IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 91-2246

MCDERMOTT, INC., Plaintiff-Appellee, Cross-Appellant,

versus

CLYDE IRON, ET AL., Defendants, AmCLYDE, A Division of AMCA International, Inc., and RIVER DON CASTING LTD., Defendants-Appellants, Cross-Appellees.

Appeal from the United States District Court for the Southern District of Texas

(December 11, 1992)

Before HIGGINBOTHAM and DUHÉ, Circuit Judges, and HARMON,* District Judge.

HIGGINBOTHAM, Circuit Judge:

This is a suit for damage to property resulting from a failure

of a large crane on an offshore platform. AmClyde and River Don

appeal from a judgment on the jury's verdict urging that AmClyde's

contract with McDermott, and general maritime law, protect them

from liability in warranty and tort in addition to the limits on

tort liability under the East River doctrine and that, in any

* Harmon, District Judge of the Southern District of Texas, sitting by designation. event, they are entitled to the credit of McDermott's settlement

with others. McDermott cross-appeals attacking the application of

East River and the denial of recovery for damage to the crane

itself. We reverse the judgment against AmClyde. We conclude that

River Don is liable to McDermott, but hold that River Don is

entitled to full credit for McDermott's settlement.

I.

On January 10, 1986, McDermott contracted to purchase a 5,000

ton Shearleg crane designed and manufactured by AmClyde. The

contract covered twenty-five pages and included several provisions

purporting to limit potential liability. McDermott intended to use

the crane to move the deck portion, the Snapper deck, of an

offshore platform used in drilling for oil and natural gas.

AmClyde designed the crane's hook. River Don was not a party to

the McDermott-AmClyde contract but manufactured the hook under a

subcontract with AmClyde.

On October 10, 1986, McDermott was using the crane to lift the

approximately 3,950 ton Snapper deck. The crane was mounted aboard

the vessel Intermac 600 in the Gulf of Mexico off the coast of

Texas. As the crane lifted the deck, one of the prongs on the hook

and one of the slings holding the deck broke, and the deck fell

onto the barge with serious damage to the crane and deck. This

suit followed.

McDermott sued AmClyde, River Don, two manufacturers of the

slings, and another sling supplier asserting tort and contract

claims. AmClyde filed a third-party claim against Hudson

2 Engineering, the McDermott subsidiary that designed the sling

rigging arrangement used for the lift. AmClyde also counterclaimed

for the cost of replacing the allegedly defective hook.

AmClyde and River Don moved for partial summary judgment

arguing that AmClyde and McDermott agreed in the contract to

restrict any tort and contract liability to repair or replacement

and that under general maritime law there is no recovery for

product damage and resulting economic loss under East River

Steamship Corp. v. Transamerica Delaval, Inc.,

(1986).

The magistrate judge denied the motion.

On the eve of trial, McDermott settled with the three sling-

related defendants for $1 million. AmClyde and River Don claimed

a dollar-for-dollar credit for the $1 million settlement against

any judgment against them, citing Hernandez v. M/V RAJAAN,

(5th Cir. 1988). In his opening statement, counsel for

McDermott told the jury that McDermott accepted responsibility for

any part the slings played in causing the damage. The settlement

documents were not formally executed until after the jury returned

its verdict. That detail disclosed that the settlement agreement

attributed one half of the total settlement to crane damages and

one half to deck damages.

Shortly after trial began, the magistrate judge, relying on

East River, ruled that McDermott could not recover in tort for

damage to the product itself, the crane and the hook, but that it

could recover in tort for damage to the deck as "other property."

3 At trial then, McDermott's claim for damages to the crane was

limited to the remedies provided for in its contract with AmClyde.

The jury found the crane's hook to be defective, that the

defect was one of materials or workmanship and misrepresentation,

and that this defect was a producing cause of injury. The jury

also found that AmClyde breached express and implied warranties

that were a producing cause of injury. The jury awarded

compensatory damages of $2.1 million for damage to the deck,

attributing the cause of the accident 32% to AmClyde, 38% to River

Don, 0% to Hudson Engineering and 30% to "McDermott/sling

defendants." The jury was not asked to determine separately

McDermott's contribution to the accident despite its assumption of

any damage caused by the sling defendants. The court later denied

AmClyde and River Don's request for a $1 million credit against the

verdict and rendered judgment on the jury's verdict against AmClyde

in the amount of $672,000.00 and against River Don in the amount of

$798,000.00.2

AmClyde and River Don appeal, and McDermott cross-appeals.

AmClyde and River Don first argue that recovery for damages to the

deck cannot be supported by a breach of contract, because the

parties disclaimed all warranties, except a limited replacement and

repair warranty for materials and workmanship. Second, they

contend that McDermott was not entitled to any recovery in tort for

damage to the deck, because (1) the McDermott-AmClyde contract

2 The jury also found in favor of McDermott on AmClyde's counterclaim. AmClyde does not appeal this determination.

4 waived all tort liability as to AmClyde and River Don, and (2) East

River precludes any tort claims for damage to both the crane and

the deck. Third, AmClyde and River Don assert that the trial court

should have granted their motions for directed verdict and judgment

notwithstanding the verdict, because McDermott failed to prove

causation. Finally, AmClyde and River Don claim an offset of the

$1 million settlement under Hernandez, alternatively, that they are

entitled to a new trial because of various erroneous rulings on

questions of evidence.

McDermott contends that it is entitled to recover for damage

to the crane as well as the deck. McDermott requests a remand for

trial on the amount of damages to the crane only, contending that

the jury has already determined the liability of AmClyde and River

Don. McDermott argues that it should not be limited to the

replacement of defective parts under the contract, because (1)

AmClyde's refusal to replace the hook free of charge caused the

limited warranty to fail of its essential purpose; (2) AmClyde made

broad and undisclaimed warranties by incorporating technical

specifications into the document; (3) the warranty was modified by

later dealings between the parties and assurances from AmClyde that

it would "stand behind its product"; (4) the replacement warranty

applies only to AmClyde's manufacture of the crane, not to its

design and sale. Second, McDermott contends that East River does

not bar recovery for damage to the crane, because other property,

the deck, along with the crane was damaged. Third, McDermott

argues that its claims against River Don should not be governed by

5 the rule of East River because there was no contractual

relationship directly between them. Finally, McDermott claims pre-

judgment interest and urges that the jury's verdict should be

corrected to show that the jury allocated causation and not fault.

II.

We are convinced that the contract between McDermott and

AmClyde controls AmClyde's liability to McDermott. It is urged

that McDermott's recovery in warranty is limited to the

replacement/repair warranty in the McDermott-AmClyde contract, and

the contract precludes McDermott from recovering in tort. We agree

and reverse the judgment against AmClyde. Although we conclude

that River Don is not protected by the limited liability provisions

in the contract between McDermott and AmClyde, and River Don is

liable to McDermott, we find that River Don is entitled to a credit

of McDermott's settlement with the sling defendants. We address

AmClyde first, then River Don.

III.

The language of the contract is critical to McDermott's

recovery against AmClyde in warranty, and we focus on Article XV3.

3 ARTICLE XV - WARRANTY

A. The Seller warrants equipment of its own manufacture to be free from defects in materials and workmanship under normal use and service for a period of six (6) months after first use and not to exceed twelve (12) months after shipment or notification of readiness for shipment. This warranty extends only to the Buyer, and in no event shall the Seller be liable for property damage sustained by a person designated by the law of any jurisdiction as a third party beneficiary of this warranty or any other warranty held to survive the Seller's disclaimer. This warranty does not extend to normal wear and tear or to the equipment,

6 The parties agree that we must look to the law of New York in

interpreting this contract. Under New York law, these issues of

contract interpretation are considered questions of law. Maio v.

Gardino,

(N.Y. App. Div. 1992); Trustco Bank

materials, parts and accessories manufactured by others, and THE BUYER AGREES THAT IT MUST RELY SOLELY ON THE MANUFACTURER'S WARRANTIES APPLICABLE, AND THAT IT SHALL HAVE NO REMEDY AGAINST THE SELLER FOR BREACH OF A MANUFACTURER'S WARRANTY. This warranty shall be NULL AND VOID if any repairs, modifications or alterations are made to the equipment supplied hereunder during the warranty period by the Buyer or by others on his behalf without the prior written consent of the SELLER. THE WARRANTY DESCRIBED IN THIS PARAGRAPH SHALL BE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

B. Upon written notification received by the Seller within the above stated warranty period of any failure to conform to the above warranty, upon return prepaid to the Seller of any nonconforming original part of component and upon inspection by the Seller to verify said nonconformity, the Seller shall repair or replace said original part or component without charge to the Buyer. The Seller shall ship the repaired or replaced part or component to the Buyer at the Buyer's expense. Correction of nonconformities, in the manner provided above, shall constitute fulfillment of all liabilities of the Seller to the Buyer or any other person whether based upon Contract, tort, strict liability or otherwise.

C. The remedies set forth herein are exclusive, without regard to whether any defect was discoverable or latent at the time of delivery of the apparatus to the Buyer. The essential purpose of this exclusive remedy shall be to provide the buyer with repair or replacement of parts or components that prove to be defective within the period and under the conditions previously set forth. This exclusive remedy shall not have failed of its essential purpose (as that term is used in the Uniform Commercial Code) provided the Seller remains willing to repair or replace defective part to components within a commercially reasonable time after it obtains actual knowledge of the existence of a particular defect.

7 v. 11 North Pearl Assoc.,

(N.Y. Sup. Ct.

1992). Thus, our review is de novo.

A.

In Article XV, AmClyde warrants that equipment of its own

manufacture will be free from defects in materials and workmanship

and that the exclusive remedy for the breach of this limited

warranty will be repair or replacement of defective parts. Such

agreed upon limits on remedy are generally valid.

(McKinney 1991)4; Employers Ins. of Wausau v Suwannee River

Spa Lines, Inc.,

(5th Cir. 1989); American Elec.

Power Co. v. Westinghouse Elec.,

(S.D.N.Y.

1976).

The jury found a defect in materials or workmanship, and

therefore, a breach of this limited warranty. McDermott attempts

to escape the restriction on remedy that it agreed to urging that

this remedy "failed of its essential purpose."5

4

(1) provides:

Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. 5

(2) provides:

Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided

8 The policy behind the failure of essential purpose rule is to

insure that the buyer has "at least minimum adequate remedies."

U.C.C. § 2-719 Comment 1. Typically, a limited repair/replacement

remedy fails of its essential purpose where (1) the "[s]eller is

unsuccessful in repairing or replacing the defective part,

regardless of good or bad faith; or (2) [t]here is unreasonable

delay in repairing or replacing defective components." Cayuga

Harvester, Inc. v. Allis-Chalmers, Corp.,

(N.Y. App. Div. 1983). McDermott and AmClyde were aware of this

rule, expressly addressing the doctrine in their contract. Article

XV.C, provides: "[t]his exclusive remedy shall not have failed of

its essential purpose . . . provided the Seller remains willing to

repair or replace defective part to components within a

commercially reasonable time after it obtains actual knowledge of

the existence of a particular defect." See James J. White & Robert

S. Summers, Uniform Commercial Code § 12-10 (3d ed. 1988) (stating

that such a clause may give the seller greater protection).

McDermott argues that the limited remedy failed of its

essential purpose, because AmClyde did not replace the crane hook

free of charge. McDermott, with agreement of AmClyde and River

Don, sent the hook to Packer Engineering for testing. Packer

determined that the hook was defective, and McDermott demanded a

replacement from AmClyde under the limited warranty. AmClyde

responded that McDermott must first send them a purchase order.

McDermott sent the purchase order, and AmClyde later sent a new

in this Act.

9 hook, both parties expressly reserving their rights. AmClyde, as

we noted, counterclaimed for the cost of the replacement hook,

arguing that the hook was not defective, but failed at McDermott's

negligent hand. Based on the jury's verdict, the magistrate judge

refused to order payment for the replacement hook.

McDermott's assertion that AmClyde did not replace the hook

free of charge is apparently based on AmClyde's requirement of a

purchase order and the contest of its obligation to provide a free

replacement. McDermott received a new hook and at no cost.

AmClyde never denied its obligation to replace a defective hook.

It only denied that the hook was defective. It lost that argument

and honored its obligation. We find no failure of purpose.6

B.

McDermott argues that in addition to the limited warranty in

Article XV, the contract gained another express warranty by

incorporating design specifications.7 The Specifications state

6 McDermott further argues that the replacement warranty applies only to AmClyde's manufacturing of the crane, not to its design and sale. We find no merit to this contention. See e.g., American Elec. Power Co. v. Westinghouse Corp.,

(S.D.N.Y. 1976) (court recognized the validity of a similar limitation of warranty/exclusive remedy provision where defendant's responsibility encompassed manufacturing, construction, and design); Shipco 2295, Inc. v. Avondale Shipyards, Inc.,

(E.D. La. 1986), aff'd,

(5th Cir. 1987), cert. denied,

(1988) (Avondale's limited warranty/exclusive remedy provision was enforced notwithstanding Avondale's involvement in manufacturing, construction, and design). 7 ARTICLE I - SCOPE OF WORK

A. Provide one 5000 short ton shearleg derrick package for barge mounting in accordance with specification no. 8506- 12D/B REV 2 entitled "Specifications for 5000 short ton

10 that "[t]he crane when erected will be capable of lifting 5000 ST

to a reach of 100 feet measured from the boom heel pin." McDermott

argues that this language created an express warranty of the

crane's lifting capacity or a "design warranty."

We decline this journey, however, because assuming there was

a "design warranty," it was not breached. The jury found that the

defect in the crane was one of materials or workmanship and

misrepresentation and specifically not a defect in design.

McDermott also argues that AmClyde gave other express

warranties after the parties executed the contract. McDermott

relies on an exchange of letters between AmClyde vice president

Michael J. Ucci and McDermott vice president W.L. Higgins. Mr.

Ucci wrote in part:

In the unlikely event the 5000 ST Shearleg Derrick being designed by Clyde does not perform according to the specification, Clyde would ensure that any deficiencies are corrected. Our track record in this area should speak for itself, but in addition I am giving you my personal assurance that we will stand behind our product.

Mr. Higgins responded:

To the extent that you have expanded on the intent of the warranty of the 5000 ST Shearleg Derrick, we understand you to say that Clyde will correct any such deficiencies and will cooperate with McDermott to do so expeditiously and with a minimum of inconvenience and expense. This of course would conceptually include having the work done locally to avoid the time and expense of taking the equipment out of service and sending it to Duluth, Minnesota to correct deficiencies.

shearleg derrick" dated December 12, 1985 (EXHIBIT A) and as described in your Proposal dated December 9, 1985, all of which are incorporated by this reference.

(emphasis added).

11 We accept your personal assurance that Clyde will accept the additional warranty responsibility. McDermott trusts that the entire Clyde organization endorses the intent of your Comfort Letter and in particular, the notion that Clyde will stand behind its product.

McDermott argues that these letters created a new warranty.

An express warranty arises through "[a]ny affirmation of fact

or promise by the seller to the buyer which relates to the goods

and becomes part of the basis of the bargain."

-

313(1)(a) (McKinney 1991). We do not read these two letters to

create a new or different warranty. Instead, Mr. Ucci only

reaffirmed AmClyde's obligation to repair or replace any defective

parts. Regardless, McDermott cannot overcome the contract's

integration clause requiring a signed writing for its

modification.8 These provisions are specifically validated by

U.C.C. § 2-209(2), and a signed writing is required to modify or

rescind them.9 McDermott counters with a waiver argument. As

8 ARTICLE XXI - INTEGRATION

This document constitutes the entire Agreement between the parties. There are no understandings as to the subject matter of this Agreement other than as herein set forth. All previous communications concerning the subject matter of this Agreement are hereby abrogated and withdrawn. This Agreement may not be modified except by a writing signed by both parties, and any printed terms and conditions submitted by either party during the course of this Agreement shall be of no force or effect, unless expressly agreed to the contrary in writing by both parties. 9

(2) provides:

A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.

12 circular as the notion may be, it is true that an integration

clause can be waived, see U.C.C. § 2-209(4),10 but we conclude that

no waiver occurred.

McDermott states that both parties "as a normal course of

conduct . . . regularly accommodated, modified, supplemented, and

finalized important aspects of the Shearleg Crane and its warranted

qualities after signing an initial contract document," and contends

that this course of dealing constituted a waiver of the contract's

modification requirement. The only case McDermott cites on this

point is Linear Corp. v. Standard Hardware Co.,

(Fla. Dist. Ct. App. 1982). That case involved a contract for the

sale of electronic security devices between a manufacturer and a

wholesaler. The contract expressly stated that the goods were not

purchased on consignment and could not be returned. The contract

further required a signed writing to modify. The court found a

waiver of this writing requirement and a new agreement to

repurchase, concluding from a number of letters and telephone

conversations that the seller had agreed to a return of unsold

equipment.

In Linear, the new agreement involved a major change to the

contract, the right to return the goods. The changes referred to

by McDermott involved technical details that would have been

difficult to spell out in the contract. More important, the

10

(4) provides:

Although an attempt at modification or recision does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.

13 McDermott-AmClyde contract authorized changes to "plans, designs,

or specifications."11 These changes did not modify the contract;

they were contemplated by the parties, and the parties specifically

provided for them in the contract. Relatedly and significantly,

AmClyde and McDermott abided by the integration clause in

performing the contract, executing a modification by a signed

writing on one occasion. Representatives of McDermott and AmClyde

executed a formal contract Addendum changing the indemnity/Hold

Harmless provisions. At the same time, the parties left the

WARRANTY and INTEGRATION clauses untouched. If Mr. Ucci and Mr.

Higgins intended to create a new warranty, they could have done so

by complying with the contract's integration clause.

C.

The jury found that AmClyde breached an implied warranty of

the hook. AmClyde argues, however, and we agree that this finding

has no legal consequence. The McDermott-AmClyde contract waived

all implied warranties.

(2) (McKinney

1991).12 Moreover, McDermott admitted that the contract waived all

11 ARTICLE V - CHANGES

A. Buyer may, at any time by a written order, make changes within the general scope of this Contract in any one or more of the plans, designs, or specifications. If any such change causes an increase or decrease in the cost of or the time required for the performance of any part of this Contract, the Seller must advise Buyer Representative immediately and confirm to Buyer in writing within 5 working days. Nothing in this section shall excuse Seller from proceeding with the Contract as changed. 12

(2) provides:

Subject to subsection (3), to exclude or modify the implied

14 implied warranties under Fed. R. Civ. P. 36(b). AmClyde asked

McDermott to admit or deny "[t]hat the Contract for Supply of 5,000

Short Ton Shearleg Derrick between McDermott and Clyde Iron dated

January 10, 1986, in Article XV(A), waived any implied warranty."

McDermott replied "Admitted." The magistrate should have ignored

the jury's answer to this question. American Automobile Ass'n. v.

AAA Legal Clinic,

(5th Cir. 1991).

IV.

This brings us to McDermott's tort claims against AmClyde.

Article XV of the McDermott-AmClyde contract provides that:

"Correction of nonconformities, in the manner provided above, shall

constitute fulfillment of all liabilities of the Seller to the

Buyer or any other person whether based upon Contract, tort, strict

liability or otherwise." (emphasis added). AmClyde argues that

this provision protects it from liability to McDermott in tort. We

agree.

Contractual provisions waiving negligence and strict liability

claims are enforceable under New York law. See Laudisio v. Amoco

Oil Co.,

(N.Y. Sup. Ct. 1981) (negligence);

Velez v. Craine & Clark Lumber Corp.

(N.Y.

1973) (strict liability). Contractual waivers of liability are

warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof."

15 subject to close judicial scrutiny and "it must appear plainly and

precisely that the limitation extends to negligence or other fault

of the party attempting to shed his ordinary responsibility."

Howard v. Handler Bros. & Winell,

(N.Y. App.

Div. 1951), aff'd,

(N.Y. 1952); Gross v. Sweet,

(N.Y. 1979). McDermott does not attack the

exculpatory provision in the McDermott-AmClyde contract as being

vague or ambiguous. The provision is precise. It specifically

mentions "tort" and "strict liability," terms familiar to

sophisticated business entities such as these. See Gross,

(noting that broadly worded clauses may be

sufficient where sophisticated business entities are involved).

Moreover, similar clauses are common in commercial markets. See

e.g. Nicor Supply Ships Assocs. v. General Motors,

,

504 (5th Cir. 1989); Arkwright-Boston Mfrs. Mutual Ins. Co. v.

Westinghouse Elec. Corp.,

, 1181 n.15 (5th Cir. 1988);

American Electric,

n.25.13

We hold that McDermott has no claims against AmClyde, except

for breach of the limited warranty in their contract. We reverse

this portion of the judgment of the district court.

The exculpatory provision's preclusion of liability in tort bars McDermott's misrepresentation claim as well. Therefore, the jury's finding of a misrepresentation defect was of no legal significance. 14 Because we reverse the judgment against AmClyde, we need not address AmClyde's other assignments of error.

16 Turning to River Don, McDermott's contention that it should

have been allowed to proceed against River Don for a breach of

warranty is unclear. On one hand, McDermott states it "was not

allowed to proceed in contract against River Don for any damages

but was restricted to tort damages by River Don to the deck section

alone," and "[t]he court, inexplicably, would not allow any

evidence of contract remedies that River Don would owe to

McDermott, Inc., directly or as third party beneficiary, per

Article XV." On the other hand, McDermott says "the evidence

adduced at trial demonstrated that River Don made express and

implied warranties regarding the Hook which were communicated to

McDermott with the expectation that these representations would be

relied upon." Regardless, McDermott has not preserved this issue

for appeal.

The magistrate judge did not rule on McDermott's contract

claim against River Don. The magistrate relied upon East River in

ruling that McDermott could recover in tort for the damage to the

deck but not to the crane. Without objection, the district judge

submitted only McDermott's warranty claims to the jury.

VI.

River Don argues that the exculpatory provision in the

McDermott-AmClyde contract protects it as well as AmClyde from

liability in tort. River Don relies on Aeronaves De Mexico, S.A.

v. McDonnell Douglas,

(9th Cir. 1982). In that case,

an airplane's landing gear failed. Aeromexico sued the

manufacturer of the plane, McDonnell Douglas, and the subcontractor

17 who manufactured the landing gear assembly, Menasco.

.

The contract between Aeromexico and McDonnell Douglas contained a

warranty provision, similar to that in the McDermott-AmClyde

contract, barring a negligence action against McDonnell Douglas.

. Aeromexico did not contest the validity of that

provision but on appeal argued that the exculpatory provision did

not bar its suit against Menasco, because Aeromexico and Menasco

were not in privity. The court rejected this contention,

concluding that recovery by Aeromexico from Menasco would be a

windfall. The court relied on the fact that if Aeromexico were

allowed to sue Menasco directly, Menasco could file a third party

claim against McDonnell Douglas.

In fact, the district court

found that the contract between McDonnell Douglas and Menasco

permitted such a claim. Id. at n.4. The liability would be

visited upon McDonnell Douglas, "thus nullifying the contractual

allocation of risks" between McDonnell Douglas and Aeromexico. Id.

at 773.

We decline to apply the rationale of Aeronaves de Mexico. We

are mindful of the fact that we must apply New York law to

interpret the McDermott-AmClyde contract. We are not persuaded

that New York would here abandon the rule of privity. If River Don

had a claim against AmClyde and thus could shift ultimate liability

to AmClyde, this fact would not persuade us that McDermott is

barred from recovering against River Don. If AmClyde wanted to

prevent River Don from shifting liability, AmClyde could have

sought this protection from River Don in their subcontract.

18 AmClyde only warranted equipment of its own manufacture. The

contract did not preclude McDermott from suing other

manufacturers.15

River Don's tort liability turns then on the East River

doctrine. In East River Steamship Corp. v. Transamerica Delaval,

Inc.,

(1986), 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." The Court reasoned that when the

only damage is economic loss to the product itself, the purchaser

has simply lost the benefit of its contractual bargain and should

be limited to its contractual warranty remedies.

.

McDermott argues that East River does not shield River Don

from tort liability, because River Don is not a party to the

contract between McDermott and AmClyde. In Shipco 2295, Inc. v.

Avondale Shipyards, Inc.,

(5th Cir. 1987), we

held that under East River there is "no rational reason to give the

buyer greater rights to recover economic losses for a defect in the

product because the component is designed, constructed, or

furnished by someone other than the final manufacturer." Allowing

such a recovery would "undermine the objective of East River that

the parties receive the benefit of their bargain." Id.; see also

Nathaniel Shipping, Inc. v. General Elec. Co.,

, 1263-

15 Article XV provides in part: THE BUYER AGREES THAT IT MUST RELY SOLELY ON THE MANUFACTURER'S WARRANTIES APPLICABLE, AND THAT IT SHALL HAVE NO REMEDY AGAINST THE SELLER FOR BREACH OF A MANUFACTURER'S WARRANTY.

19 64, modified,

(5th Cir. 1991). Thus, East River

applies to River Don.

East River applies when the action is for damage to the

product itself and not for damage to "other property." Shipco,

. Therefore, the issue in this case is whether the deck

is "other property" so as to escape East River's bar to recovery in

tort. We ask "what is the object of the contract or bargain that

governs the rights of the parties?"

; see also Petroleum

Helicopters, Inc. v. Avco Corp.,

, 393 n.9 (5th Cir.

1991); Nicor Supply Ships Assocs. v. General Motors,

,

505 (5th Cir. 1989).

River Don argues that the deck is not "other property,"

because McDermott owns the deck as well as the crane, pointing to

Nicor. Nicor Supply Ships chartered its vessel to Digicon.

Digicon then installed structures and equipment on the vessel for

use during the term of the charter. A fire damaged the ship and

Digicon's equipment. Nicor and Digicon sued several parties. 876

F.2d at 502-03. East River barred Nicor's claim for damage to the

ship. Digicon's claim for damage to its equipment survived

"[b]ecause these items were not part of the contract under which

the vessel was sold." Id. at 506. The decision did not turn on

Digicon's ownership of the damaged equipment. The object of the

McDermott-AmClyde contract was the manufacture, design, and sale of

the crane, and that is the relevant inquiry. The deck was not the

object of the sales contract rather the deck is "other property."

20 McDermott argues that River Don is liable for damage to the

crane, because when a plaintiff suffers damage to "other property",

East River allows recovery of all damages. East River allows

recovery for damage to other property,

, but when

there is damage to other property, recovery for the loss to the

product itself is still in contract and not tort. We emphasized

this point in Nicor. Speaking of Digicon's recovery in tort, we

stated

[h]aving sustained "physical injury to a proprietary interest," Digicon may recover for economic loss as well, but its recovery for loss of profits is limited to losses resulting from its inability to use the "other property" it placed on the vessel as a result of the casualty. Digicon is not entitled to recover for its loss of profits resulting from its inability to use the vessel itself or for its inability to use the "other property" if that resulted solely from the disability of the vessel itself.

876 F.2d at 506 (emphasis added). Therefore, this contention is

without merit.16 The trial court correctly applied East River to

allow McDermott's recovery against River Don for damage to the

deck, but not the crane.

VII.

River Don argues that McDermott failed to prove causation. We

review the evidence in the light most favorable to McDermott.

Martin v. American Petrofina, Inc.,

(5th Cir. 1985).

The verdict stands if reasonable jurors could reach different

conclusions.

We decline to disturb the verdict.

16 McDermott also attempts to circumvent East River by arguing that the decision is inapplicable to the crane, a product that is unreasonably dangerous. The Supreme Court rejected this distinction East River.

.

21 At trial, McDermott and River Don offered different theories

of causation. McDermott argued that the hook was defective, and

the defect caused the hook to break. River Don conceded that the

hook contained flaws but argued that McDermott's use of a right

hand to left hand cable laid sling arrangement caused the hook to

break. That is, McDermott's sling arrangement allowed the slings

to rotate during the lift. This rotation caused the slings to

break first, putting more stress on the hook than it was designed

to handle.

McDermott offered the testimony of Dr. Kenneth Packer, an

expert in foundry practice, welding, and metallurgy. Packer

testified that the hook contained a flaw that caused the hook to

fail; that the hook broke first. On cross-examination, Dr. Packer

testified that the hook was flawed when it left River Don's

foundry.

River Don argues that Dr. Packer failed to substantiate

McDermott's theory of causation and could not discount other

plausible theories, namely that the slings broke first. River Don

refers to the fact that the crane, with the flaw, lifted objects

weighing as much or more than the deck before the accident and in

fact successfully lifted the deck on one occasion. Therefore,

River Don argues that the flaw could not have caused the hook to

fail.

We find that McDermott presented sufficient evidence for the

jury to conclude that hook failure caused the deck to fall. See

Brown v. Parker-Hannifin Corp.,

(5th Cir. 1990)

22 ("To establish causation, [plaintiff] need not rule out every

conceivable explanation for the failure . . ."). First, the jury

could have reasonably inferred that the flaw in the hook caused it

to break. The jury could have considered the presence of the flaw

in earlier lifts in evaluating the likelihood that the hook caused

the accident, but the presence of the flaw from the beginning does

not eliminate it as a cause of the accident. Second, Dr. Packer

was not the only witness to testify that the hook failed first.

Steven Whitcomb, a project manager at Hudson Engineering, prepared

a report on the cause of the accident. The report was based on a

computer analysis of the two theories of causation, hook failure

and sling failure. He delivered this report in a presentation to

AmClyde. At trial, he testified about his report to AmClyde in

which he concluded that the hook failed first and was the cause of

the accident. McDermott also presented eye witnesses to the

accident who testified that the hook broke first.

VIII.

River Don contends that any judgment rendered against it must

be offset by the $1 million settlement between McDermott and the

sling defendants under Hernandez v. M/V RAJAAN,

(5th

Cir. 1988). Hernandez held that a maritime plaintiff "is entitled

to receive a full damage award less any amount he recovered in a

settlement with third-party defendants."

; see also

Constructores Tecnicos v. Sea-Land Serv., Inc.,

(5th

Cir. 1991); Rollins v. Cenac Towing Co.,

(5th Cir.

1991); Myers v. Griffin-Alexander Drilling Co.,

(5th

23 Cir. 1990). This rule of setoff "ensure[s] that the plaintiff does

not recover more than the damages determined at trial."

Constructores, 945 F.2d at 850.

McDermott argues that Leger v. Drilling Well Control, Inc.,

(5th Cir. 1979), states the law of this circuit and

does not entitle River Don to a dollar-for-dollar credit. A recent

panel of this court suggested that it is unclear whether Leger or

Hernandez provides the rule of settlement credit in this circuit.

See Hardy v. Gulf Oil Corp.,

(5th Cir. 1992).

Judge Brown wrote a concurring opinion to emphasize the need to

resolve this conflict en banc.

. However, we think that

Hernandez is the law of this circuit. The panel in Myers attempted

to make this point clear:

we read Hernandez as adopting the reasoning of the Eleventh Circuit opinion in Self v. Great Lakes Dredge & Dock Co.,

(11th Cir. 1987), which declined to follow Leger on grounds that Leger was inconsistent with Edmonds v. Compagnie Generale Transatlantique,

,

,

(1979).

Myers,

.

Until the Eleventh Circuit decided Self, Leger was binding

precedent in that circuit as well as our own. See Bonner v. City

of Prichard,

(11th Cir. 1981) (en banc) (adopting as

binding precedent all decisions of the former Fifth Circuit handed

down before the close of business on September 30, 1981). In Self,

the Eleventh Circuit decided that Leger's pro rata approach to

settlement credit was inconsistent with the Supreme Court's opinion

in Edmonds. Thus, in Self, the Eleventh Circuit returned to the

pro tanto or dollar-for-dollar approach to credit set out in our

24 earlier opinion in Billiot v. Seward Seacraft,

(5th Cir. 1967). We had abandoned Billiot in Leger based on United

States v. Reliable Transfer Co.,

(1975). Today, there

is no doubt in the Eleventh Circuit that Self overruled Leger.

Great Lakes Dredge & Dock Co. v. Tanker,

, 1580

(1992).

In Hernandez, we explicitly adopted the Eleventh Circuit's

reasoning in Self. Therefore, we also overruled Leger as precedent

in this circuit and returned to the rule in Billiot. See, e.g.,

Pruitt v. Levi Strauss & Co.,

(5th Cir. 1991) (a

panel may ignore the decision of a prior panel in the event of a

superceding decision by the Supreme Court). Since Hernandez, we

have applied its dollar-for-dollar approach. See Constructores,

; Rollins,

; Myers,

. Two

recent panels cited Leger, suggesting that it remains good law.

See Empresa Lineas Maritimas v. Schichau-Unterweser,

(5th Cir. 1992); Teal v. Eagle Fleet, Inc.,

(5th Cir. 1991). However, they did not apply the Leger approach.

We continue to apply Hernandez in calculating settlement credit.

The district court refused to allow any set-off, concluding

that McDermott would not be paid for more than its injury, because

East River left it otherwise uncompensated for the damage to the

crane. This is true, but not relevant. The jury determined that

McDermott's total loss for the damage to the deck was $2.1 million,

$1.47 million after a reduction of 30% for the responsibility

attributed to McDermott/sling defendants. $1.47 million is

25 McDermott's "full damage award." It cannot recover more. We must

then deduct the Hernandez credit.

This requires us to address McDermott's post-trial revelation

that half of the settlement was allocated to the crane and half to

the deck. McDermott urges that because River Don is only liable

for the deck, it is only entitled to credit for that part of the

settlement covering damage to the deck. River Don urges us not to

consider this allocation, because it was made after trial, it was

not a party to the agreement and the settlement is not in the

record.

We see little reason to give effect to this allocation and

strong reasons not to do so. Where defendants are potentially

liable for the same damages and less than all defendants settle,

uncertainty of the effect upon the nonsettling defendants does

little to facilitate settlement and may well frustrate the single

recovery rule itself. A plaintiff should not be able to wait for

the jury's verdict to allocate the settlement in a way that reduces

the remaining defendants' credit. See King Cotton, Ltd. v. Powers,

(Ga. Ct. App. 1991); see also Alexander v.

Seaquest Inc.,

(Fla. Dist. Ct. App. 1991)

(apportionment of settlement comes too late if done after jury

verdict, because nonsettling tortfeasors lose the right to settle);

Dionese v. City of West Palm Beach,

(Fla.

1987) (disclosure of settlement's terms may lead the non-settling

defendant to settle instead of going to trial).

26 Rejecting McDermott's allocation of one-half to the crane and

one-half to the deck leaves two options. We could apportion the

settlement ourselves, or use the entire sum in calculating any

credit due River Don. We decline the first option. See Lendvest

Mortgage, Inc. v. De Armond,

(Bankr. N.D. Cal.

1991) (rather than attempt to allocate a settlement, a court should

offset the entire amount). There is no evidence in the record

concerning McDermott's damages to the crane. A remand to the trial

court offers no solution.

Including the full amount of McDermott's settlement in

calculating any credit due River Don is the best solution. See

U.S. Indus., Inc. v. Touche Ross & Co.,

, 1262 (10th

Cir. 1988) (where nonsettling defendants are not privy to

settlement negotiations, burden shifts to plaintiff to show that

settlement did not represent common damages); see also Hess Oil

Virgin Islands Corp. v. UOP, Inc.,

(10th Cir. 1988)

("If [plaintiff] wanted to have any particular application of its

settlement with the settling defendants toward [nonsettling

defendant's] liability, it should have specifically stipulated in

the settlement documents what allocations of damages were

applicable to each cause of action."); but see Force v. Director,

OWCP, Dept. of Labor,

(9th Cir. 1991) (defendant-

employer bears burden of proving settlement allocation, because the

LHWCA's policy "of compensating employees for their injuries

requires that 'all doubtful questions of fact be resolved in favor

of the injured employee'").

27 McDermott had a claim against the sling defendants for damage

to the crane and the $1 million payment obtained a release of that

claim as well as the claim for damage to the deck. It was

McDermott's burden to demonstrate that its jury award did not

exceed its right to full compensation for a particular injury.

McDermott has not met its burden of demonstrating that the proceeds

of the settlement with the sling defendants were for damage to the

crane and not the deck. We hold that the entire $1 million should

be included in calculating any credit due River Don. See U.S.

Industries, 854 F.2d at 1262-63; Hess Oil,

;

Lendvest Mortgage,

. Alexander,

;

King Cotton,

; Dionese,

.17

Applying Hernandez, McDermott's full damage award is $1.47

million ($2.1 million jury verdict less 30% attributed to

McDermott/sling defendants). We then deduct the $1 million

received in settlement to reach $470,000. By the jury's finding,

River Don is liable to McDermott for its portion of McDermott's

loss (38% of $2.1 million or $798,000). However, McDermott is only

entitled to recover an additional $470,000 from any defendant. We

therefore modify the judgment against River Don for $798,000, and

enter judgment against River Don and in favor of McDermott in the

amount of $470,000.

17 Our conclusion that River Don is entitled to credit for McDermott's settlement makes consideration of River Don's alternative argument for a new trial based on evidentiary rulings unnecessary.

28 It does not follow that McDermott's decision at trial to

assume the fault of the sling defendants was unwise. To the

contrary, this tactical move made more difficult any effort of

River Don and AmClyde to lay any fault on the absent sling

defendants. But for this move the jury may well have been

persuaded that the sling defendants were liable for more than 30%

and the other defendants, including River Don for less. Seen in

the light of these realities of trial, this result makes sense.

IX.

McDermott claims pre-judgment interest. The jury awarded no

interest. McDermott does not challenge the jury instruction,18

which tracked the law of this circuit.19 See Orduna S.A. v. Zen-Noh

18 The jury was charged as follows:

In admiralty cases, the award of pre-judgment interest from the date of the loss is the rule rather than the exception. The decision to deny pre-judgment interest must be based on the existence of peculiar circumstances because pre-judgment interest is awarded as a compensation for a wrong done. It is your responsibility to determine whether to award McDermott, Inc. pre-judgment interest. If you determine that the - that the Plaintiff is entitled to pre-judgment interest; that is, interest from the date of the loss until the date you render your verdict, you must determine the rate at which the interest will be calculated. The circumstances which may justify denial of an award for pre- judgment interest are as follows: A genuine dispute over a good faith claim exists in a mutual fault situation - mutual fault setting; the damages awarded are substantially less than the amount claimed by the Plaintiff; the Plaintiff's contributory negligence is to such a magnitude as to make and award of pre-judgment interest inequitable. 19 McDermott refers us to Texas, New York, and Louisiana law; however, pre-judgment interest on a maritime tort claim is governed by general maritime law. Wyatt v. Penrod Drilling Co.,

(5th Cir. 1984); Robinson v. Pocahontas, Inc.,

(5th Cir. 1973).

29 Grain Corp.,

(5th Cir. 1990) (noting the

reasons for denying pre-judgment interest). Rather, McDermott

argues that the circumstances justifying denial of pre-judgment

interest were not present in this case. We disagree.

The jury could have found there was a genuine dispute over a

good faith claim in a mutual fault setting. "Our cases have

consistently upheld denials of prejudgment interest in cases of

apportioned fault." Inland Oil and Transport Co. v. Ark-White

Towing Co.,

(5th Cir. 1983). In this case, the

jury assessed responsibility 32% to AmClyde, 38% to River Don, and

30% to McDermott/sling defendants. See

(upholding a denial of

pre-judgment interest where the plaintiff was found to be 25% at

fault).

X.

Finally, McDermott asks us to correct the judgment to show

that the jury apportioned causation and not fault. The judgment

paraphrased the jury verdict as follows: "thirty percent (30%)

fault allocated to plaintiff, McDermott, Inc., thirty-two percent

(32%) fault allocated to AmClyde, a Unit of AMCA International

Corporation, and thirty-eight percent (38%) fault allocated to

River Don Castings, Ltd." (emphasis added). McDermott contends

that the judgment incorrectly paraphrased the jury's verdict which

allocated causation and not fault. Interrogatory #5 asked:

You have been instructed that the failure of the sling at a load less than its rated minimum breaking strength is a cause of damage to the deck and crane. If you have also answered interrogatories 1 and 2 "yes," please state what proportion or percentage of plaintiff's damages you find from a

30 preponderance of the evidence to have been legally caused by the fault of the respective parties?

We agree that in answering this interrogatory the jury determined

the percentage of injury caused by each defendant.

REVERSED in part and AFFIRMED as modified in part.

31