Data

Date:: 17-05-1999
Country:: USA
Number:: Civ. A. 90-0380
Court:: U.S. District Court, E.D., Louisiana
Parties:: Medical Marketing International, Inc. v. Internazionale Medico Scientifica S.r.l.

Keywords

INTERPRETATION OF CISG - REGARD TO ITS INTERNATIONAL CHARACTER AND PROMOTION OF UNIFORMITY IN ITS APPLICATION (ART. 7(1)CISG) - RECOURSE TO FOREIGN CASE LAW

CONFORMITY OF GOODS - GOODS FIT FOR ORDINARY USE (ART. 35(2)(A) CISG) - SELLER GENERALLY NOT OBLIGATED TO SUPPLY GOODS THAT CONFORM TO PUBLIC LAWS AND REGULATIONS IN BUYER'S COUNTRY EXCEPTION WHEN SELLER KNEW OR SHOULD HAVE KNOWN ABOUT SUCH REGULATIONS DUE TO SPECIAL CIRCUMSTANCES SUCH AS THE EXISTENCE OF A SELLER'S BRANCH OFFICE IN THE BUYER'S STATE

Abstract

A Louisiana marketing corporation (buyer) entered into an exclusive licensing agreement for the U.S. distribution of mammography units manufactured by an Italian company (seller). When the U.S. Food and Drug Administration seized the equipment for non-compliance with administrative procedures, a dispute arose over which party bore the responsibility for obtaining the required permits in compliance with the U.S. Governmental Safety Regulations. The seller declared the contract avoided (terminated) on the grounds of non-conformity of the goods.

The parties went into arbitration where the seller argued that buyer was not entitled to avoid the contract based on non-conformity under Art. 49 CISG, because the seller's breach was not "fundamental". To support its reasoning, the seller cited a German Supreme Court case, which held that under Art. 35 CISG, a seller is generally not obligated to supply goods that conform to public laws and regulations enforced at the buyer's place of business (Germany, Bundesgerichtshof, 08-03-1995. See Abstract and Full Text in UNILEX). The buyer did not dispute that CISG applied to the case at hand. An award was given in favor of the buyer.

The seller challenged the award on the grounds that the arbitrators misapplied the CISG since they refused to follow the German precedent interpreting Art. 35 CISG. Specifically, the seller argued that the arbitrators' decision was contrary to public policy and in manifest disregard of the duty to regard the international character of the Convention and to promote uniformity in its application, as provided by Art. 7 CISG.

In upholding the arbitral award, the District Court found that the arbitrators correctly interpreted the German precedent on Art. 35 CISG, paid regard to the international character of the Convention, and promoted uniformity in its application per Art. 7 CISG.

The District Court noted the German Supreme Court is holding that the general rule, according to which a seller is generally not obligated to supply goods that conform to public laws and regulations enforced at the buyer's place of business, carries with it exceptions in three limited circumstances: (1) if the public laws and regulations of the buyer's state are identical to those enforced in the seller's state; (2) if the buyer informed the seller about those regulations; or (3) if due to "special circumstances," such as the existence of a seller's branch office in the buyer's state, the seller knew or should have known about the regulations at issue. The District Court found that the arbitrators decided that under the third exception, the general rule did not apply to the case at hand, as the seller was, or should have been, aware of the buyer regulations prior to entering into the agreement.

Fulltext

MEDICAL MARKETING INTERNATIONAL, INC.
v.
INTERNAZIONALE MEDICO SCIENTIFICA, S.R.L.

No. CIV. A. 99-0380.

United States District Court, E.D. Louisiana.

May 17, 1999.

ORDER AND REASONS

DUVAL, District J.

Before the court is an Application for Order Conforming Arbitral Award and Entry of Judgment, filed by plaintiff, Medical Marketing International, Inc. ("MMI"). Having considered the memoranda of plaintiff, and the memorandum in opposition filed by defendant, Internazionale Medico Scientifica, S.r.l. ("IMS"), the court grants the motion.

FACTUAL BACKGROUND

Plaintiff MMI is a Louisiana marketing corporation with its principal place of business in Baton Rouge, Louisiana. Defendant IMS is an Italian corporation that manufactures radiology materials with its principal place of business in Bologna, Italy. On January 25, 1993, MMI and IMS entered into a Business Licensing Agreement in which IMS granted exclusive sales rights for Giotto Mammography H.F. Units to MMI.

In 1996, the Food and Drug Administration ("FDA") seized the equipment for noncompliance with administrative procedures, and a dispute arose over who bore the obligation of ensuring that the Giotto equipment complied with the United states Governmental Safety Regulations, specifically the Good Manufacturing Practices (GMP) for Medical Device Regulations. MMI formally demanded mediation on October 28, 1996, pursuant to Article 13 of the agreement. Mediation was unsuccessful, and the parties entered into arbitration, also pursuant to Article 13, whereby each party chose one arbitrator and a third was agreed upon by both.

An arbitration hearing was held on July 13-15, July 28, and November 17, 1998. The hearing was formally closed on November 30, 1998. The arbitrators rendered their decision on December 21, 1998, awarding MMI damages in the amount of $357,009.00 and legal interest on that amount from October 28, 1996. The arbitration apportioned 75% of the $83,640.45 cost of arbitration to MMI, and the other 25% to IMS. IMS moved for reconsideration on December 30, 1998, and this request was denied by the arbitrators on January 7, 1999. Plaintiff now moves for an order from this court confirming the arbitral award and entering judgment in favor of the plaintiff under 9 U.S.C. § 9.

JURISDICTION

The Federal Arbitration Act ("FAA") allows parties to an arbitration suit to apply to the "United States court in and for the district within which such award was made" for enforcement of the award. 9 U.S.C. § 9. As the arbitration in this case was held in New Orleans, Louisiana, this court has jurisdiction over petitioner's Application under 9 U.S.C. § 9. This court also has diversity jurisdiction over the case, as the amount in controversy exceeds $75,000 and the parties are a Lousiana corporation and an Italian corporation.

ANALYSIS

The scope of this court's review of an arbitration award is "among the narrowest known to law." Denver & Rio Grande Western Railroad Co. v. Union Pacific Railroad Co., 119 F.3d 847, 849 (10th Cir.1997). The FAA outlines specific situations in which an arbitration decision may be overruled: (1) if the award was procured by corruption, fraud or undue means; (2) if there is evidence of partiality or corruption among the arbitrators; (3) if the arbitrators were guilty of misconduct which prejudiced the rights of one of the parties; or (4) if the arbitrators exceeded their powers. Instances in which the arbitrators "exceed their powers" may include violations of public policy or awards based on a "manifest disregard of the law." See W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 766, 103 S.Ct. 2177, 2183 (1983), Walcha v. Swan, 346 U.S. 427, 436-37, 74 S.Ct. 182, 187-88 (1953), overruled on other grounds, 490 U.S. 477, 109 S.Ct. 1917 (1989).

IMS has alleged that the arbitrators' decision violates public policy of the international global market and that the arbitrators exhibited "manifest disregard of international sales law." Specifically, IMS argues that the arbitrators misapplied the United Nations Convention on Contracts for the International Sales of Goods, commonly referred to as CISG, and that they refused to follow a German Supreme Court Case interpreting CISG.

MMI does not dispute that CISG applies to the case at hand. Under CISG, the finder of fact has a duty to regard the "international character" of the convention and to promote uniformity in its application. CISG Article 7. The Convention also provides that in an international contract for goods, goods conform to the contract if they are fit for the purpose for which goods of the same description would ordinarily be used or are fit for any particular purpose expressly or impliedly made known to the seller and relied upon by the buyer. CISG Article 35(2). To avoid a contract based on the non-conformity of goods, the buyer must allege and prove that the seller's breach was "fundamental" in nature. CISG Article 49. A breach is fundamental when it results in such detriment to the party that he or she is substantially deprived of what he or she is entitled to expect under the contract, unless the party in breach did not foresee such a result. CISG Article 25.

At the arbitration, IMS argued that MMI was not entitled to avoid its contract with IMS based on non-conformity under Article 49, because IMS's breach was not "fundamental." IMS argued that CISG did not require that it furnish MMI with equipment that complied with the United States GMP regulations. To support this proposition, IMS cited a German Supreme Court case, which held that under CISG Article 35, a seller is generally not obligated to supply goods that conform to public laws and regulations enforced at the buyer's place of business. Entscheidunger des Bundersgerichtshofs in Zivilsachen (BGHZ) 129, 75 (1995). In that case, the court held that this general rule carries with it exceptions in three limited circumstances: (1) if the public laws and regulations of the buyer's state are identical to those enforced in the seller's state; (2) if the buyer informed the seller about those regulations; or (3) if due to "special circumstances," such as the existence of a seller's branch office in the buyer's state, the seller knew or should have known about the regulations at issue.

The arbitration panel decided that under the third exception, the general rule did not apply to this case. The arbitrators held that IMS was, or should have been, aware of the GMP regulations prior to entering into the 1993 agreement, and explained their reasoning at length. IMS now argues that the arbitration panel refused to apply CISG and the law as articulated by the German Supreme Court. It is clear from the arbitrators' written findings, however, that they carefully considered that decision and found that this case fit the exception and not the rule as articulated in that decision. The arbitrators' decision was neither contrary to public policy nor in manifest disregard of international sales law. This court therefore finds that the arbitration panel did not "exceed its powers" in violation of the FAA. Accordingly,

IT IS ORDERED that the Application for Order Conforming Arbitral Award is hereby GRANTED.}}

Source

Published in English:
- 1999 WL 311945 (E.D. La.)
- 1999 U.S. Dist. LEXIS 7380

Foreign case law cited:
- Germany, Bundesgerichtshof (Federal Supreme Court), 08-03-1995, No. VIII ZR 159/94 (See Abstract and Full Text in UNILEX)

Commented on by:
- P. Schlechtriem, in Praxis des Internationalen Privat- und Verfahrensrecht (IPRax), 1999, 388 et seq.
- Papandréou-Deterville, Recueil Dalloz Sirey, 1999, 369-370}}