United States Court of Appeals, Fifth Circuit

932 F.
2d 366
NATHANIEL SHIPPING, INC., Plaintiff-Appellee, CrossAppellant,

v.
GENERAL ELECTRIC COMPANY, INC., Defendant-CrossDefendant
Third Party Plaintiff-Appellant, Cross-Appellee.
v.
LOUISIANA GULF SHIPYARDS, INC.,
Defendant-Cross-Plaintiff-Appellee, Cross-Appellant.
Nos. 88-3277, 88-3817.
United States Court of Appeals,

Fifth Circuit.
May 20, 1991.
Craig R. Nelson, Hulse, Nelson & Wanek, New Orleans, Barry A.

Guryan, Robert C. Cale, Fordham & Starrett, Boston, Mass., Benjamin R.
Slater, Jr., Monroe & Lemann, New Orleans, La., for General Elec. Co.,
Inc.
Harvey A. Gleason, Thomas D. Forbes, Chaffe, McCall, Phillips, Toler &
Sarpy, New Orleans, La., for Nathaniel Shipping.
Appeals from the United States District Court for the Eastern District of
Louisiana.
PETITION FOR REHEARING
(Opinion January 15, 1991, 5th Cir., 920 F.2d 1256)
Before BROWN, REAVLEY and HIGGINBOTHAM, Circuit Judges.
PER CURIAM:
Except that the majority (Judges Reavley and Higginbotham) would grant
rehearing by substituting the following restatement of their views in Part III of

the opinion (p. 1263-65, rehearing is denied:
2III. Judges Reavley and Higginbotham Determine East River
3Cuts Off G.E.'s Liability to Nathaniel Shipping.
4
At the outset, we question whether Nathaniel has any rights against G.E. under
the warranty of workmanlike performance, as its origins are in contract rather
than tort. The warranty arose as a response to the doctrine of seaworthiness,
best stated in Seas Shipping Co. v. Sieracki, 328 U.S. 85, 66 S.Ct. 872, 90
L.Ed. 1099 (1945). In Ryan Co. v. Pan-Atlantic Corp., 350 U.S. 124, 76 S.Ct.
232, 100 L.Ed. 133 (1956), the Supreme Court held that a vessel's owner was
entitled to indemnity from a stevedoring contractor for its liability for personal
injuries resulting from the contractor's negligence. The owner was himself
liable for the injuries because of his non-delegable duties under the doctrine of
seaworthiness. The Court reasoned that the stevedoring contract "necessarily
include[d]" a requirement that the contractor perform its obligations "properly
and safely." Ryan, 350 U.S. at 133, 76 S.Ct. at 237. The warranty was thus
contractual. "The obligation is not a quasi-contractual obligation implied in law
or arising out of a non-contractual relationship. It is the essence of the
petitioner's stevedoring contract." Id. The Court has twice found a vessel's
owner entitled to indemnity absent a contract between the owner and a
stevedoring contractor, but only because it concluded that the owner was
essentially a third-party beneficiary of an agreement between the contractor and
a third party. See Waterman Co. v. Dugan & McNamara, 364 U.S. 421, 424, 81
S.Ct. 200, 202, 5 L.Ed.2d 169 (1960); and Crumady v. The JH Fisser, 358 U.S.
423, 428, 79 S.Ct. 445, 448, 3 L.Ed.2d 413 (1959).1
In Todd Shipyards Corp. v. Turbine Serv., 674 F.2d 401, 417 (5th Cir.1982),
this court extended the warranty of workmanlike performance to require a subsubcontractor to indemnify a general contractor against its liability for
economic damages, but the extension was dubious at best. The opinion cited
Whisenant v. Brewser-Bartle Offshore Company, 446 F.2d 394, 401 (5th
Cir.1971), for the proposition that implied warranties of workmanlike
performance may extend to parties not in privity, or a third-part beneficiary
relationship, but Whisenant had already been called into doubt in Hercules, Inc.
v. Stevens Shipping Co., Inc., 629 F.2d 418, 422 (5th Cir.1980), reheard en
banc and reversed on other grounds, 698 F.2d 726 (5th Cir.1983).2 Several
recent decisions have also questioned the application of the warranty beyond its
groundings in personal injuries resulting from unseaworthiness. See Bosnor
S.A. De C.V. v. Tug L.A. Barrios, 796 F.2d 776, 784-86 (5th Cir.1986);
Hercules, 698 F.2d at 737-38; and Gator Marine Serv., Etc. v. J. McDermott &
Co., 651 F.2d 1096, 1100 (5th Cir.1981).
6
Fortunately, we need not pursue the issues raised by the Todd Shipyards
opinion here, for any extra-contractual liability for Nathaniel's economic losses
is foreclosed by the Supreme Court's opinion in East River S.S. Corp. v.
Transamerica Delaval, 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986).
In East River, noting its fear of "contract law drown[ing] in a sea of tort," 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, 106 S.Ct. at 2302. Thus, a party who
suffers only economic losses, as opposed to personal injury or property damage,
must recover in contract. We extended East River to a contract for professional
services in Employers Ins. of Wausau v. Suwannee River Spa L., 866 F.2d 752,
763 (5th Cir.1989). See also PPG Industries v. Sundstrand Corp., 681 F.Supp.
287 (W.D.Penn.1988); AFM Corp. v. Southern Bell Tel. and Tel. Co., 515
So.2d 180 (Fla.1987); and Gulf Boat Marine Services v. George Engine Co.,
659 F.Supp. 6 (E.D.La.1986).3
In Part II, Judge Brown suggests that East River and Wausau are
distinguishable because Nathaniel and G.E. were not in privity. But there was
also no privity between the parties in East River. The plaintiffs had entered a
charter contract with a trust created by the vessel's owners, and it was the
owners who entered the contract with the defendants. East River, 476 U.S. at
859-60, 106 S.Ct. at 2296. In evaluating the plaintiffs' claims, the Court looked
to the contract between the plaintiffs and the trust and concluded that the
plaintiffs took the vessels "as is." Id. at 875, 106 S.Ct. at 2304.
Judge Brown further concludes that there was no possibility of bargaining over
the allocation of the risk of defective performance by G.E. either between
Nathaniel and LGS or between Nathaniel and G.E. We believe, however, that
Nathaniel and LGS could and did bargain over this risk in their contract. Todd
Shipyards, and the cases cited therein, stand only for the proposition that a
contractor is not liable in tort for the negligence of its carefully chosen subcontractor. See Todd Shipyards, 674 F.2d at 410 (discussing the negligence of
Todd Shipyards). By contrast, LGS clearly would be liable in contract if G.E.'s
negligence caused LGS to breach its own contract with Nathaniel. Thus, as in
East River, Nathaniel's rights, if any, arose from its contract with LGS. LGS, in
turn, could seek indemnity from G.E., subject to the limitations of the contract
between LGS and G.E.
In sum, the Court (per Judges Reavley and Higginbotham) holds that East
River precludes Nathaniel's claim against G.E. The judgment of the District
Court on this issue is therefore reversed.
10
For reasons set forth in his dissent (Part II, 1259-63), Judge Brown would grant
rehearing.
11
Before CLARK, Chief Judge, and POLITZ, KING, JOHNSON, GARWOOD,

JOLLY, HIGGINBOTHAM, DAVIS, JONES, SMITH, DUHE, WIENER,
BARKSDALE, Circuit Judges.
SUGGESTION FOR REHEARING EN BANC

(Opinion January 15, 1991, 5th Cir., 920 F.2d 1256)
12
PER CURIAM:
13
The Petition for Rehearing having been DENIED by separate order and the
Court having been polled at the request of one of the members of the Court, and
a majority of the Circuit Judges who are in regular active service not having
voted in favor of it, (Federal Rules of Appellate Procedure and Local Rule 35)
the Suggestion for Rehearing En Banc is also DENIED.
14
JOHN R. BROWN, Circuit Judge, with whom Judge Politz joins, dissenting
from failure to grant rehearing en banc.
15
My reasons why en banc review should have been granted are essentially set
forth in the panel opinion, see the introductory paragraph (p. 1257) which is
expanded at length in my "dissent" in Part II of the panel opinion (p. 1259-63).
16
Essentially, my main argument is that East River does not substitute contract
for maritime tort principles where there is no contract as between the shipowner
(Nathaniel) and the negligent1 repair sub-contractor (General Electric).
17
The only contract covering the work (drilling holes in the thrust block) was
between Nathaniel, shipowner, and LGS (Louisiana Gulf Shipyards), the repair
yard, who in turn employed GE to drill the holes.
18
Since the whole theory of East River is that the respective duties, rights and
liabilities must be found in the contract, not in tort law, I urge the simple
proposition: how is this theory met when there is no contract, nor can one be
implied, spelling out responsibilities and liabilities for economic damages as
between the party injured (Nathaniel) and the party bringing about such
damage (GE)?
19
This is all capsulated in the total lack of privity of contract as between

Nathaniel and GE. See, Employers Ins. of Wausau v. Suwannee River Spa
Lines, 866 F.2d 752, 766, n. 27 (5th Cir.1989).
20
The practical consequence of the Court's holding is that a shipowner, desiring

to assure it would have the full recovery as permitted under maritime tort
principles for economic loss growing out of improper performance by a subcontractor (with whom there is no privity of contract), the shipowner would
have to contract with that sub-contractor and each and all of the sub-contractor's
employees working on the job.
21
Any such requirement would have two consequences. First, it would force a
contract on parties otherwise free of such an obligation or substantively
unwilling to enter into that legally formal relationship. Second, in today's
industrial complex,2 it involves the wholly unworkable scheme of seeking
solicited side agreements with each and all and everyone of the employees who
might be engaged in working on the sub-contract, their sub-contractors, sub-sub
contractors, sub-sub-sub contractors ad infinitum.
Subsequent cases have consistently described the warranty as contractual. See

Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 261-62, 99
S.Ct. 2753, 2756-57, 61 L.Ed.2d 521 (1979); Italia Soc. v. Ore. Stevedoring
Co., 376 U.S. 315, 84 S.Ct. 748, 11 L.Ed.2d 732 (1964); Atlantic and Gulf
Stevedores, Inc. v. Ellerman Lines, 369 U.S. 355, 366, 82 S.Ct. 780, 787, 7
L.Ed.2d 798 (1952); Employers Insurance Co. of Wausau v. Suwannee River,
866 F.2d 752, 763 n. 17 (5th Cir.1989); and Verdin v. C & B Boat Co., 860
F.2d 150, 155 (5th Cir.1988). Nathaniel itself even describes the warranty as
contractual in arguing that its damages should include attorneys fees
We do not believe that Nathaniel qualifies as a third-party beneficiary of the

contract between LGS and G.E. See Restatement (Second) of Contracts Sec.
302 and illustration 19
We decline to adopt the distinction urged by Nathaniel, between services

pursuant to 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. See Wausau, 866
F.2d at 763-65
1
To overcome any possible implication that using this typically tort expression
necessarily begs the question, I point out that it is used loosely in the sense that
the work was not done properly because of significant errors in performance
See, wholly for purposes of illustration and not for its legal significance, Todd
Shipyard Corp. v. Turbine Service, 674 F.2d 401 (5th Cir.1982) which
illustrates the many different artisans involved in a shipyard completing a major
classification overhaul of a large ocean-going vessel

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932 F.

NATHANIEL SHIPPING, INC., Plaintiff-Appellee, CrossAppellant,

United States Court of Appeals,

Craig R. Nelson, Hulse, Nelson & Wanek, New Orleans, Barry A.

rehearing by substituting the following restatement of their views in Part III of

Before CLARK, Chief Judge, and POLITZ, KING, JOHNSON, GARWOOD,

SUGGESTION FOR REHEARING EN BANC

This is all capsulated in the total lack of privity of contract as between

The practical consequence of the Court's holding is that a shipowner, desiring

Subsequent cases have consistently described the warranty as contractual. See

We do not believe that Nathaniel qualifies as a third-party beneficiary of the

We decline to adopt the distinction urged by Nathaniel, between services

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