CHMM v. Freeman Marine Equip.

A vessel owner is not barred by the economic loss doctrine from tort claims when a manufacturer of the product was not responsible for the manufacturing or production of the user-added item.

CHMM, LLC (“CHMM”) contracted with Nobiskrug GmbH (“Nobiskrug”) in 2006 for Nobiskrug to build and deliver a yacht to CHMM. After building the yacht, but before delivery, Nobiskrug subcontracted with Freeman Marine Equipment (“Freeman”) for the installation and manufacture of a weatherproof door that was to serve as the barrier separating the interior from the foredeck. In 2011, the door installed by freeman allegedly malfunctioned, causing extensive damage to the interior of the yacht. CHMM filed five tort claims before a magistrate judge, and later amended the complaint, adding a sixth claim in contract. The magistrate judge dismissed the tort claims on the grounds that the economic loss doctrine prohibited recovery, because the interior of the yacht was integrated into the completed vessel. CHMM appealed, to which the district court upheld the dismissal of the five tort claims, but allowed CHMM to amend their claims for the damage done to “other property.” Again, CHMM appealed, arguing that the economic loss doctrine does not apply. On appeal, the Ninth Circuit agreed with CHMM and held that they could pursue their tort actions, because the interior of the yacht was “other property” and was not a part of the product itself. The panel held that since Nobiskrug had created the initial product, the bare ship, and that the first user, CHMM, had chosen to add the extra material that Nobiskrug was not contractually responsible for, the interior part of the ship was considered other property not barred by the economic loss doctrine. The panel found that timing of delivery was not the critical factor, but that Nobiskrug was not responsible for the production or manufacture of the user-added items that were incorporated into its initial product. REVERSED and REMANDED.