BIOTRONIK, ETC. v. Medford Medical Instrument Co.

• Decision Date: 12 May 1976
• Docket Number: Civ. A. No. 75-1042.
• Citation: 415 F. Supp. 133
• Parties: BIOTRONIK MESS-und THERAPIEGERAETE GmbH & CO., Petitioner, v. MEDFORD MEDICAL INSTRUMENT COMPANY, Respondent.
• Court: U.S. District Court — District of New Jersey

415 F. Supp. 133

BIOTRONIK MESS-und THERAPIEGERAETE GmbH & CO., Petitioner, v. MEDFORD MEDICAL INSTRUMENT COMPANY, Respondent.

Civ. A. No. 75-1042.

United States District Court, D. New Jersey.

May 12, 1976.

Waldron Kraemer, Kasen & Kraemer, Newark, N. J., for petitioner.

Peter R. Pinney, James D. Fornari, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for respondent.

OPINION

BROTMAN, District Judge.

This is an action to enforce an arbitration award entered by the International Chamber of Commerce Court of Arbitration at Berne, Switzerland, on December 30, 1974. The petitioner, Biotronik Mess-und Therapiegeraete GmbH & Co., (hereafter "Biotronik") is a West German manufacturer of implantable cardiac pacemakers and accessories. The respondent, Medford Medical Instrument Co. (hereafter "Medford"), a New Jersey corporation with its principal place of business in Medford, New Jersey, served as Biotronik's American distributor from December 1969 until January 1972.

The action arises under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1970 3 U.S.T. 2517, T.I.A.S. No. 6997,¹ and 9 U.S.C. § 201.² The application to confirm the award is brought pursuant to 9 U.S.C. § 207,³ and is before the court by motion.⁴ Jurisdiction of the court is conferred by 9 U.S.C. § 203⁵ and 28 U.S.C. § 1331.

Facts

Medford's distributorship arrangement consisted of two written agreements. In the First Agreement, executed on December 20, 1969, Biotronik granted Medford the exclusive right to market its products in the United States until February 1, 1971. On January 16, 1971, the parties negotiated a second exclusive-distributorship agreement that was to run for a period of twelve months beginning February 1, 1971. In October of 1971, Biotronik exercised its right to terminate the Second Agreement at the end of one year.⁶ Biotronik subsequently appointed another firm, Concept Inc., to be its new American distributor.

Six months later, in June, 1972, a dispute arose over several shipments of products that Biotronik had made to Medford immediately prior to the termination of the Second Agreement. Biotronik demanded payment for four shipments of goods in the amount of $65,403.60. Medford did not deny its liability for the shipments, but by letter dated July 17, 1972 claimed to possess breach-of-contract claims arising out of alleged oral promises by Biotronik to renew Medford's distributorship, and other grounds. Medford proposed a mutual renunciation of claims, which Biotronik rejected. Opinion of the Arbitrators ¶¶ 3, 4.^6a

The Second Agreement contained the following provision for the resolution of such disputes:

13. In the event of any controversy or claim arising out of or related to any provision of this agreement, or the breach thereof, the parties shall attempt to reach an amicable settlement. If they fail to agree, the dispute shall be settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris, France, by three arbitrators appointed in accordance with the laws then prevailing. The arbitration shall take place in Berne, Switzerland. German material law (Materielles Recht) and German law of procedure (Prozessrecht) must be applicated sic. The award shall be final and binding and may be entered in any court having jurisdiction or application may be made to any court for judicial acceptance of the award or an order for enforcement, as the case may be.

When the parties were unable to reach a settlement, Biotronik, on February 14, 1973, submitted the matter to arbitration pursuant to the above contractual provision. Medford apparently had notice of the pendency of the arbitration, since it submitted to the panel a copy of its July 17, 1972 letter which served as a denial of Biotronik's claims. Opinion of the Arbitrators ¶ 5. In any event, Medford pointedly does not attack the adequacy of notice in this court.⁷ Biotronik ultimately prevailed in the arbitration and was awarded the sum of $56,306.78 together with interest and costs.⁸

The Third Agreement

Medford's opposition to the enforcement of the arbitration award is based on a document that it characterizes as the "Third Agreement." This agreement was purportedly executed on January 31, 1972, one day prior to the termination of Medford's distributorship. Written in the handwriting of Medford's president on a sheet of its stationery, the Third Agreement reads in its entirety:

Stating that a 5% Commission is to be paid to Medford Medical Instrument Co. on the total sales of Biotronik Pacemakers in the United States for the first year 1972 and a 3% Commission will be paid for the second year 1973. This is to Medford Medical for helping Concept get started in the U. S. market.

According to Medford, this agreement entitled it to commissions on the total sales of Biotronik's pacemakers in the United States for two years after the termination of the distributorship. Medford further alleges that the parties agreed to credit the commissions against any outstanding sums owed by Medford to Biotronik. Medford maintains that it never owed Biotronik the amount awarded in the arbitration proceeding because the commissions, which were never paid, either offset or exceeded Biotronik's original claim.

Background of the Convention

In 1958, some twenty-six of the forty-five member nations adopted the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 330 U.N.T.S. 38 (hereafter "the Convention"). The Convention superseded two earlier multilateral treaties adopted by the League of Nations, the Geneva Protocol on Arbitration Clauses, opened for signature September 24, 1923, 27 L.N.T.S. 157, and the Geneva Convention on the Execution of Foreign Arbitral Awards, opened for signature September 26, 1927, 92 L.N.T.S. 301.

The basic thrust of the Convention was to liberalize the procedures for enforcing foreign arbitral awards. The 1927 Geneva Convention had placed the burden of proof on the party seeking enforcement of the award and did not limit the defenses available to the party opposing enforcement. The 1958 Convention shifted the burden of proof in an enforcement action to the party opposing enforcement and limited its defenses to the seven set forth in Article V.⁹ See Parsons & Whittemore Overseas Co. v. Societe Generale De L'Industrie Du Papier (RAKTA), 508 F.2d 969, 973 (2nd Cir. 1974); Contini, International Commercial Arbitration, 8 Am.J.Comp.L. 283, 299 (1959).

The United States was not a signatory to the Convention when it was concluded in 1958, but this country did ratify it in 1970. 1970 3 U.S.T. 2517, T.I.A.S. No. 6997. Congress enacted Chapter 2 to Title 9, the United States Code, 9 U.S.C. §§ 201-208, to implement our obligations under the Convention. The provisions of Chapter 1 of Title 9, the United States Arbitration Act, 9 U.S.C. § 1 et seq., were made applicable to Chapter 2 to the extent that they do not conflict with the Convention. 9 U.S.C. § 208.¹⁰

Medford's Defenses, Part I

Medford's first two defenses consist of alternative legal theories, both of which are based upon Biotronik's failure to offer any evidence concerning the Third Agreement to the arbitration panel. Firstly, Medford argues that Biotronik's non-disclosure renders the award "procured by . . . fraud" within the meaning of § 10(a) of the United States Arbitration Act, 9 U.S.C. § 10(a),¹¹ and that fraud, even though not one of the defenses enumerated in Article V of the Convention, became a defense through the incorporation provision of 9 U.S.C. § 208. Secondly, Medford argues that fraud, even if not available as a defense through the operation of § 208, constitutes a defense within the "public policy" defense of Article V(2)(b) of the Convention.¹² For these reasons Medford urges this court to stay the enforcement of the award and order another arbitration proceeding pursuant to 9 U.S.C. § 3.¹³

It is apparent that both of Medford's defenses turn upon whether there is an adequate basis to hold that the award was procured through fraud. Medford contends that Biotronik, when it appeared alone at the arbitration hearing, knowingly withheld evidence concerning the Third Agreement and engaged in a calculated attempt to mislead the arbitrators. Biotronik responds by arguing that, in an adversary system of justice, the failure of one side to prove the other side's case cannot constitute a fraud. On this record, the court concurs with Biotronik, and is unable to conclude that Biotronik's conduct should be denominated fraud within § 10(a).

Most courts have held that an arbitration award is not fraudulently obtained within the meaning of § 10(a) of the United States Arbitration Act when the protesting party had an opportunity to rebut his opponent's claims at the arbitration hearing. E. g., Kirschner v. West Co., 247 F.Supp. 550 (E.D.Pa.), aff'd per curiam, 353 F.2d 537 (3rd Cir. 1965), cert. denied, 383 U.S. 945, 86 S.Ct. 1202, 16 L.Ed.2d 208 (1966); Karppinen v. Karl Kiefer Machine Co., 187 F.2d 32 (2nd Cir. 1951). Karppinen was one of the earliest discussions of this issue; there the party resisting enforcement alleged that the award had been obtained through the knowing use of perjured testimony. The court responded to this argument by saying:

We note only in passing that if perjury is "fraud" within the meaning of the statute then, since it necessarily raises issues of credibility which have already been before the arbitrators once, the party relying on it must first show that he could not have discovered it during the arbitration, else he should have invoked it as a defense at that time. 187 F.2d at 35.

Similar reasoning is applicable here. If, in fact, Biotronik knowingly concealed evidence — that is, the Third Agreement — from the arbitration panel, such misrepresentation would be analogous to perjured testimony. While fraud may arise...