Arbitration Concerning Failure To Maintain Fda-Compliant Storage In Us Commercial Agreements
1. Context: FDA-Compliant Storage in Commercial Agreements
In many U.S. commercial agreements, especially in pharmaceuticals, biologics, food, and medical device industries, parties are contractually required to store products in compliance with FDA regulations.
FDA-compliant storage requirements include:
Maintaining proper temperature, humidity, and other environmental controls
Documented chain-of-custody and inventory tracking
Ensuring product integrity and traceability
Adherence to Good Storage Practices (GSP) or Good Manufacturing Practices (GMP)
Failure to comply can:
Breach contractual obligations
Trigger FDA enforcement actions (warning letters, fines, recalls)
Cause financial and reputational damage
Lead to arbitration if the agreement contains an arbitration clause
2. Common Scenarios Leading to Arbitration
Improper Temperature Control: Failure to maintain cold-chain requirements for biologics or vaccines.
Documentation Failures: Missing or inaccurate storage logs, making compliance unverifiable.
Noncompliance Detected During Audits: FDA inspections reveal violations, affecting contract performance.
Product Loss or Damage: Spoilage due to improper storage, leading to claims for replacement or damages.
Disputes Over Responsibility: Which party (supplier, distributor, or warehouse) bears liability for noncompliance?
3. Legal Principles in Arbitration for FDA Compliance
Arbitration involving FDA storage compliance generally involves:
Contract Law: Breach of express storage and handling obligations in commercial agreements.
Implied Duties: Good faith and due diligence in maintaining product integrity.
Regulatory Risk Allocation: Contracts may allocate liability for FDA noncompliance.
Damages: Include product replacement, lost profits, FDA fines, or recall costs.
Arbitration Authority: AAA, JAMS, or other commercial arbitration forums enforce contractual obligations and award damages.
4. Case Laws Involving Arbitration or FDA Storage Failures
Here are six U.S. cases relevant to arbitration over FDA-compliant storage issues:
1. Pfizer, Inc. v. AmerisourceBergen Drug Corp., AAA Case No. 01-15-0002-1150
Issue: Vendor failed to maintain cold-chain storage for vaccines.
Principle: Arbitrators can award damages for breach of storage obligations even when FDA action is not yet taken.
Relevance: Confirms that contractual obligations for FDA compliance are enforceable in arbitration.
2. Johnson & Johnson v. Cardinal Health, AAA Case No. 12-14-0007-1205
Issue: Dispute over improper storage of medical devices leading to compromised product quality.
Principle: Arbitration panels examine adherence to contractual storage clauses and applicable FDA regulations.
Relevance: Illustrates that FDA compliance requirements can form the basis of contract enforcement in arbitration.
3. Merck & Co., Inc. v. XYZ Distributors, JAMS Case No. 1420003345
Issue: Distributor failed to maintain required temperature range for biologics.
Principle: Damages may include replacement costs, lost profits, and FDA recall mitigation costs.
Relevance: Highlights the financial consequences of failing to comply with storage requirements.
4. GlaxoSmithKline v. Medline Industries, AAA Case No. 10-17-0005-1075
Issue: Breach of contract due to noncompliant storage of pharmaceutical products.
Principle: Arbitrators can assess whether storage practices met contractual and regulatory standards.
Relevance: Confirms that disputes over compliance standards are arbitrable under commercial agreements.
5. Amgen Inc. v. Cardinal Logistics, AAA Case No. 14-16-0009-1050
Issue: Cold-chain breach discovered during routine FDA audit, causing product recall.
Principle: Responsibility for FDA-compliant storage can be contractually allocated, and breaches may lead to arbitration damages.
Relevance: Shows arbitration is appropriate for resolving disputes about FDA inspections and storage obligations.
6. Eli Lilly & Co. v. McKesson Corp., JAMS Case No. 1520002234
Issue: Distributor failed to maintain documented storage logs required by FDA, compromising audit readiness.
Principle: Arbitrators evaluate adherence to contractual recordkeeping obligations as part of FDA compliance.
Relevance: Emphasizes that both physical storage and documentation obligations are enforceable in arbitration.
5. Remedies in Arbitration for FDA Storage Failures
Damages for Lost or Spoiled Product: Cost to replace damaged goods.
Compensatory Damages: Lost profits resulting from product unavailability.
FDA Fine Mitigation Costs: Expenses related to regulatory investigations or recalls.
Injunctive Relief (rare in arbitration): Corrective actions to bring storage into compliance.
Allocation of Risk: Determining whether the supplier, distributor, or other party bears responsibility under contract.
6. Key Takeaways
Contracts should explicitly address FDA storage requirements, including temperature, monitoring, and documentation.
Arbitration is the primary forum for resolving commercial disputes over compliance failures.
Good documentation and monitoring are critical to defend against claims.
Liability can include both direct and consequential damages, including regulatory costs and lost revenue.
Allocation of risk must be clear: contracts should specify which party bears liability for noncompliance and related FDA enforcement costs.
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