleged to have
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No. 07-30885
taken place after the manufacture and sale of the product at issue. We decline
to do so.
A. Decisions in Other Circuits
The Eleventh Circuit—prior to the Supreme Court’s decision in East
River—held that where physical damage to a ship’s engine and attendant costly
delays were caused by the manufacturer and the distributor’s joint post-sale
failure to warn the plaintiffs that known pre-sale engine defects needed
correction, the plaintiffs could sue in negligence and were not limited to the
recovery of repair costs under the warranty cause of action. Miller Indus. v.
Caterpillar Tractor Co., 733 F.2d 813, 818 (11th Cir. 1984). The Eleventh
Circuit allowed the purchaser to recover in tort so long as the manufacturer
“discovered [the defect] after the engine was already on the market” and “the
warranty does not expressly disclaim” liability for negligence. Id. The court
reasoned that a post-sale duty to warn of defects:
goes not to the quality of the product that the buyer expects from
the bargain, but to the type of conduct which tort law governs as a
matter of social and public policy. To hold otherwise would
impermissibly allow a manufacturer who is aware that it has a
defective product on the market to hide behind its warranty while
the buyer unknowingly uses it.
Id. (citations omitted);3 but cf. East River, 476 U.S. at 871 (“The tort concern
with safety is reduced when an injury is only to the product itself.”). Another
panel of this court, however, has questioned whether the Miller Industries
3
The Miller Industries decision relied on the former Fifth Circuit opinion in Jig the
Third Corp. v. Puritan Marine Insurance Underwriters Corp., 519 F.2d 171, 178-79 (5th Cir.
1975) (holding that unless a warranty expressly disclaims liability for negligence, the plaintiff
may recover his damages for negligent design and manufacture even though the only physical
damage is to the product itself). Miller Indus., 519 F.2d at 817-18. The holding in Jig the
Third, however, was “effectively overruled” by the East River decision in 1986. Shipco, 825
F.2d at 927.
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No. 07-30885
opinion is good law in light of the subsequent East River decision by the
Supreme Court. Mem’l Hermann Healthcare Sys. Inc. v. Eurocopter
Deutschland, GMBH, 524 F.3d 676, 679 n.2 (5th Cir. 2008) ("Miller is also
seemingly no longer good law."). We decline to follow Miller Industries.
The Third Circuit, the only federal circuit court to directly address the
issue after East River, refused to create an exception to the East River doctrine
for post-sale negligence. Sea-Land Serv., Inc. v. Gen. Elec. Co., 134 F.3d 149,
155-56 (3d Cir. 1998), overruling McConnell v. Caterpillar Tractor Co., 646 F.
Supp. 1520 (D.N.J. 1986) (recognizing such an exception). In Sea-Land, a
defective connecting rod failed and damaged a vessel’s engine, and the plaintiff
vessel owner raised a negligent failure to warn claim, alleging that the
defendant manufacturer had discovered the defect after the sale but prior to the
incident. Id. at 151-52. The Sea-Land court rejected the tort claim and found
that the East River Court’s rationale—that product failures are the types of
injuries that are most appropriately remedied in contract rather than in
tort—was applicable to the case before it, stating:
If the damage, resulting from a defect is other than mere economic
loss, East River leaves intact all tort-based theories of recovery
including, but not limited to, duty to warn.
Where, however, damage from a defect is only to the product itself
and is only economic, there is no tort recovery. The policy of
economic loss is better adjusted by contract rules than by tort
principles. This conclusion is as true for strict liability and
negligence cases as it is for failure to warn cases. Thus, a
manufacturer may be culpable of a failure to warn, but if the
damage is solely to the product itself and is solely economic, there
is no tort recovery.
34 F.3d at 155-56 (citing East River, 476 U.S. at 866-68). In applying the
economic loss doctrine, the Sea-Land court thus focused on the type of damages
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No. 07-30885
actually sustained rather than on when the alleged negligence occurred. The
court commented that when the only injury is economic loss, the purchaser and
the manufacturers “can set the terms of their expectations through negotiations,
contract provisions, price adjustments, and insurance.” Id. at 155.
B. Fifth Circuit Application
In Nicor Supply Ships Associates v. General Motors Corp., 876 F.2d 501
(5th Cir. 1989), the Fifth Circuit observed that the Supreme Court in East River
had not discussed “whether the purchaser of a vessel may recover in tort against
the manufacturer for failing to warn of a defect in that product.” Id. at 503. The
Fifth Circuit refused to allow the purchaser to maintain a tort claim for failure
to warn of a defect known at the time of manufacture, commenting on the
unfortunate pleading effect such an exception might create:
Were we to allow Nicor to succeed on its [failure to warn] claim, we
would invite all purchasers of self-damaging products that were
negligently manufactured but beyond the coverage of the warranty
to style their complaints in terms of the manufacturer’s negligent
failure to warn of a known defect. Permitting recovery on such
grounds would frustrate the Supreme Court’s plain intention that
a manufacturer be liable for the damages a product causes to itself
as a result of negligent manufacture only to the extent that the
parties have contractually agreed to apportion such liability.
Id. at 504. While noting the “possible exception to East River,” as articulated in
Miller Industries and potentially left open by footnote 6 of East River, the court
determined that the specific facts in Nicor made it unnecessary to decide the
issue: “[W]e intimate no opinion concerning whether Nicor would have stated a
cause of action had it alleged that General Motors had discovered a defect in the
. . . engine after its manufacture.” Id. at 505 (emphasis added).
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Only one court in the Fifth Circuit has held that the East River doctrine
does not apply to allegations of post-sale negligence. See Brown v. Eurocopter
S.A., 143 F. Supp. 2d 781, 783 (S.D. Tex. 2001). In the absence of a Fifth Circuit
decision on point, the district court in Brown chose to follow the reasoning of the
Eleventh Circuit in Miller Industries rather than that of the Third Circuit in
Sea-Land. We disapprove the holding in Brown, which was not appealed.
Recently, a panel of this court declined to make an “Erie guess” that Texas
would carve out an exception to its state economic loss rule for claims of
post-sale negligence based on a defendant’s failure to warn of defects discovered
after manufacture. The court commented in dicta that:
Miller is . . . seemingly no longer good law. The United States
Supreme Court adopted the economic loss rule in [East River].
Because Miller predates East River, the exception recognized in
Miller Industries arguably has little force. This is particularly true
in light of the fact that the Court was aware of Miller, having cited
it as an example of cases where courts have refused to apply the
economic loss rule. If the Court had agreed with the holding in
Miller, it presumably also would have distinguished post-sale
negligence claims from other negligence claims. Instead, the Court
formulated the economic loss rule in broad language that left no
room for this distinction.
Mem’l Hermann, 524 F.3d at 679 n.2 (5th Cir. 2008) (citations omitted) (emphasis
added). We likewise interpret the East River economic loss rule as a broad bar
to tort claims for damage solely to the product itself.
East River unequivocally 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.” East River, 476 U.S. at 871. In
explaining its rationale, the Court repeatedly emphasized the nature of the injury
rather than the timing of the defendant’s conduct. Furthermore, as recognized
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in Memorial Hermann, the Court referenced the holding in Miller Industries yet
did not distinguish post-sale negligence claims from other negligence claims when
pronouncing its broad economic loss rule. Finally, we note that our holding in
this case will not remove the incentive for manufacturers to protect the public by
warning of defects that may come to their attention because manufacturers will
not know ahead of time what type of injuries might result from a known product
defect.
We follow the Third Circuit in Sea-Land and decline to recognize an
exception to the East River doctrine for post-sale negligent failure to warn claims:
“[I]f the damage is solely to the product itself and is solely economic, there [can
be] no tort recovery,” Sea-Land, 134 F.3d at 156, and the purchaser is restricted
to a warranty or contract cause of action under maritime law.
CONCLUSION
Finding no error in the district court’s ruling, we AFFIRM.
10