United States: Louisiana Court Allows Recovery Of Economic Loss In Admiralty Case, Refusing To Apply East River Doctrine

Case:  Rotorcraft Leasing, LLC v. H.E.R.O.S., Inc.
           Louisiana Third Circuit Court of Appeal
           16-690 ( La. App. 3 Cir 04/19/17), 217 So. 3d 525

A helicopter ditched in the Gulf of Mexico due to engine failure. The pilot escaped unharmed, but the helicopter did not fare as well – it sank to the bottom. The owner of the helicopter, Rotorcraft Leasing, sued H.E.R.O.S. Inc., the seller, and Delavan, Inc., the alleged manufacturer, of a fuel nozzle which Rotorcraft claimed was defective and caused the bird's motor to lose power. Suit was brought in admiralty under the Savings to Suitor's clause, and Rotorcraft asserted the right to relief under Louisiana's Products Liability Act (LPLA) and redhibition law.

HEROS settled out, after which the trial court granted summary judgment in favor of Delavan based on its finding that the East River doctrine applied to bar Rotorcraft's products liability claim – determining that Rotorcraft could not recover for the loss of the helicopter which was lost due to the failure of a component part (The U.S. Supreme Court held in East River S.S. Corp. v. Transamerica that a claimant could not maintain a tort action under admiralty law when a defective product purchased in a commercial transaction caused damage to the product itself, thus causing only economic loss. 476 U.S. 858, 105 S.Ct. 2295 (1986)). Delavan had also asserted Rotorcraft could not maintain a redhibition claim against Delavan as it did not manufacture the part in question, but only overhauled it – thus there was no contract of sale, but only repair. The trial court agreed. Prescription was also raised but not addressed by the trial court, as it granted summary judgment on the first two issues, rendering the prescription issue moot.

Louisiana's Third Circuit Court of Appeal reversed the summary judgments, finding the East River Doctrine did not apply to the facts at hand, as the failure of the nozzle did not cause damage only to the nozzle itself, but the helicopter as a whole. Further, the court found a sale did occur, and thus the redhibition claim could stand, and prescription did not apply.

As to the products liability claim, the court essentially held that a replacement fuel nozzle, purchased separately from the helicopter as a whole, was a separate commercial transaction that had to be analyzed independently of the purchase of the helicopter sold years before. The court discussed in detail several cases following East River which have "clarified its application", and rejected Delavan's various arguments: that the fuel nozzle was merely a replacement part and not a "completely new addition" to the helicopter and that the LPLA did not apply as it conflicted with East River. In part, the court relied on another Supreme Court case, Saratoga Fishing Co.v. J.M. Martinac & Co., 520 US. 875, 117 S.Ct. 1783 (1997), which found that parts added to a product after its purchase were "other property," which character did not change with subsequent transfers of the property. The court rejected the notion that the replacement part was simply part of the overhaul of the helicopter which was the object of the contract, but instead took a straightforward approach, finding the purchase of the fuel nozzle was a separate commercial transaction as evidenced, in part, by a itemized invoice to Rotorcraft which it paid.

The court found maritime law (applying the Restatement of Torts) did not preclude the application of the LPLA, as there was no conflict to the extent it applied to manufacturers rather than sellers (like HEROS), as both held manufacturers to the same standard of liability.

As to the redhibition claim, the Third Circuit relied heavily on a Louisiana Fourth Circuit case, Tucker v. Petroleum Helicopters, Inc., 08-1019 (La. App. 4th Cir. 3/23/09, 9 So.3d 966, writ denied, 09-901 (La. 6/19/09), 10 So.3d 736, finding maritime law did not preclude a redhibition claim which was contractual in nature and noting the present case did not present an "economic loss only" claim as "other property" was damaged.

The court further rejected Delavan's argument that any warranty claim had been waived by the original purchaser of the helicopter – observing that neither of the present parties were parties to the original purchase, and neither was the replacement fuel nozzle an object of the original purchase. Thus, the failure of a defective replacement part could provide a basis for application of the LPLA as well as Louisiana's redhibition law as East River did not bar recovery of damages to "other property," which the helicopter constituted.

Finally, the court found Rotorcraft's claims had not prescribed. Logically, the court rejected Delavan's argument that prescription ran from the original sale of the helicopter which employed the same type (but not the same) fuel nozzle, rather than from the sale of the replacement fuel nozzle which the court had already found to be a separate and new commercial transaction.

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