SW Legal studies in Business

Illegality Defense Not Available if Action Not Clearly Illegal
Description Appeals court affirmed a breach of contract judgment and rejected a defense that the contract required the breaching party to violate federal regulations. Since the party never attempted to follow the regulatory procedure involved, it could not know if the action required in the contract was proper or not.
Topic Contracts
Key Words Breach; Defense; Illegality
C A S E   S U M M A R Y
Facts GE contracted to produce a new home uterine activity monitor (HUAM) based on technology owned by Biomedical. HUAMs are medical devices regulated by the FDA. The contract required GE to obtain premarket notification clearance from the FDA. For such clearance, the maker must give the FDA 90 days notice of intent to market the device if it is substantially similar to devices already approved for sale. Rather than seek clearance, GE asked the FDA to reclassify the new device; that process took over three years. Biomedical sued GE for breach of contract and the jury awarded it $75 million in damages. GE appealed, contending that the clearance procedure Biomedical wanted in the contract violated FDA procedure.

Affirmed. The defense of illegality, because GE contended the clearance procedure was not proper under FDA rules is not available. The contract stated that GE would apply for clearance and it did not. It was for the FDA to decide if clearance was available; GE failed to find out.

Citation Biomedical Systems Corp. v. GE Marquette Medical Systems, Inc., 287 F.3d 707 (8th Cir., 2002)

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