United States 27 July 2001 Federal District Court [California]
(Asante Technologies v. PMC-Sierra)
[Cite as: http://cisgw3.law.pace.edu/cases/010727u1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: C 01-20230 JW
CASE HISTORY: 1st instance Superior Court for the State of California, Santa Clara County 23 February 2001 [Seller alleged federal jurisdiction. The instant case is a proceeding on buyer's motion to remand to state court.]
SELLER'S COUNTRY: Canada (defendant)
BUYER'S COUNTRY: United States (plaintiff)
GOODS INVOLVED: Electronic components
Case law on UNCITRAL texts (CLOUT) abstract no. 433
Reproduced with permission from UNCITRAL
The plaintiff (buyer), a producer of network switchers located in the United States (California), concluded "Prototype Product Limited Warranty Agreements" with the defendant (seller), a U.S. corporation with places of business in Canada (British Columbia) and the United States (Oregon). The agreements set out technical specifications for component parts the buyer wished to acquire from the seller. When ordering the components, the buyer, at the seller's direction, submitted most but not all purchase orders to an independent distributor located in California.
The delivered components allegedly did not conform with the agreed specifications. The buyer brought suit in a California state court on claims based in tort and contract. The complaint did not refer to the CISG. The seller removed the case to a federal district court and the buyer asked the federal court to remand the case to the state court. The issue before the federal district court was whether it had jurisdiction. The court held that it had jurisdiction because the contract dispute was governed by the CISG and therefore the complaint raised a federal question.
The court held that the contract claims in the plaintiff's complaint were governed by the CISG. It found that the parties had their places of business in two different States and these States were Contracting States. In particular, the court concluded that the seller's relevant place of business was in Canada. The seller had its corporate headquarters, inside sales and marketing office, public relations department, and principal warehouse in British Columbia, and the seller carried out most of its design and engineering functions there. In its dealing with the buyer, the seller sent documents with technical specifications from Canada and the parties executed the "Prototype Product Limited Warranty Agreements" in Canada. The court found that this Canadian place of business was closest to the contract and its performance. It did so notwithstanding the buyer's extensive contacts with the engineers at the U.S. place of business when developing and engineering the components purchased.
Although the buyer sent its purchase orders to the independent distributor in California, the court stated that the "warranty agreements" were entered into directly with the seller. The court held that the independent distributor was not an agent of the seller. The court did not consider whether the "warranty agreements" were contracts of sale.
The court further held that the choice of law clauses in the parties' forms did not have clear language excluding application of the CISG. The buyer's clause stated that the contract was governed by the law of California, while the seller's clause stated that British Columbia was the "proper" law governing the agreement. The court noted that under the Supremacy Clause of the federal constitution the CISG would bind California and that British Columbia legislation made the CISG applicable in that province.
Finally, in response to the buyer's argument that its complaint did not establish that the case arose under federal law, the court held that the CISG, as a treaty to which the United States was a party, preempted state law by virtue of the Supremacy Clause of the federal constitution and that the facts pleaded in the complaint showed that the CISG governed.
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APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
6B [Choice of law of Contracting State held choice of that
State's CISG law]; 10A [Which of multiple places of business is relevant: closest
relationship to contract and its performance]
6B [Choice of law of Contracting State held choice of that State's CISG law];
10A [Which of multiple places of business is relevant: closest relationship to contract and its performance]
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Excerpt from Allison E. Butler, Florida Bar Journal, Vol. LXXVI, No. 5 (May 2002) at 28-30.
"In the … Asante [case], a federal court in California, in a case of first impression, held that absent a sufficient 'opt-out provision' all state causes of action were preempted by the CISG. As stated herein this ruling was based on the fact that the Convention is a self-executing treaty and outranks ordinary state or federal statutes. This case is of great significance as until recently, there has been no U.S. case law specifically dealing with the choice of law clause and it has been a matter of commentators speculating on this issue.
"The facts of Asante deal with the sale of electronic components between Asante Technologies, Inc. (buyer), a California corporation, and PMC-Sierra (seller), a Canadian corporation. Notably, the majority of the transaction took place through a distributor located in California. The buyer had originally filed the action in state court; however, the seller removed the action to federal court, asserting federal question jurisdiction.
"As there was no single contract embodying the parties' agreement, the court focused on five purchase orders. Notably, four of the five purchase orders were submitted to PMC-Sierra through a distributor as directed by PMC-Sierra. On appeal, Asante asserted that its acceptance was conditioned on seller accepting the terms on its purchase order making the law of California applicable. Their purchase order stated: 'APPLICABLE LAW. The validity [and] performance of this [purchase] order shall be governed by the laws of the state shown on Buyer's address on this order.'
"In contrast, PMC-Sierra argued that the contract claims at issue implicate the CISG because the contract is between parties having their places of business in two nations that have adopted the CISG treaty.35 PMC-Sierra also argued that the CISG applied because the parties did not effectuate an 'opt out' of application of the CISG. In response, Asante argued that the distributor was the agent for PMC-Sierra, who was located in California. Therefore the CISG did not apply, but rather California law.
"Upon review, the court concluded that although selection of a particular choice of law could amount to implied exclusion of the CISG, the choice of law at issue did not evidence a clear intent to opt out of the CISG. Furthermore, Asante's choice of applicable law generally adopted the laws of the State of California and California is bound by the supremacy clause [of the U.S. Constitution] to the treaties of the U.S. Thus, under general California law, the CISG is applicable to contracts where the contracting parties are from different countries that have adopted the CISG. In the absence of clear language indicating that both contracting parties intended to opt out of the CISG, the court rejected Asante's contention that the choice of law provision precluded the application of the CISG. …"
35. PMC-Sierra's form also contained a choice of law provision stating that Canadian law applied.Go to Case Table of Contents
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (English): Text presented below; see also 164 F. Supp. 2d 1142; 2001 U.S. Dist. Lexis 16000 and 2001 WL 1182401 (N.D. Cal)
CITATIONS TO COMMENTS ON DECISION
English: Butler, Florida Bar Journal, Vol. LXXVI, No. 5 (May 2002) at 28-30; Drago & Zoccolillo, Metropolitan Corporate Counsel (May 2002) at 9; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 2-3 n.11; § 2-7 n.99; § 2-12 n.191;  Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 6 para. 14 Art. 10 para. 4; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 58; Keith A. Rowley, "The Convention on the International Sale of Goods", in: Hunter ed., Modern Law of Contracts, Thomson/West (03/2007) §§ 23:2, 23:5, 23:7
French: Papandréou-Deterville, Receuil Dalloz - Cahier Droit des Affairs No. 34 (October 2003) 2371
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No. C 01-20230 JW
U.S. District Court for the Northern District of California, San Jose Division
27 July 2001, decided
30 July 2001, filed
OPINION BY: James Ware, United States District Judge.
ORDER denying [Plaintiff's] Motion to Remand and Request for Attorneys' Fees
This lawsuit arises out of a dispute involving the sale of electronic components. Plaintiff [buyer], Asante Technologies Inc., filed the action in the Superior Court for the State of California, Santa Clara County, on February 13, 2001. Defendant [seller], PMC-Sierra, Inc., removed the action to this Court, asserting federal question jurisdiction pursuant to 28 U.S.C. section 1331. Specifically, [seller] asserts that [buyer's] claims for breach of contract and breach of express warranty are governed by the United Nations Convention on Contracts for the International Sale of Goods ("CISG"). [Buyer] disputes jurisdiction and filed this Motion to Remand and for Attorneys' Fees. The Court conducted a hearing on June 18, 2001. Based upon the submitted papers and oral arguments of the parties, the Court DENIES the motion to remand and the associated request for attorneys' fees.
The Complaint in this action alleges claims based in tort and contract. [Buyer] contends that [seller] failed to provide it with electronic components meeting certain designated technical specifications. [Seller] timely removed the action to this Court on March 16, 2001.
[Buyer] is a Delaware corporation having its primary place of business in Santa Clara County, California. [Buyer] produces network switchers, a type of electronic component used to connect multiple computers to one another and to the Internet. [Buyer] purchases component parts from a number of manufacturers. In particular, [buyer] purchases application-specific integrated circuits ("ASICs"), which are considered the control center of its network switchers, from [seller].
[Seller] is also a Delaware corporation. [Seller] asserts that, at all relevant times, its corporate headquarters, inside sales and marketing office, public relations department, principal warehouse, and most design and engineering functions were located in Burnaby, British Columbia, Canada. [Seller] also maintains an office in Portland, Oregon, where many of its engineers are based. [Seller's] products are sold in California through Unique Technologies, which is an authorized distributor of [seller's] products in North America. It is undisputed that [seller] directed [buyer] to purchase [seller's] products through Unique, and that [seller] honored purchase orders solicited by Unique. Unique is located in California. Determining [seller's] "place of business" with respect to its contract with [buyer] is critical to the question of whether the Court has jurisdiction in this case.
[Buyer's] Complaint focuses on five purchase orders. Four of the five purchase orders were submitted to [seller] through Unique as directed by [seller]. However, [buyer] does not dispute that one of the purchase orders, dated January 28, 2000, was sent by fax directly to [seller] in British Columbia, and that [seller] processed the order in British Columbia. [Seller] shipped all orders to [buyer's] headquarters in California. Upon delivery of the goods, Unique sent invoices to [buyer], at which time [buyer] tendered payment to Unique either in California or in Nevada.
The Parties do not identify any single contract embodying the Agreement pertaining to the sale. Instead, [buyer] asserts that acceptance of each of its purchase orders was expressly conditioned upon acceptance by [seller] of "[Buyer's] Terms and Conditions," which were included with each Purchase Order. Paragraph 20 of [Buyer's] Terms and Conditions provides
"APPLICABLE LAW. The validity [and] performance of this [purchase] order shall be governed by the laws of the state shown on Buyer's address on this order."(Contos Decl., Exh. H, P 16.)
The buyer's address as shown on each of the Purchase Orders is in San Jose, California. Alternatively, [seller] suggests that the terms of shipment are governed by a document entitled "[SELLER'S] TERMS AND CONDITIONS OF SALE." Paragraph 19 of [seller's] Terms and conditions provides
"APPLICABLE LAW: The contract between the parties is made, governed by, and shall be construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein, which shall be deemed to be the proper law hereof. ..." (Wechsler Decl., Exh. D, P 6.)
[Buyer's] Complaint alleges that [seller] promised in writing that the chips would meet certain technical specifications. (Compl. PP 13, 14, 15, 17, 18, 22, 23, & 25.) [Seller] asserts that the following documents upon which [buyer] relies emanated from [seller's] office in British Columbia: (1) [Seller's] August 24, 1998 press release that it would be making chips available for general sampling (Doucette Decl. P 13); (2) [Seller's] periodic updates of technical specifications (Doucette Decl., Exh. H); and (3) Correspondence from [seller] to [buyer], including a letter dated October 25 1999. It is furthermore undisputed that the Prototype Product Limited Warranty Agreements relating to some or all of [buyer's] purchases were executed with [seller's] British Columbia facility (Doucette Decl., Exhs. B & C).
[Seller] does not deny that [buyer] maintained extensive contacts with [seller's] facilities in Portland, Oregon during the "development and engineering" of the ASICs (Amended Supplemental Decl. of Anthony Contos, P 3.) These contacts included daily email and telephone correspondence and frequent in-person collaborations between [buyer's] engineers and [seller's] engineers in Portland. (Id.) [Buyer] contends that this litigation concerns the inability of [seller's] engineers in Portland to develop an ASIC meeting the agreed-upon specifications. (Id.)
[Buyer] now requests this Court to remand this action back to the Superior Court of the County of Santa Clara pursuant to 28 U.S.C. section 1447(c), asserting lack of subject matter jurisdiction. In addition, [buyer] requests award of attorneys fees and costs for the expense of bringing this motion.
A defendant may remove to federal court any civil action brought in a state court that originally could have been filed in federal court. 28 U.S.C. at 1441(a); Caterpillar, Inc. v. Williams, 482 U.S. 386, 96 L. Ed. 2d 318, 107 S. Ct. 2425 (1987). When a case originally filed in state court contains separate and independent federal and state law claims, the entire case may be removed to federal court. 28 U.S.C. 1441(c).
The determination of whether an action arises under federal law is guided by the "well-pleaded complaint" rule. Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 10, 77 L. Ed. 2d 420,103 S. Ct. 2841 (1983). The rule provides that removal is proper when a federal question is presented on the face of the Complaint. Id. at 9. However, in areas where federal law completely preempts state law, even if the claims are purportedly based on state law, the claims are considered to have arisen under federal law. Ramirez v. Fox Television Station, Inc., 998 F.2d 743 (9th Cir. 1993). Defendant [seller] has the burden of establishing that removal is proper. Gaus v. Miles, Inc., 980 F.2d 564 (9th Cir. 1992). If, at any time before judgment, the district court determines that the case was removed from state court improvidently and without jurisdiction, the district court must remand the case. 28 U.S.C. at 1447(c).
The Convention on Contracts for the International Sale of Goods ("CISG") is an international treaty which has been signed and ratified by the United States and Canada, among other countries. The CISG was adopted for the purpose of establishing "substantive provisions of law to govern the formation of international sales contracts and the rights and obligations of the buyer and the seller." U.S. Ratification of 1980 United Nations Convention on Contracts for the International Sale of Goods: Official English Text, 15 U.S.C. App. at 52 (1997). The CISG applies "to contracts of sale of goods between parties whose places of business are in different States ... when the States are Contracting States." 15 U.S.C. App., Art. 1(1)(a). Article 10 of the CISG provides that "if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance." 15 U.S.C. App. Art. 10.
Defendant [seller] asserts that this Court has jurisdiction to hear this case pursuant to 28 U.S.C. section 1331, which dictates that the "district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." Specifically, Defendant [seller] contends that the contract claims at issue necessarily implicate the CISG, because the contract is between parties having their places of business in two nations which have adopted the CISG treaty. The Court concludes that [seller's] place of business for the purposes of the contract at issue and its performance is Burnaby, British Columbia, Canada. Accordingly, the CISG applies. Moreover, the parties did not effectuate an "opt out" of application of the CISG. Finally, because the Court concludes that the CISG preempts state laws that address the formation of a contract of sale and the rights and obligations of the seller and buyer arising from such a contract, the well-pleaded complaint rule does not preclude removal in this case.
A. Federal jurisdiction attaches to claims governed by the CISG
Although the general federal question statute, 28 U.S.C. at 1331(a), gives district courts original jurisdiction over every civil action that "arises under the ... treaties of the United States," an individual may only enforce a treaty's provisions when the treaty is self-executing, that is, when it expressly or impliedly creates a private right of action. See Tel-Oren v. Libyan Arab Republic, 233 U.S. App. D.C. 384, 726 F.2d 774, 808 (D.C. Cir.1984) (Bork, J., concurring); Handel v. Artukovic, 601 F. Supp. 1421, 1425(C.D. Cal. 1985). The parties do not dispute that the CISG properly creates a private right of action. See Delchi Carrier v. Rotorex Corp., 71 F.3d 1024, 1027-28 (2d Cir. 1995); Filanto, S.p.A. v. Chilewich Int'l Corp., 789 F. Supp. 1229, 1237 (S.D.N.Y. 1992); U.S. Ratification of 1980 United Nations Convention on Contracts for the International Sale of Goods: Official English Text, 15 U.S.C. App. at 52 (1997) ("The Convention sets out substantive provisions of law to govern the formation of international sales contracts and the rights and obligations of the buyer and seller. It will apply to sales contracts between parties with their places of business in different countries bound by Convention, provided the parties have left their contracts silent as to applicable law."). Therefore, if the CISG properly applies to this action, federal jurisdiction exists.
B. The contract in question is between parties from two different Contracting States
The CISG only applies when a contract is "between parties whose places of business are in different States." 15 U.S.C. App., Art. 1(1)(a). If this requirement is not satisfied, [seller] cannot claim jurisdiction under the CISG. It is undisputed that [buyer's] place of business is Santa Clara County, California, U.S.A. It is further undisputed that during the relevant time period, [seller's] corporate headquarters, inside sales and marketing office, public relations department, principal warehouse, and most of its design and engineering functions were located in Burnaby, British Columbia, Canada. However, [buyer] contends that, pursuant to Article 10 of the CISG, [seller's] "place of business" having the closest relationship to the contract at issue is the United States.
The Complaint asserts inter alia two claims for breach of contract and a claim for breach of express warranty based on the failure of the delivered ASICs to conform to the agreed upon technical specifications. (Compl. PP 40-53.) In support of these claims, [buyer] relies on multiple representations allegedly made by [seller] regarding the technical specifications of the ASICs products at issue. Among the representations are: (1) an August 24, 1998 press release (Id., P 13); (2) "materials" released by [seller] in September, 1998 (Id., P 14); (3) "revised materials" released by [seller] in November 1998 (Id., P 15); (4) "revised materials" released by [seller] in January, 1999 (Id., P. 17); (5) "revised materials" released by [seller] in April, 1999 (Id., P 18); (6) a September, 1999 statement by [seller] which included revised specifications indicating that its ASICs would comply with 802.1q VLAN specifications (Id., P 22); (7) a statement made by [seller's] President and Chief Executive Officer on October 25, 1999 (Id., P 23); (8) a communication of December, 1999 (Id., P 24); and (9) "revised materials" released by [seller] in January, 2000 (Id., P 25). It appears undisputed that each of these alleged representations regarding the technical specifications of the product was issued from [seller's] headquarters in British Columbia, Canada. (See Opposition Brief at 3.)
Rather than challenge the Canadian source of these documents, [buyer] shifts its emphasis to the purchase orders submitted by [buyer] to Unique Technologies, a nonexclusive distributor of [seller's] products. [Buyer] asserts that Unique acted in the United States as an agent of [seller], and that [buyer's] contacts with Unique establish [seller's] place of business in the U.S. for the purposes of this contract.
[Buyer] has failed to persuade the Court that Unique acted as the agent of [seller]. [Buyer] provides no legal support for this proposition. To the contrary, a distributor of goods for resale is normally not treated as an agent of the manufacturer. Restatement of the Law of Agency, 2d at 14J (1957) ("One who receives goods from another for resale to a third person is not thereby the other's agent in the transaction."); Stansifer v. Chrysler Motors Corp., 487 F.2d 59, 64-65 (9th Cir. 1973) (holding that nonexclusive distributor was not agent of manufacturer where distributorship agreement expressly stated "distributor is not an agent"). Agency results "from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." Restatement of the Law of Agency, 2d, at 1 (1957). [Buyer] has produced no evidence of consent by [seller] to be bound by the acts of Unique. To the contrary, [seller] cites the distributorship agreement with Unique, which expressly states that the contract does not "allow Distributor to create or assume any obligation on behalf of [seller] for any purpose whatsoever." (Doucette Decl. Exh. M, P 1.6(b).) Furthermore, while Unique may distribute [seller's] products, [buyer] does not allege that Unique made any representations regarding technical specifications on behalf of [seller]. Indeed, Unique is not even mentioned in the Complaint. To the extent that representations were made regarding the technical specifications of the ASICs, and those specifications were not satisfied by the delivered goods, the relevant agreement is that between [buyer] and [seller]. Accordingly, the Court finds that Unique is not an agent of [seller] in this dispute. [Buyer's] dealings with Unique do not establish [seller's] place of business in the United States.
[Buyer's] claims concern breaches of representations made by [seller] from Canada. Moreover, the products in question are manufactured in Canada, and [buyer] knew that [seller] was Canadian, having sent one purchase order directly to [seller] in Canada by fax. [Buyer] supports its position with the declaration of Anthony Contos, [buyer's] Vice President of Finance and Administration, who states that [buyer's] primary contact with [seller] "during the development and engineering of the ASICs at issue ... was with [seller's] facilities in Portland, Oregon." (Contos Amended Supplemental Decl. P 3.) The Court concludes that these contacts are not sufficient to override the fact that most if not all of [seller's] alleged representations regarding the technical specifications of the products emanated from Canada. (See supra at 7:1-12.) Moreover, [buyer] directly corresponded with [seller] at [seller's] Canadian address. (See Doucette Decl. P 15.) [Buyer] relies on all of these alleged representations at length in its Complaint. (See supra at 7:1-12.) In contrast, [buyer] has not identified any specific representation or correspondence emanating from [seller's] Oregon branch. For these reasons, the Court finds that [seller's] place of business that has the closest relationship to the contract and its performance is British Columbia, Canada. Consequently, the contract at issue in this litigation is between parties from two different Contracting States, Canada and the United States. This contract therefore implicates the CISG.
C. The effect of the choice of law clauses
[Buyer] next argues that, even if the Parties are from two nations that have adopted the CISG, the choice of law provisions in the "Terms and Conditions" set forth by both Parties reflect the Parties' intent to "opt out" of application of the treaty. Article 6 of the CISG provides that "the parties may exclude the application of the Convention or, subject to Article 12, derogate from or vary the effect of any of its provisions." 15 U.S.C. App., Art. 6. [Seller] asserts that merely choosing the law of a jurisdiction is insufficient to opt out of the CISG, absent express exclusion of the CISG. The Court finds that the particular choice of law provisions in the "Terms and Conditions" of both parties are inadequate to effectuate an opt out of the CISG.
Although selection of a particular choice of law, such as "the California Commercial Code" or the "Uniform Commercial Code" could amount to implied exclusion of the CISG, the choice of law clauses at issue here do not evince a clear intent to opt out of the CISG. For example, [seller's] choice of applicable law adopts the law of British Columbia, and it is undisputed that the CISG is the law of British Columbia. (International Sale of Goods Act ch. 236, 1996 S.B.C. 1 et seq. (B.C.).) Furthermore, even [buyer's] choice of applicable law generally adopts the "laws of" the State of California, and California is bound by the Supremacy Clause to the treaties of the United States. U.S. Const. art. VI, cl. 2 ("This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land.") Thus, under general California law, the CISG is applicable to contracts where the contracting parties are from different countries that have adopted the CISG. In the absence of clear language indicating that both contracting parties intended to opt out of the CISG, and in view of [seller's] Terms and Conditions which would apply the CISG, the Court rejects [buyer's] contention that the choice of law provisions preclude the applicability of the CISG.
D. Federal jurisdiction based upon the CISG does not violate the Well-Pleaded Complaint Rule
The Court rejects Plaintiff [buyer's] argument that removal is improper because of the well-pleaded complaint rule. The rule states that a cause of action arises under federal law only when the [buyer's] well-pleaded complaint raises issues of federal law. Gully v. First National Bank, 299 U.S. 109, 112, 81 L. Ed. 70, 57 S. Ct. 96 (1936); Louisville & Nashville R. Co. v. Mottley, 211 U.S. 149, 53 L. Ed. 126, 29 S. Ct. 42 (1908). Anticipation of a federal preemption defense, such as the defense that federal law prohibits the state claims, is insufficient to establish federal jurisdiction. Gully, 299 U.S. at 116. Even where both parties concede that determination of a federal question is the only issue in the case, removal is improper unless the Plaintiff's complaint establishes that the case "arises under" federal law. Caterpillar, Inc. v. Williams, 482 U.S. 386, 393, 96 L. Ed. 2d 318, 107 S. Ct. 2425 (1987).
It is undisputed that the Complaint on its face does not refer to the CISG. However, Defendant[ ] [seller] argue[s] that the preemptive force of the CISG converts the state breach of contract claim into a federal claim. Indeed, Congress may establish a federal law that so completely preempts a particular area of law that any civil complaint raising that select group of claims is necessarily federal in character. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62, 95 L. Ed. 2d 55, 107 S. Ct. 1542 (1987) (holding that Employee Retirement Income Security Act (ERISA) preempts an employee's common-law contract and tort claims arising from employer's insurer's termination of disability benefits, establishing federal jurisdiction); Avco Corp. v. Aero Lodge No. 735, Int'l Ass'n. of Machinists, 390 U.S. 557, 560, 20 L. Ed. 2d 126, 88 S. Ct. 1235 (1968) (holding that section 301 of Labor Management Relations Act (LMRA) preempts any state cause of action for violation of contracts between an employer and a labor organization).
It appears that the issue of whether or not the CISG preempts state law is a matter of first impression. In the case of federal statutes, "the question of whether a certain action is preempted by federal law is one of congressional intent. The purpose of Congress is the ultimate touchstone." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45, 95 L. Ed. 2d 39, 107 S. Ct. 1549 (1987) (internal quotations and citations omitted). Transferring this analysis to the question of preemption by a treaty, the Court focuses on the intent of the treaty's contracting parties. See Husmann v. Trans World Airlines, Inc., 169 F.3d 1151, 1153 (8th Cir. 1999) (finding Warsaw Convention preempts state law personal injury claim); Jack v. Trans World Airlines, Inc., 820 F. Supp. 1218, 1220 (N.D. Cal. 1993) (finding removal proper because Warsaw Convention preempts state law causes of action).
In the case of the CISG treaty, this intent can be discerned from the introductory text, which states that "the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade." 15 U.S.C. App. at 53. The CISG further recognizes the importance of "the development of international trade on the basis of equality and mutual benefit." Id. These objectives are reiterated in the President's Letter of Transmittal of the CISG to the Senate as well as the Secretary of State's Letter of Submittal of the CISG to the President. Id. at 70-72. The Secretary of State, George P. Shultz, noted:
"Sales transactions that cross international boundaries are subject to legal uncertainty -- doubt as to which legal system will apply and the difficulty of coping with unfamiliar foreign law. The sales contract may specify which law will apply, but our sellers and buyers cannot expect that foreign trading partners will always agree on the applicability of United States law. ... The Convention's approach provides an effective solution for this difficult problem. When a contract for an international sale of goods does not make clear what rule of law applies, the Convention provides uniform rules to govern the questions that arise in making and performance of the contract." Id. at 71.
The Court concludes that the expressly stated goal of developing uniform international contract law to promote international trade indicates the intent of the parties to the treaty to have the treaty preempt state law causes of action.
The availability of independent state contract law causes of action would frustrate the goals of uniformity and certainty embraced by the CISG. Allowing such avenues for potential liability would subject contracting parties to different states' laws and the very same ambiguities regarding international contracts that the CISG was designed to avoid. As a consequence, parties to international contracts would be unable to predict the applicable law, and the fundamental purpose of the CISG would be undermined. Based on very similar rationale, courts have concluded that the Warsaw Convention preempts state law causes of action. Husmann, 169 F.3d at 1153; Shah v. Pan American World Services, Inc., 148 F.3d 84, 97-98 (2d Cir. 1998); Potter v. Delta Air Lines, 98 F.3d 881, 885 (5th Cir. 1996); Boehringer-Mannheim Diagnostics v. Pan Am World, 737 F.2d 456, 459 (5th Cir. 1984). The conclusion that the CISG preempts state law also comports with the view of academic commentators on the subject. See William S. Dodge, Teaching the CISG in Contracts, 50 J. Legal Educ. 72, 72 (March 2000) ("As a treaty the CISG is federal law, which preempts state common law and the UCC."); David Frisch, Commercial Common Law, The United Nations Convention on the International Sale of Goods, and the Inertia of Habit, 74 Tul. L. Rev. 495, 503-04 (1999) ("Since the CISG has the preemptive force of federal law, it will preempt article 2 when applicable.").
Furthermore, the Court has considered [buyer's] arguments and finds them unpersuasive. [Buyer] argues that the CISG is incomparable to preemption under the Warsaw Convention, because "the CISG leaves open the possibility of other, concurrent causes of action." (Reply Brief at 9.) This argument merely begs the question by assuming that the state law causes of action asserted by [buyer] are properly brought. Based on the proper applicable legal analysis discussed above, the Court concludes that the pleaded state law claims are preempted.
Plaintiff [buyer] next claims that the CISG does not completely supplant state law, because the CISG is limited in scope to the formation of the contract and the rights and obligations of the seller and buyer arising from the contract. (Id.) [Buyer's] correct observation that the CISG does not concern the validity of the contract or the effect which the contract may have on the property in the goods sold fails to support [buyer's] conclusion that the CISG does not supplant any area of state contract law. Although the CISG is plainly limited in its scope (15 U.S.C. App., Art. 4.), the CISG nevertheless can and does preempt state contract law to the extent that the state causes of action fall within the scope of the CISG. Compare Franchise Tax Bd., 463 U.S. at 22-23 (holding that ERISA did not preempt the state tax collection suit at issue, because the state causes of action did not fall within the scope of at 502(a) of ERISA) and Metropolitan Life Ins. Co., 481 U.S. at 66 (relying on Franchise Tax Bd. and holding that ERISA preempts all state causes of action within the scope of at 502(a)).
Finally, Plaintiff [buyer] appears to confuse the matter of exclusive federal jurisdiction with preemption. [Buyer] first asserts that "if ... the CISG is 'state law' ... then the California courts have jurisdiction to adjudicate a case arising under these laws." (Reply Brief at 9.) The matter of whether California courts may have jurisdiction to interpret the CISG is irrelevant to the determination of whether the CISG preempts state law and establishes federal jurisdiction over the case. Even where federal law completely preempts state law, state courts may have concurrent jurisdiction over the federal claim if the defendant does not remove the case to federal court. Teamsters v. Lucas Flour Co., 369 U.S. 95, 103-04, 7 L. Ed. 2d 593, 82 S. Ct. 571 (1962). This Court does not hold that it has exclusive jurisdiction over CISG claims. Hence, the Court's conclusion that the CISG preempts state claims is not inconsistent with [buyer's] examples of the adjudication of CISG-based claims in state court. [Buyer] further asserts that "if the CISG so completely supplants state law as to deny the California courts the opportunity to rule on a CISG cause of action, then the reference to 'state law' in [buyer's] choice-of-law provision is unambiguous, and the CISG also does not apply." (Reply Brief at 9.) The Court also rejects this claim, as the determination of CISG preemption is wholly independent of the question of whether a choice-of-law clause in a particular contract is ambiguous or not.
The Court concludes that the well-pleaded complaint rule does not preclude federal jurisdiction in this case, because the CISG preempts state law causes of action falling within the scope of the CISG.
For the foregoing reasons, Plaintiff [buyer's] Motion to Remand is DENIED. Accordingly, the Request for Attorney's Fees is also DENIED.
Dated: July 27, 2001
United States District Judge
1. The relevant Purchase Orders are: Purchase Order No. 62799, dated November 1998 (Contos Decl., P 6, Exh. A), Purchase Order No. 53527, dated June 1999 (Contos Decl., P 7, Exh. B); Purchase Order No. 53724, dated January 2000 (Contos Decl., P 8, Exh. C); Purchase Order No. 53729, dated February 2000 (Contos Decl., P 9, Exh. D); and Purchase Order No. 63095, dated April 2000 (Contos Decl., P 10, Exh. E).
2. [Buyer] contends in this suit that the delivered ASICs did not comply with required technical specifications.
3. Diversity cannot serve as a basis for jurisdiction in this case, because both parties are incorporated in the state of Delaware. See Bank of California Nat'l Ass'n v. Twin Harbors Lumber Co., 465 F.2d 489, 491-92 (9th Cir. 1972).
4. In the context of the CISG, "different States" refers to different countries. U.S. Ratification of 1980 United Nations Convention on Contracts for the International Sale of Goods: Official English Text, 15 U.S.C. App. at 52 (1997).
5. Article 10 of the CISG states inter alia:
(a) If a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract."
6. [Buyer's] Terms and Conditions provides
The buyer's address as shown on each of the Purchase Orders is San Jose, California. (Contos Decl. PP 6, 7, 8, 9, 10; Exhs. A, B, C, D, E.)
[Seller's] Terms and Conditions provides
"APPLICABLE LAW: The contract between the parties is made, governed by, and shall be construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein, which shall be deemed to be the proper law hereof. ..." (Wechsler Decl. P 6, Exh. D.)
It is undisputed that British Columbia has adopted the CISG.Go to Case Table of Contents