St Paul Fire and Marine Insurance Company et al v. TGMD Inc et al

Filing 21

DECISION AND ORDER granting in part and denying in part 15 Motion to Dismiss, signed by Chief Judge William C. Griesbach on 12/12/12. Plaintiff's breach of contract claims relating to a breach of the 5/01/2002 Shipbuilding Agreement are dismi ssed. Insofar as plaintiff has alleged breach of contract and breach of warranty claims relating to a subsequent repair agreement, FMG's motion is denied. Plaintiffs have failed to state a negligence claim that entitles them to relief because it is barred by the economic loss doctrine. Accordingly, FMG's motion to dismiss is granted. See Order for full detail. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

ST. PAUL FIRE & MARINE INSURANCE
COMPANY and NORTHERN ASSURANCE
COMPANY OF AMERICA
Plaintiffs,
v.

Case No. 12-C-0885

TGMD, INC., BAY SHIPBUILDING CO.,
FINCANTIERI MARINE GROUP LLC and
FINCANTIERI MARINE GROUP LLC d/b/a
BAY SHIPBUILDING CO.
Defendant.

DECISION AND ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO DISMISS

Plaintiffs St. Paul Fire & Marine Insurance Company and Northern Assurance Company of
America paid for repairs to the passenger and vehicle ferry owned by their insured Washington Island
Ferry Line, Inc., and brought this action against companies that designed, built, and repaired the vessel to
recover the amounts paid. Plaintiffs allege that the case arises under the Court’s admiralty jurisdiction and
have asserted claims for breach of contract, negligence and breach of warranty of workmanlike
performance. Defendant Bay Shipbuilding Co., a division of Fincantieri Marine Group, LLC (collectively,
FMG), the company that built the vessel and later made repairs, has moved to dismiss plaintiffs’complaint
pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). FMG first argues that plaintiffs fail
to establish that the Court has subject matter jurisdiction over plaintiffs’ claims because a breach of a

shipbuilding contract does not give rise to admiralty jurisdiction. Second, FMG contends that even if
subject matter jurisdiction exists, plaintiffs have failed to state a claim for breach of contract and breach
of warranty because the plain language of the contract and the applicable statute of limitations bar the
plaintiffs’ cause of action. Third, FMG argues plaintiffs’ negligence claim is barred by the economic loss
doctrine.

BACKGROUND
The facts of this case concern the design, construction, and repair of the M.V. Arni J. Richter, a
passenger and vehicle ferry. (Compl. ¶¶ 4-7.) On May 1, 2002, Washington Island Ferry Line, Inc. and
FMG1 entered into a passenger vessel construction contract (the Shipbuilding Agreement) whereby FMG
would perform all work necessary to construct and deliver the vessel. (Decl. of Nancy Anschutz, Ex. A
at 1-2, Passenger Vessel Construction Contract, Art. XI (a), ECF No. 17-1.) Defendant TGMD, Inc.
designed the vessel for Washington Island. (Compl. ¶¶ 5- 6, Decl. of Nancy Anschutz, Ex. A at 2,
Passenger Vessel Construction Contract, Art. XI (a), ECF No. 17-1.) FMG then constructed the vessel.
(Compl. ¶ 7.) Plaintiff alleges that defendants improperly designed, manufactured, built, or launched the
vessel, necessitating drydocking and repairs to the vessel. (Compl. ¶ 9.) Thereafter, FMG and

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The shipbuilding contract states it is between Washington Island and Bay Shipbuilding, Co.
Defendants assert that Bay Shipbuilding Co. is now an operating division of Fincantieri Marine Group,
LLC, and is not separately incorporated. (Def. Br. at 1, n.1.) Because the parties and the complaint refer
to FMG collectively, and not to Bay Shipbuilding separately, I will also refer to FMG collectively for
purposes of deciding this motion.
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Washington Island entered into at least one subsequent agreement to perform repairs on the vessel.
(Compl. ¶ 10.) Plaintiff alleges that these repairs were also improperly executed, which necessitated
additional repairs. (Compl. ¶ 11.) Plaintiffs St. Paul Fire & Marine Insurance Company and Northern
Assurance Company of America insured Washington Island. (Compl. ¶¶ 2-4.) Plaintiffs paid for the
repairs under their policy and are subrogated to Washington Island’s rights against the defendants.
Plaintiffs are seeking damages for the cost of the repairs. (Compl. ¶¶ 12, 19, 27.)
In their complaint, plaintiffs have asserted three separate claims, as noted above, but plaintiffs also
appear to distinguish between the original Shipbuilding Agreement and the subsequent agreement to repair
the vessel. Referring to the defendants collectively, plaintiffs allege that with regard to the Shipbuilding
Agreement, defendants:(1) breached the Shipbuilding Agreement by improperly designing, manufacturing,
building, or launching the vessel (Compl. ¶ 9); (2) negligently designed, manufactured, built, or launched
the vessel (Compl. ¶¶ 14-16); and (3) breached the implied warranty of workmanlike performance by
negligently designing, manufacturing, building, or launching the vessel (Compl. ¶¶ 21-23). In addition,
plaintiffs allege that with regard to the subsequent repairs on the vessel, defendants: (1) breached their
agreement(s) by improperly repairing the vessel (Compl. ¶¶ 10-11); (2) negligently performed repairs on
the vessel (Compl. ¶¶ 17-18); and (3) breached the implied warranty of workmanlike performance by
negligently repairing the vessel (Compl. ¶¶ 24-25.)

LEGAL STANDARD
Dismissal under Rule 12(b)(6) is proper “when the allegations in a complaint, however true, could
not raise a claim of entitlement to relief.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 558 (2007).
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To state a claim, a complaint must contain sufficient factual matter “that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “[T]he plausibility standard
is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive dismissal, a plaintiff “must
plead some facts that suggest a right to relief that is beyond the ‘speculative level.’” Atkins v. City of
Chicago, 631 F.3d 823, 832 (7th Cir. 2011) (quoting In re marchFIRST Inc., 589 F.3d 901, 905 (7th
Cir. 2009)). In considering a motion to dismiss, the court construes the allegations in the complaint in the
light most favorable to the plaintiff, accepts all well-pleaded facts as true, and draws all inferences in favor
of the non-moving party. Estate of Davis v. Wells Fargo Bank, 633 F.3d 529, 533 (7th Cir. 2011).
In deciding a motion to dismiss, district courts have discretion to consider certain documents
outside the pleadings without converting the motion under Rule 12(b)(6) to a motion for summary judgment
under Rule 56. Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998). In particular, documents
submitted with a motion to dismiss may be considered part of the pleadings if they are “referred to in the
plaintiff’s complaint and are central to his claim.” 188 LLC v. Trinity Indus., Inc., 300 F.3d 730, 735
(7th Cir. 2002) (internal quotation marks omitted); see also Tierney v. Vahle, 304 F.3d 734, 738 (7th
Cir. 2002); Wright v. Associated Ins. Cos., Inc., 29 F.3d 1244, 1248 (7th Cir. 1994). This exception,
though a narrow one, prevents parties from surviving a motion to dismiss by artful pleading or by simply
failing to attach relevant documents. 188 LLC, 300 F.3d at 735. The usual example of the use of this
exception is a contract in a suit for breach of that contract. See Tierney, 304 F.3d at 738.

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ANALYSIS
A.

Subject Matter Jurisdiction
Plaintiffs have invoked the court’s admiralty jurisdiction under 28 U.S.C. § 1333(1). See Federal

Rule of Civil Procedure 9(h). FMG firsts argues the case should be dismissed pursuant to Rule 12(b)(1)
because plaintiffs have failed to establish a basis for admiralty jurisdiction in their complaint. Generally,
“maritime” contracts fall within the federal courts’ admiralty jurisdiction. Exxon Corp. v. Central Gulf
Lines, 500 U.S. 603 (1991). Whether a contract is a maritime one “‘depends upon . . . the nature and
character of the contract,’ and the true criterion is whether it has ‘reference to maritime service or maritime
transactions.’” Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 24 (2004) (quoting N. Pacific S.S. Co. v.
Hall Brothers Marine Railway & Shipbuilding Co., 249 U.S. 119, 125 (1919)). In general, contracts
to repair or insure a ship are maritime, but contracts to build a ship are not. Kossick v. United Fruit Co.,
365 U.S. 731, 735 (1961). A contract to construct a ship is not held to be within admiralty jurisdiction
because it is “a contract made on land, to be performed on land.” People’s Ferry Co. v. Beers, 61 U.S.
393, 401 (1857); see also J.A.R., Inc. v. M/V Lady Lucille, 963 F.2d 96, (5th Cir. 1992) (explaining
that a shipbuilding contract is only preliminary to navigation). FMG contends the breach of the
Shipbuilding Agreement is the core of plaintiffs’ complaint. Because federal courts do not have admiralty
jurisdiction over contracts to build ships, FMG argues that plaintiffs’ complaint should be dismissed.
But while a contract to build a ship is not maritime, a contract to repair a ship is. Kossick, 365
U.S. at 735; see also New Moon Shipping Co., Ltd. v. MAN B & W Diesel AG, 121 F.3d 24, 28 (2d
Cir. 1997) (“A claim arising out of a contract to repair a ship falls squarely within a federal court's
admiralty jurisdiction under 28 U.S.C. § 1333.”) (citing New Bedford Dry Dock Co. v. Purdy, 258 U.S.
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96 (1922)). A contract providing for repairs is maritime because the “repair and/or service component
of the contract relates to ships in their use as ships.” Medema v. Gombo’s Marina Corp., 97 F.R.D. 14,
15 (N.D. Ill. 1982). Thus, plaintiffs argue that the court has admiralty jurisdiction over its breach of
contract claims that relate to the repairs. The remaining claims, plaintiffs contend, fall within the court’s
supplemental jurisdiction. (Pl. Opp’n Br. at 3 (citing cases)).
FMG notes in reply that plaintiffs’ complaint alleges that the repairs FMG performed were
necessitated by the improper and negligent design and construction of the vessel. (Reply 3, ECF No. 20.)
Because the repairs are alleged to have been due to “the faulty original construction,” they too arise from
the Shipbuilding Agreement which is outside the admiralty jurisdiction of the court. (Id.) “If the sole claims
that survive FMG’s Motion to Dismiss arise from the Shipbuilding Agreement,” FMG argues, “this Court
lacks subject matter jurisdiction.” (Id.)
The complaint alleges, however, that “the subsequent repairs were performed by the Defendants
pursuant to a contract or other agreement(s).” (Compl. ¶ 24.) And defendants are alleged to have
breached “said repair contracts or agreement(s) . . . thereby necessitating yet further and additional
repairs.” (Id. ¶ 25.) Thus, even if the repairs were necessitated by the faulty performance of the original
contract, the claim that FMG entered into and breached separate repair contracts would still bring the case
within the court’s maritime jurisdiction. And since the non-maritime claims are so related as to form part
of the same case or controversy, it would appear that they fall within the court’s supplemental jurisdiction.
See 28 U.S.C. § 1337(a) (“[T]he district courts shall have supplemental jurisdiction over all other claims
that are so related to claims in the action within such original jurisdiction that they form part of the same

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case or controversy.”). FMG’s motion is therefore denied to the extent it seeks dismissal for lack of
subject matter jurisdiction.
B.

Breach of Contract and Breach of Warranty Claim
FMG also argues, assuming federal jurisdiction exists, that plaintiffs’ breach of contract and

warranty claims should be dismissed because they are time-barred and prohibited by the plain language
of the Shipbuilding Agreement. Because they stand in the shoes of Washington Island as subrogated
parties, plaintiffs’ right to recover against FMG is subject to the same limitations and defenses that FMG
has against Washington Island. Washington Island’s claims against FMG arising out of the original
construction of the vessel are subject to the limitations set forth in the Shipbuilding Agreement. That
agreement contains warranty provisions that significantly limits FMG’s liability for faulty construction.
Under the Shipbuilding Agreement, the contractor warranted “that all work performed and all
materials incorporated into the Vessel by Contractor shall be in accordance with the Specifications, will
be free of defects, and of good commercial shipbuilding practice.” (Decl. of Nancy Anschutz, Ex. A at
7, Passenger Vessel Construction Contract, Art. XI (a), ECF No. 17-1.) The contractor was required
to repair or otherwise remedy any defect in workmanship or materials that was discovered within the
twelve months after acceptance of the vessel by the owner, Washington Island. The contractor had no
liability, however, for defects that were discovered after the twelve-month warranty period: “Upon
expiration of the twelve (12) month warranty period, Contractor shall be discharged from all liability for
defective workmanship or defective material unless the same is discovered prior thereto and a claim is
made to Contractor within the warranty period.” (Id., Art. XI (c).)

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Based on the warranty provision of the Shipbuilding Agreement, FMG argues that plaintiffs’ claims
for breach of the Shipbuilding Agreement are time-barred. (Def. Br. at 4.) In the alternative, FMG
contends the claims are untimely under Wisconsin law. In Wisconsin, the statute of limitations for bringing
an action pursuant to a breach of contract is six years after the cause of action accrued. Wis. Stat.
§ 893.43. A cause of action accrues at the time of the breach and the discovery rule does not apply.
CLL Assoc. v. Arrowhead Pacific, 174 Wis. 2d 604, 497 N.W.2d 115 (1993).
“The dominant view in contract law is that contractual limitations periods shorter than the statute
of limitations are permissible, provided they are reasonable.” Doe v. Blue Cross & Blue Shield United
of Wis., 112 F.3d 869, 874 (7th Cir. 1997). This rule is “consistent with the principle of party autonomy
that underlies the law of contracts.” Id. In Wisconsin, courts have long acknowledged that “[p]ublic
policy . . . permits parties to bind themselves by contract to a shorter period of limitation than that provided
for by statute.” State Dept. of Pub. Welfare v. La Mere, 19 Wis. 2d 412, 419, 120 N.W.2d 695, 699
(1963) (citing Lundberg v. Interstate Business Men's Accident Ass'n, 162 Wis. 474, 481, 156 N.W.
482, 484 (1916)); Keiting v. Skauge, 198 Wis. 2d 894, 543 N.W.2d 565, 567 (Wis. Ct. App. 1995).
Commercial parties are generally held to their promises, “ensuring that each party receives the benefit of
their bargain.” Daanen & Jaansen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 404, 573 N.W.2d 842,
846 (1998); State Farm Mut. Auto Ins. Co. v. Ford Motor Co., 225 Wis. 2d 305, 316-17, 592
N.W.2d 201, 206 (Wis. 1999) ( “Contract law . . . is based on obligations imposed by bargain, and it
allows parties to protect themselves through bargaining.”). Because agreements struck between
commercial parties generally do not involve large disparities in bargaining power, courts have “no reason

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to intrude into the parties’ allocation of the risk.” East River S.S. Corp. v. Transamerica Delaval, Inc.,
476 U.S. 858, 872-73 (1986).
Here, the commercial contract language lays out in clear and unambiguous terms that FMG would
be discharged from all liability for defective workmanship, materials, or repairs one year after acceptance
of the vessel. According to the signed Certificate of Delivery and Acceptance, the vessel was delivered
in accordance with the Shipbuilding Agreement and accepted by Washington Island on May 22, 2003.
(Anshutz Decl. ¶ 2, Ex. A at 19, ECF No. 17-1.) Therefore, pursuant to the written agreement of the
parties, Washington Island’s twelve-month warranty period expired after May 22, 2004. Plaintiffs’
complaint alleges that defendants “improperly designed, manufactured, built and/or launched [the vessel],
thereby necessitating subsequent drydocking and/or repairs.” (Compl. ¶ 9.) These breach of contract
claims arising out of the improper design and manufacture of the vessel are barred by the plain language
of the Shipbuilding Agreement. Likewise, plaintiffs claims that defendants breached the warranty of
workmanlike performance implied in the Shipbuilding Agreement are also barred.2
But while claims related to a breach of the Shipbuilding Agreement are barred, plaintiffs’ claims
related to a breach of a subsequent agreement to repair the vessel are not. Plaintiffs allege that “[s]aid
subsequent repairs” were performed by FMG “pursuant to a contract or other agreement(s)” that was
breached when FMG again improperly repaired the vessel, leading to further repairs. (Compl. ¶ 10-11.)

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Plaintiffs argue that claims for defects in FMG’s performance of the original Shipbuilding
Agreement may not be barred by the warranty provision since Washington Island may have given FMG
notice of the defects prior to May 22, 2004. But even if Washington Island gave such notice, the claims
would still be barred. Instead of being barred by the warranty, they would be barred by the six-year
statute of limitations. Either way, plaintiff’s claims arising out of the original Shipbuilding Agreement are
barred.
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Viewing these allegations in a light most favorable to plaintiffs, it is reasonable to believe that FMG
performed repairs according to an entirely new agreement between the parties, and FMG breached this
new repair agreement within the six year limitations period provided under Wisconsin law. Plaintiffs need
not plead facts in their complaint demonstrating the timeliness of their suit. Tregenza v. Great Am.
Commc’ns Co., 12 F.3d 717, 718 (7th Cir. 1993). “Dismissing a complaint as untimely at the pleading
stage is an unusual step, since a complaint need not anticipate and overcome affirmative defenses, such
as the statute of limitations. But dismissal is appropriate when the plaintiff pleads himself out of court by
alleging facts sufficient to establish the complaint's tardiness.” Cancer Found., Inc. v. Cerberus Capital
Mgmt., LP, 559 F.3d 671, 674-75 (7th Cir. 2009). Here, plaintiffs’ complaint establishes its own
tardiness as to a breach of the Shipbuilding Agreement and any implied warranty of workmanlike
performance associated with that contract. However, insofar as plaintiffs have also alleged a breach of
a later repair agreement, the complaint states a plausible claim upon which relief may be granted. As such,
the breach of contract and warranty claims as they relate to a subsequent repair agreement cannot be
dismissed at this stage.
C.

Negligence Claim

FMG also argues that the economic loss doctrine bars plaintiffs’ tort claims. Under general
maritime law, the economic loss doctrine prohibits the use of tort remedies to recover for purely economic
losses that arise out of commercial transactions between contracting parties. East River S.S. Corp. v.
Transamerica Delaval, Inc., 476 U.S. 858, 872-73 (1986); Rardin v. T&D Mach. Handling, Inc., 890
F.2d 24, 28 (7th Cir. 1989). The doctrine rests on maintaining the necessary distinction between tort
recovery for physical injuries and warranty recovery for economic loss so as to “maintain a realistic
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limitation on damages.” East River, 476 U.S. at 871. Commercial entities can efficiently allocate risks
by negotiating a contract that will limit liability and set the terms of compensation for product failure.
Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 879 (1997). Where such a commercial
contract exists, courts have “no reason to intrude into the parties’ allocation of the risk.” East River, 461
U.S. at 873. “The insight behind the doctrine is that commercial disputes ought to be resolved according
to the principles of commercial law rather than according to tort principles designed for accidents that
cause personal injury or property damage. A disputant should not be permitted to opt out of commercial
law by refusing to avail himself of the opportunities which that law gives him.” Miller v. U.S. Steel Corp.,
902 F.2d 573, 575 (7th Cir. 1990).
Therefore, plaintiffs’ negligence cause of action must be dismissed. Plaintiffs’ negligence claims
arise out of the Shipbuilding Agreement and the additional agreement to repair the vessel. Plaintiffs only
claim injury to the vessel itself–that defendants’ negligent work designing, building, and repairing the vessel
resulted in damage to the vessel and costs incurred in having to subsequently repair it. As a result, plaintiffs
allege that Washington Island made a claim for approximately $206,687 under its insurance policy to
recoup its losses, and it is this sum that plaintiffs seek in the instant lawsuit. The parties involved are
sophisticated commercial actors capable of anticipating and allocating the risks of economic losses. See
Employers Ins., 866 F.2d at 765. Indeed, the parties did anticipate such losses and contractually agreed
to limit liability in the Shipbuilding Agreement. Plaintiffs’ negligence claim cannot lie in admiralty where the
only injury claimed is economic loss. East River, 476 U.S. at 876.
Plaintiff responds that its negligence claims against FMG are viable because the economic loss
doctrine does not apply to bar recovery in tort for the negligent performance of services. Plaintiffs’
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arguments are all based on the application of state law to its maritime claims. The Wisconsin Supreme
Court has drawn a bright line rule making the economic loss doctrine inapplicable to claims for the
negligent provision of services.

Ins. Co. of N. Am. v. Cease Elec. Inc., 2004 WI 139, ¶ 52, 276 Wis.

2d 361, 369, 688 N.W.2d 462, 466. Among the reasons the Wisconsin Supreme Court gave for drawing
such a line was that unlike contracts for goods, which enjoy the benefit of well-developed law under the
Uniform Commercial Code, contract law is not as well suited to deal with contracts for services. Id.
However, in applying substantive maritime law, at least one other Circuit has declined to recognize an
exception to the economic loss rule when the underlying contract is for the provision of professional
services. Employers Ins. of Wausau v. Suwannee River Spa Lines, Inc., 866 F.2d 752, 763 (5th Cir.
1989). The court explained:
We conclude that East River’s broad concern for preserving the integrity of contract law in
commercial settings applies equally to a case such as this where the professional services are an
integral part of the manufacture or construction of a product and where the only injury alleged is
to the product itself. As in East River, the damage alleged here is purely economic. Thus, the
public policy concerns which underpin the imposition of a duty in tort–the need to provide
consumers with greater protection from personal injury and property damage than is afforded by
warranty or contract–are not implicated.
Id. Whether providing goods or services, the commercial parties here were fully capable of contractually
bargaining to protect themselves. The monetary loss Washington Island and plaintiff subrogors suffered
here as a result of the defendants’ alleged negligence “is essentially the failure of the purchaser to receive
the benefit of its bargain–traditionally the core concern of contract law.” Employers Ins., 866 F.2d at 765
(quoting East River, 476 U.S. at 870).

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CONCLUSION
For the reasons indicated above, plaintiffs’ breach of contract claims relating to a breach of the
May 1, 2002 Shipbuilding Agreement must be dismissed. But, insofar as plaintiff has alleged breach of
contract and breach of warranty claims relating to a subsequent repair agreement, FMG’s motion to
dismiss is DENIED. However, plaintiffs have failed to state a negligence claim that entitles them to relief
because it is barred by the economic loss doctrine. Accordingly, FMG’s motion to dismiss plaintiffs’
negligence claim is GRANTED.
Dated this 12th

day of December, 2012.

s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Judge

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