United States 17 May 1999 Federal District Court [Louisiana] (Medical Marketing v. Internazionale Medico Scientifica)
[Cite as: http://cisgw3.law.pace.edu/cases/990517u1.html]
DATE OF DECISIONS:
JURISDICTION:
TRIBUNAL:
JUDGE(S):
CASE NUMBER/DOCKET NUMBER: 99-0380 Section "K" (1)
CASE NAME:
CASE HISTORY: 1st instance an arbitration proceeding [data on this proceeding not yet available]
SELLER'S COUNTRY: Italy (defendant)
BUYER'S COUNTRY: U.S.A. (plaintiff)
GOODS INVOLVED: Medical equipment (mammography units)
United States: U.S. District Court 17 May 1999
Case Law on UNCITRAL texts (CLOUT) abstract no. 418
Reproduced with permission from UNCITRAL
An Italian manufacturer of radiology materials, defendant, granted to a Louisiana marketing corporation, plaintiff, exclusive marketing rights in the United States for certain mammography units. A dispute arose as to which party bore the burden of complying with U.S. governmental safety standards. The dispute was submitted to arbitration and the arbitrators awarded damages to the plaintiff because the defendant had delivered units that failed to comply with U.S. safety standards.
The plaintiff sought judicial confirmation of the award under the Federal Arbitration Act rather than under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The defendant challenged the award on the grounds that the arbitrators had exceeded their authority by their manifest disregard of international sales law. Specifically, the defendant argued that the arbitrators misapplied the CISG and had refused to follow a German Supreme Court case interpreting the CISG (CLOUT Case 123). The issue before the Court was whether to confirm an arbitral award that allegedly misapplied the CISG.
The Court noted that the arbitrators had carefully considered the German case and had concluded that the situation before them fit within an exception recognized by the German Supreme Court. The Court therefore held that the arbitrators had not exceeded their authority and confirmed the arbitral award.
APPLICATION OF CISG: Yes [Article 1(1)(a)] APPLICABLE CISG PROVISIONS AND ISSUES Key CISG provisions at issues: Classification of issues using UNCITRAL classification code numbers:
25B [Definition of fundamental breach: substantial deprivation of expectation, etc.]; 35B [Conformity of goods to contract: requirements implied by law];
49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]
Descriptors: Excerpt from Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at n.590 "A U.S. example of the proper application of CISG interpretive methodology is Medical
Marketing International, Inc., v. Internazionale Medico Scientifica, S.R.L., 99-0380, 1999 U.S. Dist.
LEXIS 7380, at *6 (E.D. La. May 17, 1999), available at
<http://cisgw3.law.pace.edu/cases/990517u1.html>. The District Court cited a German Supreme Court
case for the proposition that Article 35 of the CISG does not require the seller to supply goods that
conform to laws and regulations in effect in the buyer's country. See Einscheidunger des BGH VIII
ZR 159/94, Mar. 8, 1995 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/950308g3.html> [English translation by Walter, Conston, Alexander & Green, P.C., editors: William M. Barron, Esq. & Birgit Kurtz, Esq.] (last
updated Dec. 2003). The German case involved the sale of New Zealand mussels by a Swiss
company to a German importer. The cadmium content of the mussels exceeded the allowable limits
under German law but was acceptable under Swiss law. The decision process under Article 35
required the court to first determine whether a violation of government regulations constitutes a
defect under Article 35(2)(a), which requires that the goods be 'fit for the purposes for which goods
of the same description would ordinarily be used or whether the regulations are simply a feature of
the local environment affecting use of the goods. Since health, safety, and environmental regulations
vary dramatically from country to country, the real question -- assuming that regulations affect fitness
of purpose -- is whether it is the regulations of the seller's country or the buyer's country that affect
fitness.' CISG, supra note 4, at art. 35(2)(a). The German Supreme Court held for the seller's
country, unless the buyer stipulated its own country requirements should have been met. The German
court depended heavily upon authoritative commentary to reason to this conclusion, stating:
'According to the absolutely prevailing opinion in the legal literature, which this Court follows, the
compliance with specialized public law provisions of the buyer's country or the country of use cannot
be expected.' BGHZ, VIII ZR 159/94, supra note 590; see generally, Peter Schlechtriem, Case
Commentary, Conformity of the Goods and Standards Established by Public Law: Treatment of
Foreign Court Decision as Precedent, available at <http://cisgw3.law.pace.edu/cases/990517u1.html>
(last updated Dec. 2003); Andrew J. Kennedy, Recent Developments: Non-conforming Goods Under the CISG -- What's a Buyer to Do?, 16 Dick. J. Int'l L. 319 (1998). An abundant literature has
chronicled and commented upon this decision. See, e.g., Honnold, Uniform Law for International
Sales, supra note 53; Karollus, Cornell Review of the CISG (1995) 51 [Arts. 67-68] (comment on
conformity-of-the-goods ruling); Schwenzer in Schlechtriem, Commentary on the UN Convention
on the International Sale of Goods 280 (1998) [Art. 35] at n.57; Bernstein & Lookofsky,
Understanding the CISG in Europe, 2d ed. (2003), § 2-8 at n. 113 & § 4-7 at n.94. The Medical
Marketing decision is an example of the convergence in CISG interpretation based first on learned
commentary and then the integration of the thinking of the best foreign decisions on the given issue.
Courts in both Argentina and Austria came to similar results drawing upon reasoning from other
national courts' experience to produce more uniform interpretation of the CISG. See Second Instance
Court of Appeal, Apr. 24, 2000, (Arg.), available at <http://cisgw3.law.pace.edu/cases/000424a1.html>; OG 2 Ob 100/00w, Apr. 13, 2000 (Aus.) available at
<http://cisgw3.law.pace.edu/cases/000413a3.html> [English translation by Schönherr Rechtsanwälte OEG, Vienna, Austria, editor: Dr. Elke Napokoj, Esq.]. The Austrian court noted, Case abstract
Classification of issues present
Editorial remarks
'[a] seller cannot be expected to know all special rules of the buyer's country or the country of
usage ... . It is rather for the buyer to observe her country's public law provisions and specify these
requirements -- either according to Art. 35(1) or (2)(b) CISG -- in the sales contract ... [t]he
requirements of the buyer's country should only be taken into account if they also apply in the seller's
country, in they are agreed on, or if they are submitted to the seller at the time of the formation of
the contract, according to Art. 35(2)(b).'
This use of uniformity principle is not without critics. See, e.g., Fletcher, Several Texts, supra note 6, arguing that the German court applied an unduly rigid standard of uniformity."
CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=360&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (English): Text presented below; see also 1999 U.S. Dist. LEXIS 7380; 1999 WL 311945 (E.D. La.); Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=360&step=FullText>
Translation: Unavailable
CITATIONS TO COMMENTS ON DECISION
English: Schlechtriem (1999), text presented below; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [conformity of goods 187-207 (this case at 192-194)]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) § 2-5 n.37; § 4-7 n.95; René Henschel, Conformity of Goods in International Sales Governed by CISG, pdf access at Nordic Journal of Commercial Law, Issue 2004 #1 <http://www.njcl.utu.fi> p. 9; [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 46, 47; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 1 para. 16a Art. 7 para. 14 Art. 25 para. 21a Intro. 14-24 para. 7 Art. 35 para. 17 Art. 82 para. 19; Henschel, The Conformity of Goods in International Sales, Forlaget Thomson (2005) 38, 163, 168, 205, 207, 287; Schlechtriem, Case commentary BGH 2 March 2005 (December 2005); Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 264; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.299; Harry M. Flechtner, Conformity of Goods, Third Party Claims, and Buyer's Notice of Breach under the CISG ... University of Pittsburgh School of Law Working Paper Series. Working Paper 64 (August 2007) <http://law.bepress.com/pittlwps/papers/art64>, Section IIA; Keith A. Rowley, "The Convention on the International Sale of Goods", in: Hunter ed., Modern Law of Contracts, Thomson/West (03/2007) § 23:9
French: Papandréou-Deterville, Dalloz Sirey: Paris (November 1999) 369-370
German: Schlechtriem, Praxis des Internationalen Privat- und Verfahrensrechts (1999) 388-390
Go to Case Table of Contents
Case text
Medical Marketing International, Inc. v. Internazionale Medico Scientifica, S.r.l.
Civil Action No. 99-0380 Section "K"(1)
United States District Court for the Eastern District of Louisiana
May 17, 1999, Filed, Entered
DISPOSITION: Application for order conforming arbitral award GRANTED.
COUNSEL: For MEDICAL MARKETING INTERNATIONAL, INC., plaintiff: James H. Gill, Jr., James H. Gill, Jr., Ltd., Michelle Alt Hazlett, LeBlanc, Maples & Waddell, LLC, Baton Rouge, LA.
For INTERNAZIONALE MEDICO SCIENTIFICA, S.R.L., defendant: Gwendolyn S. Hebert, John I. Hulse, IV, Monique M. Garsaud, Hulse & Wanek, New Orleans, LA.
JUDGE: Stanwood R. Duval, Jr., United States District Judge.
OPINION BY: Stanwood R. Duval, Jr.
Opinion: Order and Reasons
Before the court is an Application for Order Conforming Arbitral Award and Entry of Judgment, filed by plaintiff, Medical Marketing International, Inc. ["buyer"]. Having considered the memoranda of plaintiff, and the memorandum in opposition filed by defendant, Internazionale Medico Scientifica, S.r.l. ["seller"], the court grants the motion.
Factual Background
[Buyer] is a Louisiana marketing corporation with its principal place of business in Baton Rouge, Louisiana. [Seller] is an Italian corporation that manufactures radiology materials with its principal place of business in Bologna, Italy. On January 25, 1993, [buyer] and [seller] entered into a Business Licensing Agreement in which [seller] granted exclusive sales rights for Giotto Mammography H.F. Units to [buyer].
In 1996, the Food and Drug Administration ("FDA") seized the equipment for non-compliance 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. [Buyer] 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 [buyer] 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 [buyer], and the other 25% to [seller]. [Seller] moved for reconsideration on December 30, 1998, and this request was denied by the arbitrators on January 7, 1999. [Buyer] now moves for an order from this court confirming the arbitral award and entering judgment in favor of the [buyer] 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 Louisiana 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, 76 L. Ed. 2d 298 (1983), Wilko v. Swan, 346 U.S. 427, 436-37, 74 S. Ct. 182, 187-88, 98 L. Ed. 168 (1953), overruled on other grounds, 490 U.S. 477, 109 S. Ct. 1917, 104 L. Ed. 2d 526 (1989).
[Seller] 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, [seller] 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.
[Buyer] 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, [seller] argued that [buyer] was not entitled to avoid its contract with [seller] based on non-conformity under Article 49, because [seller's] breach was not "fundamental." [Seller] argued that CISG did not require that it furnish [buyer] with equipment that complied with the United States GMP regulations. To support this proposition, [seller] 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 [seller] was, or should have been, aware of the GMP regulations prior to entering into the 1993 agreement, and explained their reasoning at length. [Seller] 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.
New Orleans, Louisiana, this seventeenth day of May, 1999.
Stanwood R. Duval, Jr.
United States District Judge
Conformity of the goods and standards established by public law Medical Marketing International, Inc. v. Internazionale Medico Scientifica, S.r.l.
U.S. District Court, Eastern District of Louisiana, 17 May 1999
Commentary by
Translated by André Corterier
Introduction Standards established by public law, which may have immense impact on the usefulness goods,
but that can vary from country to country, pose a special problem in transnational sales. This
problem was evidently overlooked at the creation of the CISG. The German Supreme Court
(BGH) first had occasion in 1995 to decide whether the conformity of goods is governed by the
statutes, regulations, etc. of the country of the seller or that of the buyer. In the famous "New
Zealand mussels" case, in which it was alleged that the cadmium contamination of the mussels
was acceptable by the standards of the country of the seller (Switzerland),[1] the court ruled -
simplified - in favor for the laws of the country of the seller, while leaving room for a number
of exceptions. The decision did not meet with universal approval, because it does not
completely do justice to the problems resulting from diverging standards established by public
law.[2] The U.S. District Court decision, Medical Marketing International Inc. v. Internazionale
Medico Scientifica, S.r.l.,[3] illuminates the problem in stark contrast. Annotation A producer of medical equipment (mammography units) located in Italy had entered into a
contract with a trading company located in Louisiana, U.S.A., according to which the American
company had exclusive distribution rights for the products of the Italian company. Under the
auspices of this contract, equipment had been delivered in 1996, which was seized by the U.S.
FDA (Food and Drug Administration) because it did not conform to relevant safety standards
or did not carry proof of such conformity. After futile attempts at mediation, the American party sought recourse before an arbitral
tribunal. Applying the CISG, the tribunal confirmed the avoidance of the contract by the
American claimant due to breach of contract and ordered the Italian seller to pay damages.
The District Court had to rule upon the confirmation and enforcement of the arbitral award
according to 9 U.S.C. § 9. Such review of an arbitral award can only concern specific areas;
the defendant had alleged that the award against it had occurred due to a "manifest disregard of
international sales law", particularly the CISG and the German Supreme Court decision of 8
March 1995, upon which defendant relied as precedent. The federal court, in reviewing the arbitral award, therefore had to judge whether the arbitral
tribunal had evidenced a "manifest disregard of international sales law" in its application of the
CISG. To do so, it had to judge the importance and content of the cited decision of the
German Supreme Court in the New Zealand mussels case. The court therefore treated the
German decision as precedent [4] and held, that the BGH (German Supreme Court) had
principally relied on the public law standards in the country of the seller, but had also
acknowledged three exceptions. The District Court identified these exceptions as: "(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 arbitral tribunal had based its decision on the third exception and therefore considered the
Good Manufacturing Practices (GMP) for Medical Device Regulations to be relevant for the
determination of conformity of the goods. The District Court did not consider this to be a
violation of the CISG "and the law as articulated by the German Supreme Court". Rather, it
considered the arbitral tribunal to have carefully weighed the German decision and correctly
based its decision on the exception, rather than the rule formulated by the BGH. Significance of the ruling The decision of the federal court - as well as the arbitral award - are worthy of attention for
several reasons. - On the one hand, in applying the standards of the country of the buyer for the
determination of the conformity of the goods, the federal court ruled that the arbitral tribunal
decided on the merits contrary to the general rule handed down in the BGH decision.
Interesting also is the fact that a fundamental breach of contract (Art. 25 CISG) was assumed
without further discussion, justifying an avoidance of contract according to Art. 49 CISG.
Finally, sales law was, without further discussion, applied to deliveries under a distribution
contract. - On the other hand, the decision of the U.S. federal court is remarkable because it treats a
foreign court decision as precedent, or at the least as "authority" and thus treats uniform
international law similar to American law with the - for American courts self-understood -
consideration given to decisions of their neighboring states under the (American) common law.
In other words, it treated the CISG as a kind of international common law, the application and
development of which is in the hands of the courts of all nations party to the Convention, which
must therefore also give consideration to decisions made in other countries - in this case, "the
law as articulated by the German Supreme Court". [The German Supreme Court had based its decision on the fact that ". . . it . . . is the dominant
opinion in literature, which this court adopts as its own, that the meeting of special standards
established by public law in the country of the buyer or user can generally not be expected of
the seller."[5] According to several opinions in literature (cited by the German Supreme Court),
standards established by public law in the country of the seller should be considered in the
evaluation of the conformity of the goods according to Art. 35(2)(b) CISG only if the buyer
had made the seller aware of them and relied on or had reason to rely on seller's expertise, or if
the standards were known to or should have been known to the seller due to particular
circumstances.]
FOOTNOTES
1. BGHZ 129, 75 et seq.; see also http://cisgw3.law.pace.edu/cases/950308g3.html.
2.
Compare Schlechtriem, "Vertragsgemäße Beschaffenheit der Ware als Frage der
Beschaffenheitsvereinbarung" [Conformity of the Goods as a Question of Contractual Description], IPRax
1996, 12-16.
3.
1999 WL 311945 (E.D. La.) = 1999 U.S. Dist. Lexis 7380; see also
"http://cisgw3.law.pace.edu/cases/990517u1.html".
4.
Concerning the details of binding precedent (stare decisis) and consideration given to precedents that are not
binding, but may be considered as persuasive authority, see Blumenwitz, "Einführung in das anglo-amerikanische Recht" [Introduction to Anglo-American law], 6th ed. 1998, p. 31 et seq.
5.
See Section II.1.a)bb) of the court's opinion, with extensive citations to literature. BGHZ 129, 75 et seq;
"http://cisgw3.law.pace.edu/cases/950308g3.html".Case commentary
Treatment of foreign court decision as precedent
Peter Schlechtriem [*]
Pace Law School
Institute of International Commercial Law - Last updated January 9, 2008