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CISG CASE PRESENTATION

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]

Primary source(s) for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISIONS: 19990517 (17 May 1999)

JURISDICTION: United States [federal court]

TRIBUNAL: U.S. District Court, Eastern District of Louisiana [a federal court of 1st instance]

JUDGE(S): Stanwood R. Duval, Jr.

CASE NUMBER/DOCKET NUMBER: 99-0380 Section "K" (1)

CASE NAME: Medical Marketing International, Inc. v. Internazionale Medico Scientifica, S.r.l.

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)


Case abstract

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.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Article 7(1) ; Article 25 ; 35(2) ; 49

Classification of issues using UNCITRAL classification code numbers:

7A2 [Uniformity in application of Convention];

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: Uniformity ; Conformity of goods ; Avoidance ; Fundamental breach

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Editorial remarks

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,

'[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."

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Citations to other abstracts, case texts and commentaries

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

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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

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Case commentary

Conformity of the goods and standards established by public law
Treatment of foreign court decision as precedent

Medical Marketing International, Inc. v. Internazionale Medico Scientifica, S.r.l. U.S. District Court, Eastern District of Louisiana, 17 May 1999

Commentary by
Peter Schlechtriem
[*]

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

* This is an English adaptation of a commentary by Prof. Schlechtriem, published in Germany in Praxis des Internationalen Privat- und Verfahrensrechts (1999) 388-390.

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".

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Pace Law School Institute of International Commercial Law - Last updated January 9, 2008
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