# Appendix — Sumitomo Shoji America, Inc. v. Avagliano

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1982
- **Citation:** 457 U.S. 176

## Text

APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

7
No. 314—September Term, 1980
(Argued: October 17, 1980 Decided: January 9, 1981)
Docket No. 80-7418

~~

LISA M. AVIGLIANO, DIANNE CHENICEK, ROSEMARY T. CRIS-
TOFARI, CATHERINE CUMMINS, RAELLEN MANDELBAUM,
MARIA MANNINA, SHARON MEISELS, FRANCES PA-
CHECO, JOANNE SCHNEIDER, JANICE SILBERSTEIN, REIKO
TURNER and ELIZABETH WONG,

Plaintiffs-Appellees,

—against—

SUMITOMO SHOJI AMERICA, INC.,

Defendant-Appellant.
t-
Before:
LUMBARD, MANSFIELD and MESKILL,
Circuit Judges.

2a

Interlocutory appeal pursuant to 28 U.S.C. § 1292(b) from
an order of the District Court for the Southern District of New
York, entered by Judge Charles H. Tenney denying defendant’s
motion to dismiss plaintiffs’ claims of discrimination in viola-
tion of Title VII of the Civil Rights Act of 1964, 42 U.S.C.
§§ 2000e, ef seq., on the ground that the 1953 Treaty of
Friendship, Commerce and Navigation between the United
States and Japan exempts defendant from any legal challenge
to its practice of filling its executive-level positions with
Japanese nationals.

Affirmed and remanded.

—

J. PORTIS HICKS, Esq., New York, NY (Wender,
Murase & White, New York, NY, of counsel),
Sor Appellant.

LEwis M. STEEL, Esq., New York NY (Eisner
Levy Steel & Bellman, P.C., New York, NY,
of counsel), for Appellees.

MARCIA B. RUSKIN, Attorney, Equal Employ-
ment Opportunity Commission, Washington,
DC (Leroy D. Clark, General Counsel, Jo-
seph T. Eedins, Associate General Counsel,
Lutz Alexander Prager, Attorney, Equal Em-
ployment Opportunity Commission, Wash-
ington, DC, of counsel), for Amicus Curiae
Equal Employment Opportunity Commis-
sion.

MANSFIELD, Circuit Judge:

Sumitomo Shoji America, Inc. (“Sumitomo”), a New York-
incorporated, wholly-owned subsidiary of a Japanese commer-
cial firm, appeals pursuant to 28 U.S.C. § 1292(b) from an

3a

order of the District Court for the Southern District of New
York entered by Judge Charles H. Tenney, denying its motion
to dismiss this class action against it by female secretarial
employees claiming that its practice of hiring only male
Japanese nationals for management-level positions discrimi-
nates against them on the basis of sex and national origin in
violation of Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. §§ 2000e, et seq. (“Title VII”), the Civil
Rights Act of 1966, 42 U.S.C. § 1981, and the Thirteenth
Amendment. Dismissal was sought by Sumitomo pursuant to
F.R.Civ.P. 12(b)(6) on the ground that the 1953 Treaty of
Friendship, Commerce and Navigation between the United
States and Japan, 4 U.S.T. 2063 (the “Treaty” or “Japanese
Treaty”), exempts Japanese trading companies and their
wholly-owned subsidiaries incorporated in the United States
from the application of Title VII. Judge Tenney denied Sumi-
tomo’s motion insofar as it sought dismissal of plaintiffs’ Title
VII claims,' on the ground that the Treaty was not meant to
protect the employment practices of Japanese subsidiaries
incorporated in the United States. 473 F. Supp. 506. Sumitomo
sought an immediate appeal of this question under 28 U.S.C.
§ 1292(b), and that request was granted.’

! The district court did, however, dismiss plaintiffs’ § 1981 claim on
other grounds, and also found that plaintiffs’ Thirteenth Amendment
claim had been abandoned.

2 Avigliano, et al. v. Sumitomo Shoji America, Inc., No. 77 Civ. 5641
(CHT) (August 9, 1979) (unreported). Judge Tenney refused to certify
two questions of law which plaintiffs had sought to appeal: whether an
allegation of sex and nationality discrimination makes out a valid
cause of action under § 1981, and whether defendant's counterclaims
sounding in common law tort should have been dismissed. Neither
issue is before us this time

Before the appeal could be heard counsel for Sumitomo sought
reconsideration of Judge Teeney’s refusal to dismiss, based on the U.S.
Department of State’s recent release of a number of documents which
apparently were relevant to a proper interpretation of the Japanese
Treaty. Judge Tenney granted Sumitomo’s request for reconsideration,
and this Court in effect remanded to Judge Tenney by denying
Sumitomo’s permission to appeal, but without prejudice to a later
renewal of that request. After reconsideration based on the State

4a

We affirm, but on grounds other than that relied on by the
district court. We hold that Sumitomo was entitled to invoke
the employment provisions of the Treaty, but that the Treaty
does not exempt Japanese companies operating in the United
States, whether or not they are incorporated in the United
States, from American laws prohibiting discrimination in em-
ployment.

The Japanese Treaty is a commercial agreement designed to
encourage trade and investment between the United States and
Japan. It is one of several dozen similar treaties entered into by
the United States in the post-World War II period, and carries
on a tradition antedating the Constitution. See generally,
Walker, 7Jreaties for the Encouragement and Protection of
Foreign Investment: Present United States Practice, § Am. J.
Comp. L. 229, 230-31 (1956) (hereinafter cited as Treaties).
The general aim of these treaties is to

“establish or confirm in the potential host country a
governmental policy of equity and hospitality to the
foreign investor. This means, above all, assurance that the
enterprise and property of the alien will be respected and
that he will be accorded equal protection of the laws alike
with citizens of the country.” /d. at 230.

In the Japanese Treaty, as in almost all other Friendship,
Commerce and Navigation (“FCN”) agreements, the goal of
equal protection of the laws is put into effect by means of
specific provisions “based in general upon the principles of
national and of most-favored-nation treatment unconditionally
accorded.” 4 U.S.T. at 2066.

The heart of the Japanese Treaty is Article VII, which the
State Department has called “the basic ‘establishment’ provi-

Department documents, Judge Tenney once again denied Sumitomo’s
motion to dismiss, this time on the ground that, while Japanese
subsidiaries incorporated in the United States are given some rights by
the Treaty, the specific provision of the Treaty on which Sumitomo was
relying was not intended to apply to subsidiaries. Avigliano, et al. v.
Sumitomo Shoji America, Inc., No. 77 Civ. 5641 (CHT) (November
29, 1979) (unreported).

Sa

sion.” Outgoing Airgram No. A-453, Department of State to
USPOLAD, Tokyo, dated January 7, 1952. Article VII pro-
vides in relevant part that:

“Nationals and companies of either Party shall be ac-
corded national treatment with respect to engaging in all
types of commercial, industrial, financial and other busi-
ness activities within the territories of the other Party,
whether directly or by agents or through the medium of
any form of lawful juridical entity. Accordingly, such
nationals and companies shall be permitted within such
territories: (a) to establish and maintain branches, agen-
cies, offices, factories and other establishments appropri-
ate to the conduct of their business; (b) fo organize
companies under the general company laws of such other
Party, and to acquire majority interests in companies of
such other Party; and (c) to control and manage en-
terprises which they have established or acquired. More-
over, enterprises which they control, whether in the form
of individual proprietorships, companies or otherwise,
shall, in all that relates to the conduct of the activities
thereof, be accorded treatment no less favorable than that
accorded like enterprises controlled by nationals and com-
panies of such other Party.” 4 U.S.T. at 2069. (Emphasis
supplied.)

In order to facilitate the staffing of overseas operations, the
Treaty provides in Article I that:

“Nationals of either Party shall be permitted to enter the
territories of the other Party and to remain therein:

(a) for the purpose of carrying on trade between the
territories of the two Parties and engaging in related
commercial activities. . . .” Jd. at 2066,

and in Article VIII that

“Nationals and companies of either Party shall be permit-
ted to engage, within the territories of the other Party,
accountants and other technical experts, executive person-

6a

nel, attorneys, .agents and other specialists of their
choice.” Id. at 2070. (Emphasis supplied).

Implementing these provisions, the State Department has is-
sued regulations applicable to the FCN treaties which greatly
facilitate the entry into the United States of Japanese nationals
who will work as “treaty traders” for Japanese trading units
set up pursuant to Article VII of the Treaty. 22 C.F.R. § 41.40.

In addressing defendant’s motion to dismiss based on the
Treaty, the district court did not rule on whether the freedom-
of-choice language of Article VII (“companies of either Party
shall be permitted to engage, within the territories of the other
Party, . . . executive personnel . . . of their choice”) was
sufficiently broad to exempt Japanese subsidiaries operating in
the United States from the anti-discrimination provisions of
Title VII of the Civil Rights Act of 1964. 473 F. Supp. at
509-13. Its ruling was instead limited to the question of
Sumitomo’s standing. In its first opinion, the court held that a
U.S.-incorporated subsidiary such as Sumitomo could not
“invoke the aegis of the Treaty as sanction for its employment
practices,” 473 F. Supp. at 509, because the definitional section
of the Treaty, Article XXII(3), provides that:

“Companies constituted under the applicable laws and
regulations within the territories of either Party shall be
deemed companies thereof and shall have their juridical
status recognized within the territories of the other Party.”
Article XXII(3), 4 U.S.T. at 2080; quoted at 473 F. Supp.
at 509. (Emphasis supplied).

In the court’s opinion, the emphasized language of Article
XXII(3) had the effect of classifying Sumitomo as an Ameri-
can, not a Japanese corporation, and thus barred it from
invoking Article VIII. In its second opinion (dated November
29, 1979) the court conceded that

“Article XXII(3) was not intended to bar locally incorpo-
rated subsidiaries of foreign companies from claiming any
substantive rights under the Treaty.”

7a

Nevertheless, despite its finding that Article XXII(3) did no
more than determine “an entity’s status” and was not meant to
limit or define the substantive rights which an entity was to
enjoy under the Treaty, the district court refused to alter its
original view that Sumitomo lacked standing to invoke Article
VIII:

“Articles VI(4) and VII(1) & (4), by their terms, give
‘enterprises in which nationals and companies. . . have a
substantial interest’ and enterprises controlled by na-
tionals and companies, respectively, substantive rights.
The drafters knew how to give locally incorporated sub-
sidiaries rights under specific articles. In Article VIII(1)
they did not do so. The freedom-of-choice rights are given
to ‘nationals and companies of either Party. . . within
the territories of the other Party.’ Because the provision
does not by its own terms extend to locally incorporated
subsidiaries, the Court must look to Article XXII(3) to
determine whether ‘nationals and companies’ can be read
to include subsidiaries. That Article provides that
‘[c]ompanies constituted under the applicable laws and
regulations within the territories of either Party shall be
deemed parties thereof.’ By this language Sumitomo is a
United States company. It is not a Japanese company and
is thereby ineligible for freedom-of-choice protection
within the territories of the United States.”

DISCUSSION

Sumitomo’s Standing

We are satisfied that the Treaty’s provisions may be invoked
by a wholly-owned Japanese subsidiary incorporated in the
United States to the same extent that they may be availed of by
Japanese corporations or firms operating in the United States.
To hold that the Japanese business enterprise forfeits its rights
under the Treaty merely because it chooses to function through
a wholly-owned locally-incorporated subsidiary would in our
view disregard substance for form, something which we have

previously rejected in,treaty construction. Reed v. Wiser, 555
F.2d 1079, 1085-86 (2d Cir.), cert. denied, 434 U.S, 922 (1977).
Moreover, such a reading would overlook the purpose of the
Treaty, which was not to protect foreign investments made
through branches, but rather to protect foreign investments
generally. See generally, Eck v. United Arab Airlines, Inc., 360
F.2d 804, 812 (2d Cir. 1966); Maximov v. United States, 299
F.2d 565, 568 (2d Cir. 1962), affd., 373 U.S. 49 (1963). In
addition, if the district court’s reading were adopted, a Jap-
anese enterprise could easily circumvent such a construction by
simply transforming its wholly-owned U.S. subsidiaries into
branches. To adopt such a reading would also in our opinion
do violence to the admittedly unitary structure of Articles VII
and VIII, see, ¢.g., Foreign Service Despatch No. 2529, from
High Commissioner for Germany to the Department of State,
dated March 18, 1954, p. 1. It is unlikely that the parties to the
Treaty would have agreed to grant each other broad rights to
establish and manage subsidiaries abroad in Article VII, and
then gone on to bar those same subsidiaries from invoking
almost all of the substantive provisions which the Treaty
contains.

Finally, if we were to accept the view that the three provi-
sions in the Treaty which explicitly grant rights to subsidiaries
(Article V1(4), Article VII(1) and Article VII(4) exhaust the
rights to be accorded to them, a crazy-quilt pattern would
emerge. Under such a reading Japanese branches in the United *
States would be guaranteed “access to the courts of justice”
(Article IV(1)), protected against “unlawful entry or molesta-
tion” (Article V1(2)), given the right to dispose of “property of
all kinds” (Article 1X(4)), allowed to obtain and maintain
“patents of invention” (Article X), permitted to make “pay-
ments, remittances and transfers of funds or financial instru-
ments” (Article XII(1)), and allowed to engage in “importation
and exportation” (Article XIV(5)). Japanese subsidiaries, on
the other hand, would not be guaranteed any of the rights
conferred on Japanese branches operating in the United States,
but would instead have to be content with national treatment
in such areas as “the taking of privately owned enterprises into

9a

public ownership and .. . the placing of such enterprises
under public control” (Article V1(4)). It is illogical to infer that
the drafters of the Treaty intended to make such a dramatic
distinction between forms of business operation or to act in
such a haphazard way.

In our view the three provisions in the Treaty which specifi-
cally mention subsidiaries were not intended to define the outer
limits of the rights to be accorded to them, but were instead
designed to add to the rights which parties were to enjoy in
their capacity as “companies of either Party.” This construc-
tion furthers the Treaty’s purpose, which is to support foreign
investment generally, regardless of the specific corporate vehi-
cle employed. Given the complete absence of any evidence in
the Treaty’s legislative history suggesting that only Japanese
branches were to be given the various specific guarantees listed
above but that Japanese subsidiaries were not, we are per-
suaded that the form of business operation was not considered
relevant to the question of which entities could invoke the
substantive provisions of the Treaty, except in three instances
where extra protection was to be accorded to subsidiaries.

This interpretation also finds support in negotiations preced-
ing the ratification of another FCN treaty, that between the
United States and the Netherlands. There, Dutch negotiators
expressed concern that the proposed treaty language (which
was identical in all relevant respects to the language contained
in the Japanese Treaty) might be read as not conferring equal
benefits on branches and subsidiaries (or “controlled compa-
nies,” in the usage of the negotiators). The Dutch were particu-
larly concerned that the provision in Article XXIII(3) of the
Dutch treaty (which tracked the language of Article XXI11(3) of
the Japanese Treaty) would exclude locally-incorporated sub-
sidiaries from all substantive benefits accorded to “companies
of either Party.” State Department negotiators made it clear
that this was not the case, and were even prepared to insert a
clarifying phrase in Article XXIII(3), if necessary:

“[D]espite a superficial appearance to the contrary, the
legal adviser’s formulation of the proviso to be inserted in

10a

Article XXIII paragraph 3 was not calculated to detract in
any way from the rights and privileges a ‘controlled
company’ would otherwise enjoy. . . . [T]he treaty is
always a floor and not a ceiling. The effect of the legal
advisor’s formulation was to assure that the ‘controlled
company’ will always, as a minimum, get everything that
the parent company gets as a matter of treaty right—but
was not calculated to detract from any additional privi-
leges that the ‘controlled company’ may actually
have. . . . The Department has the same interests as [the
Dutch negotiators) in avoiding damage to the position of
‘controlled companies’, because Americans have ‘con-
trolled companies’ abroad just as the Dutch have them in
the U.S.” Official-Informal Letter from Herman Walker,
Jr.,[’] Trade Agreements and Treaty Division, Department
of State, to Counselor for Economic Affairs, American
Embassy, the Hague, Netherlands, dated October 28,
1955. (Emphasis in original).

After extensive discussions on the issue, the Dutch negotiators
concluded that there was in fact no need to include in the
Treaty a provision explicitly conferring parent company rights
on subsidiaries:

“[N]obody would deny to a company controlled by na-
tionals or companies of one of the contracting Parties the
treatment, which is accorded to the parent company,
except perhaps in a very special case e.g. taxation. . . .
As the principle is generally accepted I think it would be
superfluous to spell it out.” Letter from Netherlands
Negotiator to Economic Counselor, U.S. Embassy, The
Hague, Netherlands, dated November 8, 1955.

This incident corroborates our view, based on the language
and purpose of the Japanese Treaty, that those provisions

3

The author's identity, while not appearing on the letter itself, can be
determined by noting the addressee of the letter written in reply,
Official-Informal Letter from Counselor of Embassy for Economic
Affairs, American Embassy, The Hague, Netherlands, dated Novem-
ber 4, 1955,

which specifically grant rights to subsidiaries were not intended
to bar subsidiaries from enjoying the additional rights granted
to branches.

In short, as the district court recognized (but did not apply),
Article XXI11(3) defines a company’s nationality for the pur-
pose of recognizing its status as a legal entity but not for the
purpose of restricting substantive rights granted elsewhere in
the Treaty. This view of Article XXII(3) has been adopted
consistently throughout the life of the Treaty, see, e.g., Depart-
ment of State Despatch No. 13 from Office of the United
States Political Adviser for Japan, dated April 8, 1952; Walker,
Provisions on Companies in United States Commercial
Treaties, 50 Am, J. Int’! L. 373, 383 (1956); Department of
State Airgram No. A-105, to American Embassy, Tokyo, dated
January 9, 1976, and in our opinion is supportive of the
general policies underlying the Treaty. The district court's
acceptance of this general proposition is inconsistent with its
eventual conclusion that Article XXII(3) bars Sumitomo from
invoking Article VIII.‘ Since Sumitomo is a wholly-owned

4 Article XXI1(3) leaves open the determination of whether a subsidi-
ary incorporated in the United States is sufficiently “Japanese” to
invoke the Treaty’s various substantive provisions. Resolution of this
issue would depend on a case-by-case analysis of the relevant facts. In
resolving the issue the regulations adopted by the Department of State
in connection with admission of treaty traders are relevant. For a
treaty trader to be admitted,

“The employment must be ... by an organization which is
principally owned by a person or persons having the nationality of
the treaty country.” 22 C.F.R. § 41.40(a).

The State Department has supplemented this basic regulation with visa
rules further prescribing the standards to be met by treaty traders
entering the United States. These rules define the nationality of a
corporation eligible to employ treaty traders as follows:

“The nationality of a firm is determined for the purpose of section
101(a)(15)(E)[8 U.S.C. § 1101(a) of the Immigration and National-
ity Act of 1952] by the nationality of those persons who own the
principal amount (i.¢., more than 50 percent) of the stock of that
corporation, regardless of the place of incorporation.” 9 Foreign
Affairs Manual, Part Il, § 41.40, Note 8. See generally, Matter of
N.S., VILL. & N. Decs, 426, 428 (1957).

12a

subsidiary of a Japanese corporation, it is properly classified
as a Japanese company for the purpose of invoking the
substantive provisions of the Treaty, including Article VIII.’

5 We are aware that the State Department has recently reached a
conclusion on this issue which is at variance with ours. See Letter from
James R. Atwood, Deputy Legal Adviser, U.S. Department of State to
Lutz Alexander Prager, Esq., Assistant General Counsel, Equal Em-
ployment Opportunity Commission, dated September 11, 1979, re-
printed in 74 Am. J. Int’! L. at 158-59 (1980) (“it was not the intent of
the negotiators to cover locally-incorporated subsidiaries”).

Even after giving weight to the State Department’s views, Kolovrat
v. Oregon, 366 U.S. 187, 194 (1961), we do not find its position
persuasive. The September 11, 1979, letter announcing the Depart-
ment’s position directly contradicted a similar letter written on behalf
of the Department less than a year earlier. Letter of Lee R. Marks,
Deputy Legal Adviser, U.S. Department of State to Abner W. Sibal,
General Counsel, Equal Employment Opportunity Commission, dated
October 17, 1978, reprinted in 73 Am. J. Int'l L. at 281-84 (1979) (“In
determining the scope of Article VIII [of the Japanese Treaty], we see
no grounds for distinguishing between subsidiaries incorporated in the
United States . . . and those operating as unincorporated branches”).
Moreover, both letters were conclusory in tone, providing little guid-
ance as to how the author reached the position adopted. Finally,
neither of the letters referred to any documentary evidence supporting
its position, nor did the 1979 letter explain how the 1978 letter writer
had fallen into error.

On September 26, 1980, long after this appeal had been taken,
counsel for the Equal Employment Opportunity Commission
(“EEOC”), which is participating in this case as amicus curiae, sent us
a copy of a State Department document purporting to be a letter dated
September 9, 1980, from the Department of State to the Government
of Denmark to the effect that it was not the intent of negotiators of
such a FCN treaty to permit locally-incorporated subsidiaries to invoke
its provisions. However, the letter bears evidence that the EEOC,
several months prior to the transmittal of the State Department’s letter,
had participated in its preparation (it bears the notations “Clearances:
EEOC/GC L. Prager,” who is counsel for the EEOC as amicus on this
appeal), from which it might be inferred that the letter was designed to
support the EEOC’s position here.

Under the circumstances it was improper for the EEOC to have
submitted the September 9th letter to us. However, since we give it no
weight whatsoever we deny Sumitomo’s motion for permission to
investigate its provenance.

13a

Relationship Between Article VIII of the Treaty and Title VII
of the Civil Rights Act of 1964

Turning to the question of whether the freedom-of-choice
language of Article VIII of the Treaty exempts Sumitomo from
Title VII of the Civil Rights Act of 1964 as far as its executive
personnel are concerned,°® we hold that the Treaty does not
have such effect. The right of Japanese firms operating in the
United States under the Treaty to hire executives “of their
choice” does not give them license to violate American laws
prohibiting discrimination in employment.

The background of the Treaty does not support the expan-
sive interpretation of the words “of their choice” urged by
Sumitomo. At the time when the Treaty was negotiat»\, a
number of American states and many foreign countries
severely restricted the employment of noncitizens within their
boundaries. Note, Commercial Treaties and the American Civil
Rights Laws: The Case of Japanese Employers, 31 Stan. L.
Rev. 947, 952-53 & n.28 (1979); S. Metzger, International Law,
Trade and Finance: Reality and Prospects 151 (1962). The
provision in Article VIII of the Treaty allowing companies of
either party to engage executive personnel “of their choice”
when operating in the other party’s territory was a reaction to
those restrictions. It was primarily intended to exempt compa-
nies operating abroad from local legislation restricting the

6 Although Judge Tenney limited the question being certified to the
narrow issue of Sumitomo’s standing to invoke Article VIII of the
Treaty and made it quite clear that he had not reached any opinion as
to the degree of protection which Article VIII might provide from
charges of discrimination under Title VII, it would be a waste of
judicial resources to remand without reaching the substantive question
which Sumitomo’s motion to dismiss inevitably poses. The issue has
been fully briefed and argued by the parties before us. Evidence
concerning Sumitomo’s hiring practices would not help us resolve the
question. Failure to resolve the question would only open the door to a
wasteful second appeai after trial below. Under these circumstances we
are not limited to deciding the question formulated by the district
court, Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 994-95 (2d Cir.),
cert. denied, 423 U.S. 1018 (1975); Capital Temporaries, Inc. v. Olsten
Corp., 506 F.2d 658, 660 (2d Cir. 1975).

l4a

employment of noncitizens. Walker, Treaties, supra, at 234
(“management is assured freedom of choice in the engaging of
essential executive and technical employees in general, regard-
less of their nationality, without legal interference from ‘per-
centile’ restrictions and the like”). See generally, Foreign Ser-
vice Despatch No. 2529 from HICOG Bonn to Department of
State, dated March 18, 1954 (German FCN treaty); H. Steiner
& D. Vagts, Transnational Legal Problems 37-38 (1968).

Although the clause “of their choice” was also ‘intended, in
furtherance of the overall purpose of the Treaty, to facilitate a
party’s employment of its own nationals to the extent neces-
sary to insure its operational success in the host country, no
evidence supports Sumitomo’s broad interpretation which,
carried to its logical conclusion, would immunize a party not
only from Title VII but also from laws prohibiting employ-
ment of children, § 12 of the Fair Labor Standards Act, 29
U.S.C. § 212, laws granting rights to unions and employees,
Labor Management Relations Act, 29 U.S.C. §§ 141-97, and
the like.

Subjecting a Japanese company to Title VII is consistent
with the language and purpose of Article VIII of the Treaty,
since Title VII, construed in the light of the Treaty, would not
preclude the company from employing Japanese nationals in
positions where such employment is reasonably necessary to
the successful operation of its business. Section 703(e) of Title
VII, 42 U.S.C. § 2000e-2(e), expressly provides that

“it shall not be an unlawful employment practice for an
employer to hire and employ employees, . . . on the basis
of . . . national origin in those certain instances where

. . National origin is a bona fide occupational qualifica-
tion reasonably necessary to the normal operation of that
particular business or enterprise. . . .”

Although the “bona fide occupational qualification” (“bfoq”)
exception of Title VII is to be construed narrowly in the
normal context, Dothard v. Rawlinson, 433 U.S. 321, 334
(1977), we believe that as applied to a Japanese company
enjoying rights under Article VIII of the Treaty it must be

15a

construed in a manner that will give due weight to the Treaty
rights and unique requirements of a Japanese company doing
business in the United States, including such factors as a
person’s (1) Japanese linguistic and cultural skills, (2) knowl-
edge of Japanese products, markets, customs, and business
practices, (3) familiarity with the personnel and workings of
the principal or parent enterprise in Japan, and (4) acceptabil-
ity to those persons with whom the company or branch does
business. To require the Japanese company to go forward with
some evidence of bfoq status does not in our view impose
undue burdens on foreign employers. In the absence of an
evidentiary record on these matters, however, we cannot deter-
mine now whether all or some portion of the executive posi-
tions at Sumitomo qualify for bfoq status.

Accordingly the case is remanded to the district court for
further proceedings consistent with the foregoing.

17a

APPENDIX B

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
No. 80-7418

>

At a stated Term of the United States Court of Appeals for
the Second Circuit, held at the United States Courthouse in the
City of New York, on the ninth day of January one thousand
nine hundred and eighty-one.

Present:

HON. J. EDWARD LUMBARD
HON. WALTER R. MANSFIELD
HON. THOMAS J. MESKILL

Circuit Judges,
*

LISA M. AVIGLIANO, DIANNE CHENICEK, ROSEMARY T. CRIS-
TOFARI, CATHERINE CUMMINS, RAELLEN MANDELBAUM,
MARIA MANNINA, SHARON MEISELS, FRANCES PA.
CHECO, JOANNE SCHNEIDER, JANICE SILBERSTEIN, REIKO
TURNER and ELIZABETH WONG,

Plaintiffs-A ppellees,
sell Ses
SUMITOMO SHOJI AMERICA, INC.,
Defendant-Appeliant.

-

Appeal from the United States District Court for the
Southern District of New York.

18a

This cause came on to be heard on the transcript of record
from the United States District Court for the Southern District
of New York, and was argued by counsel.

ON CONSIDERATION WHEREOF, it is now hereby or-
dered, adjudged, and decreed that the order of said District
Court be and it hereby is affirmed and remanded in accordance
with the opinion of this court with costs to be taxed against the
appellant.

A. DANIEL FUSARO, Clerk

by /s/ ARTHUR HELLER
Arthur Heller,
Deputy Clerk

Judgment Entered 2/10/81
Second Circuit
Raymond J. Burghardt, Clerk

Filed U.S. District Court, S.D. of N.Y.
February 10, 1981

Filed United States Court of Appeals
Second Circuit, January 9, 1981, A. Daniel
Fusaro, Clerk

19a
APPENDIX C

Opinion

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

Soa

June 5, 1979
77 Civ. 5641 (CHT)

+

LISA M. AVIGLIANO, et al.,

Plaintiffs,
—against—
SUMITOMO SHOJI AMERICA, INC.,
Defendant.
_—
APPEARANCES
For Plaintiffs:

EISNER, LEVY, STEEL & BELLMAN, P.C.,
351 Broadway
New York, New York, 10013

Of Counsel:
LEwIs M. STEEL, ESQ.

For Defendant:

WENDER, MURASE & WHITE
400 Park Avenue

New York, New York, 10022

Of counsel:

JIRO MURASE, ESQ.,

J. PORTIS HICKS, EsqQ.,
EDWARD H. MARTIN, ESQ.,
LANCE GOTTHOFFER, ESQ.,

TENNEY, J.

20a

Amicus Curiae:

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
2401 E Street, N.W.

Washington, D.C., 20506

Of counsel:

ABNER W. SIBAL,

General Counsel

JOSEPH T. EDDINS,

Associate General Counsel

LUTZ ALEXANDER PRAGER, Esq.,
JOHN D. SCHMELZER, Esq.,

Local Counsel (E.E.O.C.):
RONALD COPELAND, Esq.,
Regional Counsel

26 Federal Piaza

New York, New York, 10007

com

In this civil rights case, plaintiffs charge discrimination on
the bases of sex and national origin in violation of Title VII of
the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et
seq. (1974), and of 42 U.S.C. § 1981 (1970).' They seek class
action status. Plaintiffs are past and present female secretarial
employees of defendant Sumitomo Shoji America, Inc.’
(“Sumitomo”). Sumitomo is an “integrated trading company”?

The complaint also includes a claim under the thirteenth amendment
to the United States Constitution. As this claim apparently bas been
dropped, the Court sees no need to consider its merits.

The plaintiffs are eleven women, all of whom claim to be citizens of
the United States except for one who claims to be a citizen of Japan.
The complaint offers no other details of plaintiffs’ claims.

“Integrated trading companies” engage primarily in the purchase
and resale of goods, mainly in import and export markets. According
to the Affidavit of J. Portis Hicks, sworn to May 18, 1978, there are
fewer than a dozen integrated trading companies and these account for
more than 50% of Japan’s imports and exports.

2la

incorporated in New York as a wholly owned subsidiary of a
Japanese corporation. The parent corporation is not a party to
this action. Plaintiffs, seeking injunctive and compensatory
relief, claim that they have been restricted to clerical jobs and
not trained for or promoted to executive, managerial or sales
positions for which Sumitomo favors male citizens of Japan.
Jurisdiction is based upon 28 U.S.C. § 1331 and § 1343.‘

Sumitomo denies that the company discriminates and now
moves pursuant to Rulel2(b)(6) of the Federal Rules of Civil
Procedure to dismiss the claims asserted under Title VII and
section 1981. Sumitomo claims that the provisions of Title VII
and of section 1981 must yield to the right of freedom of
choice in employment assured by the 1953 Treaty of Friend-
ship, Commerce and Navigation between the United States and
Japan, [1953] 4 U.S.T. 2063, T.1.A.S. 2863 (entered into force
Oct. 30, 1953) (“the Treaty”). In addition to positing that
Sumitomo is insulated from federal review of its employment
practices by the Treaty, Sumitomo claims that plaintiffs’ allega-
tions of discrimination based on sex and national origin fail to
state a claim under 42 U.S.C. § 1981.

Sumitomo also interposes four counterclaims, invoking this
Court’s ancillary jurisdiction essentially to seek redress for
plaintiffs’ alleged abuse of legal process and tortious interfer-
ence with Sumitomo’s business activities. Plaintiffs cross-move
for dismissal of the counterclaims pursuant to Rule 12(b) of
the Federal Rules of Civil Procedure on the grounds that none
states a claim upon which relief can be granted and that the

4 Reference in the jurisdictional statement to 28 U.S.C. §§ 2201 and
2202 (the Federal Declaratory Judgment Act) remains a mystery to the
Court, which can discern no basis for this relief. Plaintiffs seek
judgment (1) enjoining the defendant from engaging in the alleged
unlawful employment practices, both current and future; (2) directing
the defendant to promote plaintiffs to executive and other managerial
and sales positions and to institute a training program to upgrade
plaintiffs and to take affirmative action to remedy the effects of past
discriminatory practices; (3) for compensatory and punitive damages;
and (4) for the cost of the action with reasonable attorney’s fees.
Unless plaintiffs wish to enlighten the Court, the demand for declara-
tory relief will be stricken.

22a

Court lacks subject matter jurisdiction. For the reasons dis-
cussed below, the motions to dismiss plaintiffs’ section 1981
claim and Sumitomo’s first counterclaim are granted, and the
motions to dismiss the Title VII claim and the remaining
counterclaims are denied.

The Treaty

On April 2, 1953 the United States and Japan entered into a
Treaty of Friendship, Commerce and Navigation. The purpose
of the Treaty is

{to strengthen] the bonds of peace and friendship tradi-
tionally existing between them and [to encourage] closer
economic and cultural relations between their peoples
. . . by arrangements promoting mutually advantageous
commercial intercourse, encouraging mutually beneficial
investments, and establishing mutual rights and privileges
. . . based in general upon the principles of national and

most-favored-nation treatment unconditionally accorded
5

4 U.S.T. at 2066. The effect of the Treaty is to assure that
nationals of one party are not discriminated against within the
territory of the other party.°

Article VIII(1) of the Treaty provides, in pertinent part, that
“[{njationals and companies of either Party shall be permitted
to engage, within the territories of the other Party, accountants
and other technical experts, executive personnel, attorneys,
agents and other specialists of their choice.” Jd. at 2070.
Sumitomo, in moving to dismiss the discrimination claims
against it, frames the issue before this Court as whether Title
VII and section 1981 of the Civil Rights Act of 1964 must yield

5 Preface, Treaty of Friendship, Commerce and Navigation Between
The United States of America and Japan (April 2, 1953).

6 See United States v. R.P- Oldham Company, 152 F. Supp. 818 (N.D.
Cal. 1957).

23a

to the right of freedom of choice in executive and other
specialist personnel granted by Article VIII(1) of the Treaty.
However, the Court finds that the issue before it is even more
fundamental; that is, whether Sumitomo can invoke the aegis
of the Treaty as sanction for its employment practices. The
initial inquiry concerns the nationality of Sumitomo.

Article VIII(1) of the Treaty provides that Japanese and
American corporations may engage within the territory of the
other certain personnel of their choice. Article XXII, the
definitional section of the Treaty, states in paragraph 3 that:

[aJs used in the present Treaty, the term “companies”
means corporations, partnerships, companies and other
associations, whether or not with limited liability and
whether or not for pecuniary profit. Companies consti-
tuted under the applicable laws and regulations within the
territories of either Party shall be deemed companies
thereof and shall have their juridical status recognized
within the territories of the other party.

Id. at 2079-80.’ This is entirely consistent with traditional rules
of corporate law which, for most purposes, treat a corporation
as an entity distinct from its shareholders and accord to the
corporation the citizenship of its place of incorporation:

The theory of “corporate personality” permits a corpo-
ration to be regarded as a “person” with an existence—in
the state of incorporation—separate from the natural
persons who own it. . . . [Flor purposes of federal court
jurisdiction . . . a corporation is “deemed” to be a
citizen of the state by which it was created.

Hornstein, Corporate Law and Practice § 281 (1959) (citing
Louisville, Cincinnati, and Charleston R.R. Co. v. Letson, 43

7 This provision has been paraphrased by the court in United States v.
R.P. Oldham Company, supra, 152 F. Supp. at 823:

[Bly the terms of the Treaty itself as well as by established principles
of law, a corporation organized under the laws of a given jurisdic-
tion is a creature of that jurisdiction, with no greater rights,
privileges or immunities than any other corporation of that jurisdic-
tion.

24a

U.S. (2 How.) 497, 555, 11 L. Ed. 353 (1844)). Sumitomo is
incorporated under the laws of New York. Therefore, accord-
ing to the very terms of the Treaty, Sumitomo is a company of
the United States, not of Japan, and as such has no standing to
invoke the freedom-of-choice provision granted by Article
VIII(1) to companies of Japan within the territory of the
United States.

This conclusion is supported by two district court decisions
in which the 1953 Japanese-American Treaty was raised by way
of defense. In United States v. R. R Oldham Co., 152 F. Supp.
818 (N.D. Cal. 1957), a wholly owned American subsidiary of
a Japanese corporation was one of five corporations indicted
for conspiracy in restraint of commerce in Japanese wire nails.
The defendant argued that Article XVIII of the Treaty, which
dealt with antitrust violations, denied the federal court juris-
diction by providing the exclusive remedy. Not only did the
district court hold that Article XVIII provided a supplemental
rather than exclusive remedy, but it also found that, even were
Article XVIII an exclusive remedy, the California-incorporated
subsidiary lacked standing to invoke this provision. The na-
tionality of the defendant was determined by the terms of
Article XXII and the traditional principles of corporate law.
Moreover, the Oldham court found this conclusion not incon-
sistent with the policies underlying the Treaty:

If [the defendant] had wished to retain its status as a
Japanese corporation while doing business in this country,
it could easily have operated through a branch. Having
chosen instead to gain privileges accorded American cor-
porations by operating through an American subsidiary, it
has for most purposes surrendered its Japanese identity
with respect to the activities of this subsidiary.

United States v. R. R Oldham Co., supra, 152 F. Supp. at 823.

In Spiess v. C. Itoh & Co. (America), Inc., 469 F. Supp. 1
(S.D. Tex. 1979), Judge Bue of the Southern District of Texas
recently held that the 1953 Treaty did not provide the New
York-incorporated subsidiary of a Japanese corporation with
immunity from Title VII and section 1981. The motion before
Judge Bue was essentially identical to that before this Court.

25a

Non-Japanese employees of a wholly owned domestic subsidi-
ary of a Japanese corporation filed suit against their employer
alleging racially discriminatory employment practices. The de-
fendant C. Itoh & Co. (America), Inc. (“Itoh-America”)
moved to dismiss, arguing that under the Treaty it has an
absolute right to hire personnel of its choice. In a well reasoned
opinion, Judge Bue held:

Given the Treaty’s own definitional terms, Itoh-
America is a company of the United States for purposes
of the interpretation of Article VIII(1), . . . which ap-
plies only to companies of one party within the territories
of the other party. . . . Itoh-America is a United States
company for purposes of Title VIII and, like other United
States companies, is subject to suit on the grounds that its
employment practices are racially discriminatory.

Id. at 9.°

Itoh-America contended, as does Sumitomo, that subsequent devel-
opments and expansion of the concept of standing renders obsolete the
Oldham analysis of the standing of corporate subsidiaries. Citing
Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d 674 (%h Cir.
1976), both Itoh-America and Sumitomo argue that the Oldham test
has been implicitly overruled by a liberalized standard. In Ca/netics, a
private antitrust action was commenced against a United States-incor-
porated subsidiary of a West German corporation and its wholly
owned American-incorporated air conditioning subsidiary. The district
court found that the defendants had violated the antitrust laws and
ordered, inter alia, a seven-year import ban in the United States of
Volkswagens with factory-installed air conditioning.

The Ninth Circuit reversed the finding of antitrust violations and
questioned the remedy imposed because the effect might be to discrimi-
nate against West German products in contravention of the German-
American Treaty of 1954. Judge Bue has distinguished Ca/netics, and
this Court concurs in his analysis:

Read in a light most favorable to Itoh-America, Ca/netics stands
for the proposition that a United States incorporated subsidiary of
a foreign corporation has standing to raise the claim that the Treaty
rights of its parent may be affected by court ordered relief. . . . In
Cainetics the Court of Appeals determined that the import ban
ordered by the trial court might discriminate against the products of
VW-Germany in contravention of that company’s Treaty rights. By
contrast. . . Itoh-Japan [the parent company of Itoh-America] has

26a

To avoid the conclusion that it has no standing to invoke the
Treaty, Sumitomo relies upon a four-page letter submitted on
November 17, 1978 by the United States Department of State
to the Equal Employment Opportunity Commission
(“EEOC”). The EEOC, which has submitted an amicus curiae
brief here in opposition to Sumitomo’s motion to dismiss,’ has
posed certain questions to the State Department. To one,
“[djoes the treaty permit subsidiaries of Japanese companies
which are organized under the laws of a state of the United
States to fill all its top management positions with Japanese
nationals admitted as treaty traders,”'® the State Department
replied, in pertinent part:

The phrase “of their choice” should be interpreted to give
effect to [the intention that United States companies
operating in Japan could hire United States personnel for
critical positions, and vice versa], and we therefore believe
that Article VIII(1) permits U.S. subsidiaries of Japanese
companies to fill all of their “executive personnel” posi-
tions with Japanese nationals admitted to this country as
treaty traders... .

Letter from Lee R. Marks, Deputy Legal Adviser, Department
of State, dated October 17, 1978, to Abner W. Sibal, General
Counsel, EEOC.

To another question, “[iJs the situation different if the
company doing business in the United States is not incorpo-
rated in the United States,” the State Department replied, in
pertinent part:

no Article VIII(1) right to staff ltoh-America. Accordingly . . .
even if Itoh-America has standing to invoke the Treaty rights of
Itoh-Japan, it can claim no shield against application of Title VII to
its own employment practices.

Spiess v. C. Itoh & Co. (America), Inc., supra, 469 F. Supp. at 9.

9 The EEOC also filed an amicus brief in support of plaintiffs’ motion
to dismiss the counterclaims. See text infra.

10 See text infra.

27a

[W]e see no grounds for distinguishing between subsidi-
aries incorporated in the United States owned and con-
trolled by a Japanese company and those operating as
unincorporated branches of a Japanese company, nor do
we see any policy reason for making the applicability of
Article VIII dependent on a choice of organizational
form.

Id.

Sumitomo relies upon these statements to confirm its “pref-
erential right and privilege to hire non-immigrant Japanese
nationals” under the Treaty. The Court has carefully consid-
ered the State Department letter and is mindful of the Supreme
Court’s admonition in Kolovrat v. Oregon, 366 U.S. 187, 194,
81S. Ct. 922, 926, 6 L. Ed. 2d 218 (1960), that “[w]hile courts
interpret treaties for themselves, the meaning given them by
the departments of government particularly charged with their
negotiation and enforcement is given great weight.” See also
Factor v. Laubenheimer, 290 U.S. 276, 295, 54S. Ct. 191, 78
L. Ed. 315 (1933). However, in the absence of analysis or
reasoning offered by the State Department in support of its
position,'' this Court does not find in the letter sufficiently
persuasive authority to reject the Treaty’s clear definition of
corporate nationality and the consequent unambiguous mean-
ing of Article VIII(1), or to reject established principles of
corporate law and the precedents in the Fifth and Ninth
Circuits.'?

Il It is disturbing that, in concluding that companies doing business
and companies incorporated in the United States are to be treated
equally under the Treaty, the State Department quotes only the first
portion of the definitional section: “Article XXIII [sic] defines ‘com-
panies’ as ‘corporations, partnerships, companies and other associa-
tions, whether or not with limited liability and whether or not for
pecuniary profit.’ ” The State Department neglects to quote the follow-

ing sentence, which states that companies formed under the applicable
laws of one of the parties are deemed companies thereof.

12 Subsequent to the filing of the district court’s Memorandum and
Opinion in Spiess v. C. Itoh & Co. (America), Inc., supra, the opinion
letter submitted by the Department of State to the EEOC was brought
to the attention of that court, and a motion was filed requesting
certification of the March 1, 1979 Order to the United States Court of
Appeals for the Fifth Circuit pursuant to 28 U.S.C. § 1292(b).

28a

Sumitomo also contends that it retains Japanese identity by
virtue of United States regulations and guidelines adopted in
connection with Article I of the Trea*y, which enables nationals
of either the United States or Japan to enter the territories of
the other and to remain therein for specified purposes. In
connection with Article I of the Treaty, section 1101(a)(15) of
the Immigration and Nationality Act of 1952, 8 U.S.C. § 1101
et seq., provides:

The term “immigrant” means every alien except an
alien who is within one of the following classes of non-im-
migrant aliens... .

(E) an alien entitled to enter the United States under
and in pursuance of the provisions of a treaty of com-
merce and navigation between the United States and the
foreign state of which he is a national. . . .

The Department of State has promulgated regulations that
an alien must satisfy in order to obtain a treaty trader visa
pursuant to section 1101(a)(15)(E)(i). Among these is that if the

Reconsidering his decision in light of the State Department letter,
Judge Bue reaffirmed his holding that Itoh-America is a company of
the United States under the terms of the Treaty and concluded that the
opinion letter did not warrant reversal of the court’s prior order.

Nevertheless, certification was granted because

[t}he Court c~ -cludes that the March 1 Order involves a controlling
question of 1.w as to which there are substantial grounds for
difference of opinion and that an immediate appeal may materially
advance the ultimate determination of this litigation.
Spiess v. C. ltoh & Co. (America), Inc., 469 F. Supp. 9 (S.D. Tex. Apr.
10, 1979).
Accordingly, the following question was certified to the Fifth Cir-

Does the 1953 Treaty of Friendship, Commerce and Navigation
between the United States and Japan provide American subsidiaries
of Japanese corporations with the absolute right to hire managerial,
professional or other specialized personnel of their choice, irrespec-
tive of American law proscribing racial discrimination in employ-
ment?

Id. at 10.

29a

employer is not an individual, it “must be. . . an organization
which is principally owned by a person or persons having the
nationality of the Treaty country.” 22 C.F.R. § 41.40 (1977).
The parameters of this regulation are further described in 9
FOREIGN AFFAIRS MANUAL PART II, which states: “the
nationality of the employing firm is determined by those
persons who own more than 50% of the stock of the employ-
ing corporation regardless of the place of incorporation.”'’
Sumitomo seizes on the regulatory standard to urge that
nationality for purposes of the Treaty should be determined by
the State Department guidelines, explaining that it is by in-
teraction with Article I that the Article VIII “freedom of
choice” provision is implemented. As Sumitomo is a wholly
owned subsidiary of a Japanese company, by this test Sumi-
tomo also would be a Japanese company. The Court agrees
with Judge Bue who, when presented with the same argument,
found that “resort to the treaty trader guidelines to determine
corporate nationality for purposes of interpretation of the
Treaty provisions is unwarranted in the face of the clear
definitional provisions included in Article XXII(3) of the
Treaty itself.” Spiess v. C. Itoh & Co., supra, 469 F. Supp. at
6.'* The purpose of the Treaty is to assure that Japanese

13, The Manual is distributed to all State Department consular offices
and to the offices of District Directors of Immigration.

14 The State Department guidelines are promulgated for the purpose of
determining an individual’s immigration status; they are not designed
for the purpose of defining a corporation’s juridical status. Two
decisions from this district lend support to this conclusion.

In Tokyo Sansei v. Esperdy, 298 F. Supp. 945 (S.D.N.Y. 1969), an
action for review of the determination of the district director of the
Immigration and Naturalization Service (“INS”) was brought by
individuals who had been denied treaty trader status. Their corporate
employer, a wholly owned subsidiary of a Japanese corporation, joined
in the action as a plaintiff. The district court upheld the administrative
determination denying treaty trader status and noted that

the question [whether the employer has standing] is substantial. It
seems likely that without the individual plaintiffs, the corporation,
however great its incidental “interest” as a business matter, could
not maintain the suit. And with the individuals in the case, the
corporation, strictly speaking, is unnecessary. . . .

Id. at 948 n.4,
(Footnote continued)

30a

companies operating in the United States, and vice versa, will
not be discriminated against in favor of domestic corporations.
Sumitomo is a domestic corporation and as such has neither
standing nor need to invoke the aegis of the Treaty. Accord-
ingly, the motion to dismiss the discrimination claims on the
basis of the Treaty is denied.

The Section 1981 Claims

The second issue before the Court is whether the provisions
of 42 U.S.C. section 1981'* apply to claims alleging discrimina-
tion based on sex and national origin. The law in this circuit,
as in others, is clear that section 1981 does not apply to sex
discrimination. New York City Jaycees, Inc. v. United States
Jaycees, Inc., 377 F. Supp. 481 (S.D.N.Y. 1974), rev’d on other
grounds, 512 F.2d 856 (2d Cir. 1975); O’Connell v. Teachers
College, 63 F.R.D. 638 (S.D.N.Y. 1974). See also Vera v.
Bethlehem Steel Corp., 448 F. Supp. 610 (M.D. Pa. 1978);
Apodaca v. General Electric Co., 445 F. Supp. 821 (D.N.M.
1978).

Similarly, in Nippon Express U.S.A., Inc. v. Esperdy, 261 F. Supp.
561 (S.D.N.Y. 1966), a subsidiary of a Japanese express company
sought review of the denial by the INS district director of an applica-
tion made by the corporate employer on behalf of an alien employee
for continuation of her status a» a treaty trader. The district court
concluded that

[t}he Immigration and Naturalization Service has the responsibil-
ity for deciding [treaty trader status]. There is no merit to plaintiffs’
contention that the Japanese employer itself may confer that status
upon any employee it chooses.

Id. at 565.

15 Section 1981 provides:

All persons with the jurisdiction of the United States shall have
the same right in every State and Territory to make and enforce
contracts, to sue, be parties, give evidence, and to the full and equal
benefit of all laws and proceedings for the security of persons and
property as is enjoyed by white citizens, and shall be subject to like
punishment, pains, penalties, taxes, licenses, and exactions of every
kind, and to no other.

3la

However, there is a split of authority among the courts
which have considered the question whether claims of dis-
crimination based on national origin are actionable under
section 1981—a question, it appears, that the Second Circuit
has not yet addressed. Compare, e.g., Apodaca v. General
Electric Company, supra; Vera v. Bethlehem Steel Corp.,
supra; Martinez v. Hazelton Research Animals, Inc., 430 F.
Supp. 186 (D. Md. (1977); Budinsky v. Corning Glass Works,
425 F. Supp. 786 (W.D. Pa. 1977); Kurylas v. United States
Department of Agriculture, 373 F. Supp. 1072 (D.D.C. 1974),
aff'd, 169 U.S. App. D.C. 58, 514 F.2d 894 (D.C. Cir. 1975),
with LaFore v. Emblem Tape & Label Co., 448 F. Supp. 824
(D. Colo. 1978); Ortega v. Merit Insurance Co., 433 F. Supp.
135 (N.D. Ill. 1977).

In Jones v. United Gas Improvement Corp., 68 F.R.D. 1
(E.D. Pa. 1975), the court reviewed carefully the legislative
history of section 1981 and concluded that the section applies
to discrimination based on race and alienage only. It then
characterized the alleged discrimination against Spanish sur-
named individuals as based on national origin and held that no
action lay under section 1981. The court held

that the provisions of 42 U.S.C. § 1981 are limited in their
application to discrimination, the effect of which is to
deny to any person within the jurisdiction of the United
States any of the rights enumerated in that section, to the
extent that such rights are enjoyed by white citizens of this
nation. Discriminatio». on other grounds, such as religion,
sex, or national origin, to which white citizens may be
subject, as well as white non-citizens, non-white citizens,
or non-white non-citizens, is not proscribed by the stat-
ute.

68 F.R.D. at 15 (emphasis in original).'*

16 Although the Supreme Court has not yet considered whether an
allegation of national origin discrimination may be actionable under
section 1981, it has extended the protection of that provision to “racial
discrimination in private employment against white persons,” 96 S. Ct.
2574, 2582, 49 L. Ed. 2d 493. McDonald v. Santa Fe Trail Transporta-
tion Co., 427 U.S. 273, 287 (1976).

32a

A few courts have held that if national origin discrimination
is motivated by or indistinguishable from racial discrimination,
a claim will be actionable under section 1981.'’ However, even
were this Court to find the Jones analysis unpersuasive, on the
facts of the instant action it could not equate plaintiffs’ claims
that they have been discriminated against because they are not
Japanese nationals with discrimination based on their race.
Indeed, from a superficial perusal of the plaintiffs’ names it
appears that at least one of the plaintiffs is non-Caucasian. As
plaintiffs have, and are exercising, an adequate remedy for
redress under Title VII, there is no need for them to strain to
fit their grievances into the mold of racial discrimination. The
Court concludes that the plaintiffs’ allegations of discrimina-
tion based on sex and national origin are insufficient to sustain
a cause of action under section 1981 and that these claims
should be dismissed.

The Counterclaims

Plaintiffs cross-move pursuant to Rule 12(b) of the Federal
Rules of Civil Procedure to dismiss Sumitomo’s amended
counterclaims for failure to state a claim upon which relief can
be granted. Sumitomo counterclaims, first, for attorney’s fees
pursuant to 42 U.S.C. § 2000e-5(k) and punitive damages by
reason of plaintiffs’ “frivolous and spurious” institution of
this lawsuit “in bad faith, vexatiously, willfully and
wrongfully”; second, for damages by reason of plaintiffs’
alleged abuse of the federal administrative and judicial

17 A number of courts have permitted Hispanic individuals to sue
under section 1981 upon evidence that the alleged discrimination was
racial in character. See Enriquez v. Honeywell, Inc., 431 F. Supp. 901
(W.D. Okla. 1977); Martinez v. Hazelton Research Animals, Inc., 430
F. Supp. 186 (D. Md. 1977); Cubas v. Rapid American Corp., Inc.,
420 F. Supp. 663 (E.D. Pa. 1976). However, in Budinsky v. Corning
Glass Works, 425 F. Supp. 786 (W.D. Pa. 1977), an employee's
allegation of discrimination based on his Slavic national origin failed
to state a cause of action under section 1981. Similarly, an allegation of
discrimination by a Polish-American failed to state a cause of action
under this provision in Kurylas v. United States Department of
Agriculture, 373 F. Supp. 1072 (D.D.C. 1974), aff'd, 169 U.S. App.
D.C. 58, 514 F.2d 894 (1975).

33a

process; third, for damages by reason of plaintiffs’ common-
law abuse of process; and fourth, for damages by reason of
plaintiffs’ tortious interference with Sumitomo’s business
operations.

For the reasons discussed below, the motion is granted as to
the first counterclaim only. The remaining counterclaims, over-
lapping as Sumitomo’s theories may be, satisfy the low
threshold required to withstand a Rule 12(b) motion.

1. Alttorney’s Fees

Sumitomo, predicating its first counterclaim on section
706(k) of Title VII, 42 U.S.C. § 2000e-5(k), seeks recovery for
attorney’s fees expended to date and punitive damages for
plaintiffs’ wrongful conduct in commencing an allegedly spuri-
ous and frivolous Title VII action. Plaintiffs move to dismiss
this counterclaim on the ground that section 706(k) will not
support an independent claim for relief.

The question whether a defendant can request section 706(k)
relief by way of counterclaim appears to be a novel one. The
Court concludes that he cannot. Section 706(k) provides: “In
any action or proceeding under this subchapter the court, in its
discretion, may allow the prevailing party. . . a reasonable
attorney’s fee as part of the costs. . . .” To treat this section
as creating a separate cause of action is to ignore the words of
the statute, which provide for reasonable attorney’s fees to the
“prevailing party,” in the context of an existing action or
proceeding “as part of the costs” thereof. This language
necessarily implies a finality that this litigation does not yet
approach. Accordingly, the first counterclaim is not yet justi-
ciable and does not state a claim upon which relief can be
granted. It will be stricken without prejudice to Sumitomo’s
right to make later application to the Court for reasonable
attorney’s fees if the Title VII action is found to be frivolous
or without foundation.'*

18 In Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 422, 98 S.
Ct. 694, 701 (1978), the Supreme Court defined the circumstances

34a
Il. Abuse of Process

The second and third counterclaims are based upon plain-
tiffs’ alleged abuse of process in state and federal administra-
tive and judicial proceedings. The gravamen of the tort of
abuse of process is “misusing or misapplying process justified
in itself for an end other than that which it was designed to
accomplish,” Prosser, Torts, § 121, at 856 (4th ed. 1971), or,
stated in another way, the tortious use of “legal process to
attain some collateral objective.” Board of Education v. Farm-
ingdale Classroom Teachers, 38 N.Y.2d 397, 402, 380 N.Y.S.2d
635, 641, 343 N.E.2d 278 (1975). Sumitomo alleges that plain-
tiffs’ purpose in bringing proceedings before administrative
and judicial tribunals has been to coerce Sumitomo into
acceding to their demands for work assignments for which they
were unqualified and for payment of additional compensation
to which they were not entitled. Such allegations clearly satisfy
the intentional elements of the tort of abuse of process.

For purposes of a motion to dismiss, the court must accept
the allegations of the complaint as true. Conley v. Gibson, 355
U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). Hence Sumitomo
is entitled to prove that the true intent of the plaintiffs was not
legitimately to invoke the processes of the administrative agen-
cies and the courts, but to coerce Sumitomo into yielding to
their demands for promotion and higher pay. See California
Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92
S. Ct. 609, 30 L. Ed. 2d 642 (1972).

Ill. Prima Facie Tort
The intentional infliction of temporal damages without a

legal motive—commonly referred to as prima facie tort—is a
tort recognizable at law. Smith v. Fidelity Mutual Life Insur-

under which an attorney’s fee should be awarded when the defendant
is the prevailing party:

[A] plaintiff should not be assessed his opponent's attorney's fees
unless a court finds that his claim was frivolous, unreasonable, or
groundless, or that the plaintiff continued to litigate after it clearly
became so.

35a

ance Co., 444 F. Supp. 594 (S.D.N.Y. 1978); Advance Music
Corp. v. American Tobacco Co., 296 N.Y. 79, 70 N.E.2d 401
(1946). Its elements are: (1) the infliction of intentional harm
(2) resulting in damages (3) without excuse or justification (4)
by acts or series of acts that would otherwise be lawful. All
must be established for the cause of action to be upheld.
Sommer v. Kaufman, 59 A. D. 2d 843, 399 N.Y.S.2d 7, 8 (Ist
Dep’t 1977).

In Board of Education v. Farmingdale Classroom Teachers,
supra, the Board of Education brought an action against a
teachers association and its attorney for abusing legal process
by subpoenaing, with intent to injure and harass the school
district, 87 teachers to compel their appearances at an initial
hearing before the public employees’ relations board and
refusing to stagger the appearances, so that the school district
was forced to hire 77 substitutes. The New York Court of
Appeals held that the complaint stated a cause of action for
both abuse of process and prima facie tort. Discussing the
prima facie tort claim, the court stated:

The operative fact here is that defendants have utilized
legal procedure to harass and oppress the plaintiff who
suffered a grievance which should be recognizable at law.
Consequently whenever there is an intentional infliction
of economic damage, without excuse or justification, we
will eschew formalism and recognize the existence of a
cause of action.

38 N.Y.2d at 406, 380 N.Y.S.2d at 644, 343 N.E.2d at 284.
Sumitomo’s fourth counterclaim alleges that by the institu-
tion of vexatious federal and state administrative and judicial
proceedings and by disruptive and harassing activity in the
office, plaintiffs deliberately and without justification inflicted
temporal and economic harm upon Sumitomo. The Court
concludes that this allegation satisfies the elements of prima
facie tort and states a claim upon which relief can be granted.

36a
IV. Section 704(a)

Finally, both plaintiffs and the EEOC, as amicus curiae,
assert that the counterclaims must be dismissed because the
filing of charges before the EEOC and the bringing of a Title
VII suit are absolutely privileged. As the basis for this theory,
they cite section 704(a) of Title VII, which forbids “discrimina-
tion against . . . employees for attempting to protest or
correct allegedly discriminatory conditions of employment.”
McDonnell Douglas Corp. v. Green, 411 U.S. 792, 796, 93 S.
Ct. 1817, 1821, 36 L. Ed. 2d 668 (1973).'°

The Supreme Court has declined to resolve the issue whether
“the protection afforded by § 704(a) extends only to the right
of access [to the EEOC and federal courts] or well beyond it.”
Emporium Capwell Co. v. Western Addition Community Org.,
420 U.S. 50, 71 n.25, 43 L. Ed. 12 (1975). However, the Court
has stated that “[nJothing in Title VII compels an employer to
absolve and rehire one who has engaged in . . . deliberate,
unlawful activity against it.” McDonnell Douglas Corp. v.
Green, supra, 411 U.S. at 803, 93 S. Ct. at 1825. In attempting
to define the limits of protected conduct under section 704(a),
lower courts have relied upon the McDonnell Douglas \an-
guage to conclude that illegal activity and activity that unrea-
sonably interferes with the employer’s legitimate interests are
not immunized by this provision. See Novotny v. Great Ameri-
can Federal Savings and Loan Ass’n, 584 F.2d 1235, 1261 (3d
Cir. 1978); Hochstadt v. Worcester Foundation, 545 F.2d 222,
231 (ist Cir. 1976). In EEOC v. Kallir, Philips, Ross, Inc., 401
F. Supp. 66, 71-72 (S.D.N.Y. 1975), the court stated:

Under some circumstances, an employee’s conduct in
gathering or attempting to gather evidence to support his

19 42 U.S.C. § 2000e-3(a). That section provides:

It shall be an unlawful employment practice for an employer to
discriminate against any of his employees . . . because he has
opposed any practice made an unlawful employment practice by
this subchapter, or because he has made a charge, testified, assisted,
or participated in any manner in an investigation, proceeding, or
hearing under this subchapter.

37a

charge may be so excessive and so deliberately calculated
to inflict needless economic hardship on the employer that
the employee loses the protection of section 704(a), just as
other legitimate civil rights activities lose the protection of
section 704(a) when they progress to the point of de-
liverate and unlawful conduct against the employer.

The Court concludes that the cases cited above are disposi-
tive of plaintiffs’ contentions of immunity. Sumitomo alleges
not only that plaintiffs instituted spurious administrative and
judicial proceedings, but also that plaintiffs have been disrup-
tive in the office, have endeavored to sabotage Sumitomo’s
business, have engaged in calculated acts of insubordination,
have urged other employees to violate their fiduciary duties to
Sumitomo and have harassed and coerced those who would
not, and have attempted to “purloin” confidential corporate
documents. Affidavit of J. Portis Hicks, sworn to July 11,
1978, 4 9. Allegations of such aggressive and Hostile tactics,
which must be accepted as true for purposes of a Rule 12(b)
motion, cannot be dismissed on the basis of section 704(a).

Accordingly, plaintiffs’ section 1981 claims and defendant’s
section 706(k) counterclaim for attorney’s fees are dismissed.
All other motions are denied.

So ordered.

39a

APPENDIX D
Opinion

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

aoe
August 9, 1979

77 Civ. 5641 (CHT)
aod

LISA M. AVIGLIANO, ef al.,

Plaintiffs,
—against—
SUMITOMO SHOJI AMERICA, INC.,
Defendant.
ec
APPEARANCES

For Plaintiffs:
EISNER, LEVY, STEEL & BELLMAN, PC.
351 Broadway
New York, New York 10013

Of Counsel:
LEwIs M. STEEL, Esq.

For Defendant:
WENDER, MURASE & WHITE
400 Park Avenue
New York, New York 10022

Of Counsel:
J. PORTIS HICKS, Esq.
LANCE GOTTHOFFER, Esq.

Amicus Curiae:
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
2401 E Street, N.W.
Washington, D.C. 20506

Of Counsel:

ISSIE L. JENKINS

Acting General Counsel

JOSEPH T. EDDINS

Associate General Counsel

LUTZ ALEXANDER PRAGER, Esq.

—-

TENNEY, J.

In this action for redress of alleged employment discrimina-
tion both parties have filed applications directed at the Court’s
Opinion and Order dated June 5, 1979 which denied dismissal
of the instant Complaint and certain of the counterclaims and
dismissed one counterclaim and one jurisdictional base as-
serted by the plaintiffs. The defendant seeks an immediate
appeal under 28 U.S.C. § 1292(b), asking the Court to certify
for appellate review the primary question posed in its original
motion to dismiss; that is, whether the defendant is exempted
under the terms of the 1953 Treaty of Friendship, Commerce
and Navigation between the United States and Japan (“the
Treaty”) from sanctions contained in Title VII of the Civil
Rights Act of 1964, 42 U.S.C. § 2000e et seq. (“Title VII”)
against certain allegedly discriminatory employment practices.
The plaintiffs also make applications to the Court, first for a
certification under section 1292(b) of the question whether
their allegation of sex and nationality discrimination consti-
tutes a valid cause of action under 42 U.S.C. § 1981, and
second for reargument of this Court’s refusal to dismiss certain

4la

of defendant’s counterclaims sounding in common law tort.
The Court finds that only the question of the relationship
between the Treaty and the civil rights law is suitable for
section 1292(b) treatment..Therefore, the certification will be
granted only as to that question and ali other applications will
be denied.

Section 1292(b) requires that a district judge

making in a civil action an order not otherwise appealable
under [section 1292 who is of] the opinion that such order
involves a controlling question of law as to which there is
a substantial ground for difference of opinion and that an
immediate appeal from the order may materially advance
the ultimate termination of the litigation . . . shall so
state in writing in such order.

The question whether defendant’s employment practices are
insulated from redress through civil rights actions is a pure
question of law. If defendant is protected by the Treaty, it is
not answerable in court to these claims of discrimination. If
not, then its practices are exposed to judicial evaluation. Since
there is a dearth of authority on the matter, this Court deems it
prudent to follow the lead of Judge Bue of the United States
District Court for the Southern District of Texas, who in Spiess
v. C. Itoh & Co. (America), Inc., 469 F. Supp. 1 (S.D. Tex.
1979), faced almost the identical question as is here posed and
certified the following question to the United States Court of
Appeals for the Fifth Circuit:

Does the 1953 Treaty of Friendship, Commerce and
Navigation between the United States and Japan provide
American subsidiaries of Japanese corporations with the
absolute right to hire managerial, professional or other
specialized personnel of their choice, irrespective of
American law proscribing racial discrimination in em-
ployment?

Id. at 10. Although in contrast to Spiess there has been no class
certification yet in the case at bar, the Court expects that the
litigation will be sufficiently complicated that it would be a

42a

waste of judicial time to try it with the novel jurisdictional
question in limbo. Moreover, because the Court studied and
rejected a Department of State opinion letter which construed
the Treaty favorably to the defendant, see Opinion and Order
at 9; cf. Spiess v. C. Itoh & Co. (America), Inc., supra; the
instant matter now reflects the tension generated by the princi-
ple that “[cJourts are to give substantial weight to the construc-
tion . . . which is placed upon the treaty by the political
branch” although “they are not required to abdicate what is
basically a judicial function.” Kelley v. Societe Anonyme Belge
D’Exploitation de la Navigation Aerienne, 242 F. Supp. 129,
136 (E.D.N.Y. 1965). Therefore, the Court deems it wise to
seek the instruction of the United States Court of Appeals for
the Second Circuit and certifies that the interpretation of the
Treaty poses a controling question of law upon which the
Court and the Department of State differ, the resolution of
which will materially advance the prosecution of this case.

As for plaintiffs’ application to certify the question whether
42 U.S.C. § 1981 applies to these civil rights claims, the Court
sees no reason to grant interlocutory appeal. Any reversal on
the section 1981 issue could not be made in a vacuum and
construction of the Treaty could not be avoided in reaching
that decision. Therefore, immediate appeal on section 1981
would be a superfluity, for if the court of appeals finds that the
Treaty does not immunize the defendant from employment
discrimination suits then the Title VII avenue will be adequate
for plaintiffs to press their claims, and if the Treaty is found to
protect the defendant then such immunization will be invoked
whether the civil rights claim is filed pursuant to Title VII or to
section 1981.

Finally, the plaintiffs again ask for dismissal of counter-
claims 2, 3, and 4, seeking under Rule 9(m) of the General
Rules of the United States District Court for the Southern
District of New York (“General Rules”) to convince the Court
that its refusal to dismiss those counterclaims was error. Al-
though the Court sees nothing in plaintiffs’ Memorandum of
Law on Reargument that migut be called “matters of control-
ling decisions which counsel believes the court has over-

43a

looked,” General Rule 9(m), in a Memorandum of Law sub-
mitted by the Equal Employment Opportunity Commission
(“EEOC”) as amicus curiae the agency argues that Harris v.
Steinem, 571 F.2d 119 (2d Cir. 1978), controls here, and in their
Reply Memorandum of Law the plaintiffs adopt the EEOC
position. The Court does not agree that Harris is dispositive.
There the complaint alleged a violation of federal securities
law, and the defendants counterclaimed for libel purportedly
committed in the complaint itself and on subsequent occasions
in published statements by the plaintiff. The district court
found that the libel charge was a compulsory counterclaim,
was therefore ancillary to the court’s federal question jurisdic-
tion over the complaint, and consequently was jurisdictionally
valid despite the fact that it had no independent base of federal
jurisdiction. The court of appeals disagreed, holding that the
libel charge was not a compulsory counterclaim measured by
the rule that analyzed “whether the essential facts of the
various claims are so logically connected that considerations of
judicial economy and fairness dictate that all the issues be
resolved in one lawsuit.” /d. at 123. Contrasting the issues to
be proved in a securities case with those to be proved in libel,
the Harris court found no overlap and called the logical
relationship between complaint and counterclaim “at best
attenuated,” id. at 124, and dismissed for lack of jurisdiction.

This Court sees a distinction between, on the one hand, facts
involving a sale of stock and a subsequent, purportedly li-
belous statement and, on the other hand, a claim of employ-
ment discrimination accompanied by an allegation of continu-
ing retaliatory activity provoked by the policy complained of.
In this case the defendant claims that

prior to commencing [this action] . . . [the plaintiffs]
entered into a conspiracy to coerce Sumitomo to accede to
plaintiffs’ unreasonable demands for assignment to work
for which they were not qualified and for payment of
additional compensation to which they were not entitled,
and to retaliate against Sumitomo for its refusal to make
such assignments or pay such additional compensation,
by injuring Sumitomo in its business and trade.

44a

Answer and Counterclaim, 4 19. Defendant goes on to com-
plain that “as part of carrying out their conspiracy, plaintiffs in
bad faith vexatiously, willfully and wrongfully commenced
sham administrative proceedings before the Division of Hu-
man Rights of the Executive Department of the State of New
York, and before the United States Equal Employment Oppor-
tunity Commission.” /d., { 20. These are allegations that state
a claim for malicious abuse of process, not—as in Harris—ma-
licious prosecution. A counterclaim for malicious prosecution
would be barred regardless of its compulsory or permissive
nature because the tort is not actionable until the termination
of the main action favorably to the defendant. By contrast, the
tort of malicious abuse of process may be pleaded at any time
because it does not rest on the course of a court proceeding.
Moreover, the Harris court found that its counterclaim fell
“within the well-established narrow line of decisions involving
counterclaims based solely on the filing of the main complaint
and allegedly libelous publication thereafter.” Jd. at 125. There
is no such special niche for these counterclaims. They purport
to involve pre-suit harassment by the plaintiffs and, beyond
complaining of the motive behind bringing the instant case, the
defendant complains of previous actions before governmental
agencies brought for allegedly coersive purposes. Intimating no
judgment on the merits of the counterclaims the Court adheres
to its original finding that they have a logical relationship to
the main action and meet the threshold test for stating a valid
claim upon which relief can be granted.

The defendant’s question concerning the relationship of
Title VII to the Treaty is hereby certified; all other applications
are denied.

So ordered.

Dated: New York, New York
August 9, 1979

CHARLES H. TENNEY
U.S.D.J.

45a

APPENDIX E
Opinion

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF Ni w YORK

—-
November 29, 1979

77 Civ. 5641 (CHT)
~~

LISA M. AVIGLIANO, ef al.,

Plaintiffs,
—against—
SUMITOMO SHOJI AMERICA, INC.,
Defendant.
~_
APPEARANCES

For Plaintiffs:
EISNER, LEVY, STEEL & BELLMAN, PC.
351 Broadway
New York, New York 10013

Of Counsel:
LEwiIs M. STEEL, Esq.

For Defendant:
WENDER, MURASE & WHITE
400 Park Avenue
New York, New York 10022

Of Counsel:

JIRO MURASE, Esq.

J. PORTIS HICKS, Esq.
EDWARD H. MARTIN, Esq.
LANCE GOTTHOFFER, Esq.

Amicus Curiae:
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
2401 E Street, N.W.
Washington, D.C. 20506

Of Counsel:

LEROY D. CLARK
General Counsel

JOSEPH T. EDDINS
Associate General Counsel

LUTZ ALEXANDER PRAGER
By: MARCIA B. RUSKIN, Esq.

Local Counsel:
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
90 Church Street, Rm. 1301
New York, New York 10007
By: HARRAIN D. FIGUEROA, Esq.

aod

TENNEY, J.

Defendant Sumitomo Shoji America, Inc. (“Sumitomo”)
has moved for reargument of the Court’s denial of its motion
to dismiss the claims against it, Opinion and Order dated June
5, 1979, reported at 473 F. Supp. 506 (S.D.N.Y. 1979). In its
June 5 decision, the Court held, inter alia, that Sumitomo, as a
United States subsidiary of a Japanese corporation, is not
exempt under Article VIII(1) of the 1953 Treaty of Friendship,
Commerce and Navigation between the United States and
Japan, [1975] 4 U.S.T. 2063, T.1.A.S. 2863 (effective October

47a

30, 1953) (“the Treaty”), from sanctions contained in Title VU
of the Civil Rights Act of 1964, 42 U.S.C. § 2000e ef seq.
(“Title VII”) against certain allegedly discriminatory employ-
ment practices. 473 F. Supp. at 509-13. The provision on which
Sumitomo sought, and still seeks, to rely provides in pertinent
part: “Nationals and companies of either Party shall be per-
mitted to engage, within the territories of the other Party,
accountants and other technical experts, executive personnel,
attorneys, agents and other specialists of their choice.” Article
‘ VIII). In not allowing Sumitomo—a United States subsidi-
ary—to rely on that provision, the Court looked primarily to
Article XXII(3) of the Treaty. Paragraph 3 provides:

As used in the present treaty, the term “companies”
means corporations, partnerships, companies and other
associations, whether or not with limited liability and
whether or not for pecuniary profit. Companies consti-
tuted under the applicable laws and regulations within the
territories of either Party shall be deemed companies
thereof and shall have their juridical status recognized
within the territories of the other Party.

(Emphasis added).

In moving for reargument of the June 5 decision, Sumitomo
relies on documents recently released by the Department of
State that purportedly bear on the intent of the negotiators of
the Treaty. The Court grants the motion to reargue, but
concludes that oral argument is unnecessary. The Court finds
that the documents lend some support to Sumitomo’s conten-
tions, but does not find them sufficiently persuasive io alter its
June 5 decision.

BACKGROUND

Additional Procedural Background

Pursuant to 28 U.S.C. § 1292(b), Sumitomo sought an
immediate appeal of the Court’s decision. The Court agreed to
an immediate appeal, but limited its certification to the issue of

48a

Sumitomo’s standing under the Treaty’s freedom-of-choice
provision. Opinion and Order dated August 9, 1979, reported
at ____ F. Supp. ___. (S.D.N.Y. 1979). Prior to filing a notice
of appeal, Sumitomo requested this Court to withdraw its
certification because the Department of State had on August
15 released documents that Sumitomo wanted the Court to
consider. Letter from J. Portis Hicks to the Court, dated
August 16, 1979. Because the ten-day period for filing a notice
of appeal after certification was about to elapse, see Federal
Rule of Appellate Procedure 5(a), Sumitomo filed its notice of
appeal without waiting for action from this Court, but re-
quested that the court of appeals stay any action until this
Court had had a chance to consider the Department of State
documents. On August 17, the court of appeals denied Sumi-
tomo permission to appeal, but did so without ruling on the
merits and without prejudice to renewal of the appeal after this
Court had had the opportunity to consider the documents—in
effect, a remand of the action to this Court. Order dated
August 17, 1979 in No. 79-8460. Sumitomo subsequently
moved for reconsideration of the Court’s June 5 decision
denying it standing under Article VIII(1). All parties have since
been given the opportunity to file briefs on the effect of the
Department of State documents on the Court’s decision.

In its previous motion to dismiss, Sumitomo relied on an
October 17, 1978 letter from the Department of State to the
Equal Employment Opportunity Commission (“EEOC”). In
the Department of State’s view of the Treaty, as expressed in
that letter, Sumitomo has the freedom of choice to fill all of its
top management positions with Japanese nationals without
being subject to Title VII sanctions. The Department of State
drew no distinctions “between subsidiaries incorporated in the
United States owned and controlled by a Japanese company
and those operating as unincorporated branches of a Japanese
company.” See 473 F. Supp. at 511. The Court, in considering
this letter, was mindful that the meanings given treaties by
government departments charged with their negotiation and
enforcement are given great weight. /d., quoting Kolovrat v.
Oregon, 366 U.S. 187, 194 (1960). Nevertheless, it rejected the

49a

meaning given the Treaty by the Department of State. “[I]n the
absence of analysis or reasoning offered by the State Depart-
ment in support of its position, this Court does not find in the
letter sufficiently persuasive authority to reject the Treaty’s
clear definition of corporate nationality and the consequent
unambiguous meaning of Article VIII(1)” or to reject es-
tablished principles of corporate law and applicable prece-
dents. /d. at 511-12 (footnote omitted).

During te course of the briefing on this motion for reargu-
ment, the Department of State indicated that it had changed its
view on whether the first sentence of Article VIII(1) of the
Treaty (freedom-of-choice provision) covers United States sub-
sidiaries of foreign corporations. Letter from James R. At-
wood, Department of State Deputy Legal Adviser, to Lutz
Alexander Prager, EEOC Assistant General Counsel, dated
September 11, 1979, attached, e.g., as Exh. 1 to Affidavit of
Lewis M. Steel, sworn to September 17, 1979. Because of the
importance of this letter in the consideration of this motion, it
is set out at length:

[T]he Department has conducted an extensive review of
the negotiating files on our bilateral treaties of friendship,
commerce and navigation (FCN), including the 1953 FCN
with Japan, and has carefully weighed the question of
coverage of subsidiaries by this treaty, an issue in Spiess v.
C. Itoh & Co. [, 469 F. Supp. 1 (S.D. Tex.), appeal
docketed, No. 79-2382 (Sth Cir. 1979),] and two other
cases more recently decided in the district court in New
York (Avigliano v. Sumitomo Shoji America, Inc., [473 F.
Supp. 506 (S.D.N.Y. 1979),] and Linskey v. Heidelberg
Eastern, Inc., [470 F. Supp. 1181 (E.D.N.Y. 1979)].

The manner of coverage of subsidiaries is in many
instances complex, making it necessary to rely on the
intent of the negotiators to fully comprehend certain
provisions. On further reflection on the scope of applica-
tion of the first sentence of Paragraph 1 of Article VIII of
the U.S.-Japan FCN, we have established to our satisfac-
tion that it was not the intent of the negotiators to cover

50a

locally-incorporated subsidiaries, and that therefore U.S.
subsidiaries of Japanese corporations cannot avail them-
selves of this provision of the treaty. In terms of selection
of personnel, management or otherwise, the rights of such
subsidiaries are determined by the general provisions of
Article VII (1) and (4), which respectively provide for
national and most-favored-nation treatment of the activi-
ties of such subsidiaries. While we do not necessarily
agree with all points expressed by the Court in deciding
the /toh case on the question of subsidiary coverage, we
do concur in general terms with the Court’s reasoning,
and specifically in the result reached in interpreting the
scope of the first sentence of Article VIII, paragraph 1.

Arguments

The positions of Avigliano, Sumitomo, and the EEOC may
be stated briefly as follows. Avigliano argues that Sumitomo
has no rights under the freedom-of-choice provision in Article
VIII(1). Its foreign owner gave up those rights, as far as
Sumitomo is concerned, when it chose to operate in the United
States as a locally incorporated subsidiary rather than as a
branch. The documents, in Avigliano’s view, indicate that the
Treaty was designed to ensure only national treatment for
foreign controlled companies. They show that the intent be-
hind the Treaty was not to exempt such companies from
United States civil rights laws.

The EEOC, in its amicus brief, argues that the September 11
Department of State letter should be given great weight by the
Court. The documents should not alter the conclusion reached
by the Court in its June 5 Opinion and Order: Sumitomo’s
rights are governed by Article XXII(3), which provides that
companies constituted under the laws of a particular country
shal! be deemed companies of that country. Accordingly, Sumi-
tomo may be granted no greater or lesser rights than any other
domestically created company. Moreover, Article VIII(1), even
were it applicable, would not allow discrimination in favor of
or against Japanese nationals or anyone else. Article VIII(1)

S5la

and Title VII and section 1981 are consistent: all three prohibit
discrimination against anyone.

Sumitomo argues that the Court should disregard the Sep-
tember 11 Department of State letter because it, like the
October i7, 1978 letter expressing a contrary view, offers no
authority or reasoning in support of its position. Sumitomo
argues that the Court should instead rely on the Department of
State documents to establish the intent of the Treaty negotia-
tors. It relies on these documents to establish that Sumitomo
has standing under Article VIII(1), as an intended beneficiary,
to assert freedom of choice in hiring certain personnel. The
confusion, according to Sumitomo, results from the drafters’
failure to distinguish clearly between provisions defining cor-
porate nationality and those granting specific rights. Corporate
nationality is not the intended test for determining standing
under the Treaty, Sumitomo continues; Sumitomo—though
technically a United States company—is entitled to specific
rights under the Treaty, as purportedly demonstrated by the
documents, because it is foreign-owned.

Documents

The documents released by the Department of State address
negotiations and enforcement of this Treaty and similar treaties
with other countries. The first document on which Sumitomo
relies is a Department of State Airgram, signed “Kissinger”
and dated January 9, 1976, to the American Embassy in Tokyo
(“Kissinger Airgram”), Exh. A to Sumitomo Memorandum.
The subject was the proper interpretation of Article XXII(3) of
the Treaty. Because of the differing interpretations of the
Kissinger Airgram, the Court sets it out in its entirety:

Department Legal Adviser’s office has examined meaning
of paragraph 3 of Article XXII of the U.S.-Japanese FCN
Treaty signed at Tokyo April 2, 1953, and fully concurs
with Embassy’s general position as set forth.

Most persuasive arguments we have found are (a) law
review article on FCNs by Herman Walker, Jr., who

52a

formulated modern (i.e., post-WW II) form of FCN
treaty and negotiated many FCNs; and (b) negotiating
record of U.S.-Japan FCN, especially Dispatch No. 13
from Tokyo of April 8, 1952. Both documents are en-
closed. Walker cites (pp 380-81), para 3 of Japanese FCN
as standard definition of company for purposes of treaty,
i.e., in the standard FCN treaty “A ‘company’ is defined
simply and broadly to mean any corporation, partnership,
company or other association which has been duly formed
under the laws of one of the contracting parties; that is,
any ‘artificial’ person acknowledged by its creator, as
distinguished from a natural person, whether or not for
pecuniary profit.” This formulation is intended to avoid
such complex questions as the law to be applied in
determining company status. Every association meeting
tests of valid existence must have its “company” status
duly recognized and is then eligible for substantive rights
granted to companies under the treaty.

In Dispatch 13 (p. 5), Jules Bassin, Legal Attache to
Embassy, stated to Mr. Mikizo Nagai, Chief, Sixth Sec-
tion, Economic Affairs Bureau, that “the recognition
mentioned in the second sentence of paragraph 3... .
meant merely the recognition by either Party of the
existence and legal status of juridical persons organized
under the laws of the other Party.”

Thus, all that para 3 is meant to accomplish is the
establishment of a procedural test for the determination
of the status of an association, i.e., whether or not to
recognize it as a “company” for purposes of the treaty.
Once such recognition is granted, the functional rights
accorded to companies under the FCN (for example, the
Article VII rights of a company to establish and control
subsidiaries) then accrue.

For reasons stated above, argument in para 2 of reftel
that nationality of a company is determined by nationality
of shareholders is not correct. Rather, a company has

53a

nationality of place where it is established (see pp. 382-83
of Walker). However, this does not mean that [the Gov-
ernment of Japan] is free to deny treaty rights to U.S.
subsidiary set up in Japan. While the company’s status
and nationality are determined by place of establishment,
this recognition does not itself create substantive rights,
which are dealt with elsewhere in the treaty. Thus, under
Article VII of the Treaty, a national or company of either
party is granted national treatment to control and manage
enterprises they have established or acquired. Therefore,
an American Company (i.e., one organized under U.S.
law), may manage its Japanese subsidiary (i.e., a com-
pany set up under Japanese law). So too, under Article I,
a U.S. national may enter Japan to direct his investment,
even though the investment is a Japanese company. In
sum, the substantive rights of U.S. nationals and compa-
nies vis-a-vis their Japanese investments accrue to them
because the treaty gives specific rights to U.S. nationals
and companies as regards their investments, and it is
irrelevant that, for the technical reasons noted above, the
status and nationality of the investment are determined by

the place of its establishment.
KISSINGER

Kissinger relied on a law review article by Herman Walker,
Jr., “who formulated modern . . . form of [Friendship, Com-
merce and Navigation Treaty] and negotiated many FCNs.” /d.
Walker set out the definition of corporate status as found in
Article XXII(3) of the Treaty. “Provisions on Companies in
United States Commercial Treaties,” 50 Am. J. Int’] Law 373,
380-81 & n.34 (1956). He thereafter explains that

[t]he adoption of the simple test [of status and nationality
by place of incorporation] has been undoubtedly facili-
tated by the clear distinction maintained in the treaties
between the so-called “civil” and “functional” capacities
of companies. The recognition of status and nationality
does not of itself create substantive rights; these are dealt
with elsewhere on their own merits. Thus the acknowledg-

54a

ment of a fact—the existence and legitimate paternity of
an association—is not confused with problems associated
with the functional rights and activities of alien-bred
associations... . .

Id. at 383.

Kissinger also relied, as Sumitomo now does, on a Memo-
randum of Conversation from the Office of the United States
Political Adviser for Japan, Tokyo, Despatch No. 13, April 8,
1952 (“Despatch No. 13”), Exh. E to Sumitomo Memoran-
dum. In Despatch No. 13, at 5, quoted in small part in the
Kissinger Airgram, the following portion of a discussion of
Article XXI\ appears:

[The Japanese representative] asked what “juridical
status” meant, and inquired whether the recognition of
juridical status mentioned in paragraph 3 meant anything
more than the recognition of the existence of a juridical
person.

[The U.S. representative] replied that “juridical status”
meant “legal status”, the legal position of an organization
in, or with respect to, the rest of the community. The
recognition mentioned in the second sentence of para-
graph 3, he added, meant merely the recognition by either
Party of the existence and legal status of juridical persons
organized under the laws of the other Party.

Sumitomo also relies on a statement of a United States
negotiator concerning treaty trader employees. The negotiator
stated that Japanese treaty trader employees “would not be
permitted to resign from a Japanese firm in order freely to seek
employment in the United States. It was possible, however, for
this employee to leave one Japanese branch firm to work for
an affiliate or subsidiary of that firm.” Despatch No. 13, at 4.
Sumitomo points to this language to demonstrate that the
negotiators did not intend to distinguish between branches and
subsidiaries regarding employment of treaty trader executives
under the Treaty. It quotes from a document addressing a
similar provision in a treaty then being negotiated between the
United States and the Federal Republic of Germany.

55a

There is no intent . . . to attempt to regulate the particu-
lar form of business entity by which the desired trading
activities are to be carried on. . . . The important con-
sideration is not whether the corporate employer is do-
mestic or alien as to juridical status. The controlling
factors are, instead: (a) whether the corporation is
engaged in substantial international trade principally be-
tween the United States and the other treaty country; (b)
whether it is a “foreign organization” in the sense that the
control thereof is vested in nationals of the other treaty
country, the customary test being whether or not a major-
ity of the stock is held by such nationals; and (c) whether
the individual alien who intends to engage in international
trading activities in the service of the corporation is duly
qualified for status as a treaty trader under. . . applica-
ble regulations.

Department of State Instruction No. A-852 to HICOG, Bonn,
January 21, 1954, at 1, Exh. 9 to Affidavit of Lance Gotthot-
fer, sworn to September 10, 1979 (“Gotthoffer Aff.”).

Avigliano and the EEOC, in addition to arguing on the basis
of the above documents, refer to other Department of State
documents for the proposition that the Treaty negotiators did
not seek to give foreign companies greater rights than those
accorded domestic companies, but rather to ensure national
treatment by barring employment discrimination against
aliens. E.g., Foreign Service Despatch No. 2529 from HICOG,
Bonn to Department of State, March 18, 1954, at 1, Exh. 11 to
Gotthoffer Aff. (the major special purpose of the freedom-of-
choice provision “is to preclude the imposition of ‘percentile’
legislation”).

DISCUSSION

Introduction

The issue on this motion for reconsideration is a narrow one.
The Court is addressing the effect of the recently released
Department of State documents on its June 5, 1979 Opinion

56a

and Order. Specifically, by examining these documents, the
Court seeks to determine whether, in the intent of the Treaty
negotiators, Article XXII(3) bars Sumitomo from standing
under the first sentence of Article VIII(i) or whether Sumi-
tomo is otherwise barred from standing under that sentence.
The issue whether Article VIII(1), if applicable, would insulate
Sumitomo from review of any or all of its employment prac-
tices is beyond the scope of this opinion.

In determining whether Sumitomo has standing under the
freedom-of-choice provision of Article VIII(1), the Court ex-
amines the Department of State documents and the terms of
the Treaty to infer the intent of the parties to the agreement.
Maximov v. United States, 299 F.2d 565, 568 (2d Cir. 1962),
aff'd, 313 U.S. 49 (1963). The Court should “give the specific
words of a treaty a meaning consistent with the genuine shared
expectations of the contracting parties.” /d.

The Department of State looked to the intent of the negotia-
tors because it found that the “manner of coverage of subsidi-
aries is in many instances complex.” Letter dated September
11, 1979, set out supra. After “an extensive review of the
negotiating files” on the Friendship, Commerce and Naviga-
tion Treaties, the Department of State concluded that Sumi-
tomo lacks standing under the first sentence of Article VIII(1).
Sumitomo’s rights are instead. governed by Article VII(1) & (4),
which provides for national and most-favored nation treat-
ment. Jd. The Court does give some weight to the Depart-
ment’s view on a manner within its purview, see Kolovrat v.
Oregon, supra, but not decisive weight in this case. The
Department undoubtedly gave the question serious and
thoughtful attention, but the letter indicates neither the docu-
ments on which the Department relies nor its analysis. In the
absence of either, the letter little aids the Court in its deter-
mination.

The issue of Sumitomo’s standing under Article VIII(1) must
be resolved on the terms of the Treaty and the documents—
against the backdrop of the Court’s prior decision. The docu-
ments raise doubt about the intent of the negotiators on the
narrow question before the Court; accordingly, they render a

57a

decision less certain. Nevertheless, the Court concludes that
Sumitomo, while not denied all protection under the Treaty,
does not have standing to rely on the freedom-of-choice
provision.

Sumitomo’s Standing Under the Treaty Generally

The terms of the Treaty support the proposition that Article
XXII(3) was not intended to bar locally incorporated subsidi-
aries of foreign companies from claiming any substantive
rights under the Treaty. The negotiators appear to have in-
tended a distinction between the status and nationality attrib-
utes of a company as governed by Article XXII(3) and rights a
company may claim under the Treaty’s substantive provisions.
In other words, Article XXII(3) cannot be read to the exclusion
of the Treaty’s other provisions. For example, Article V1I(4)
provides that

enterprises in which nationals and companies of either .
Party have a substantial interest shall be accorded, within
the territories of the other Party, not less than national
treatment and most-favored-nation treatment in all mat-
ters relating to the taking of privately owned enterprises
into public ownership and to the placing of such en-
terprises under public control.

Subsidiaries also have rights under Article VII(1) & (4). Under
Article VII(1), nationals and parties can

organize companies under the general company laws of
such other Party, and . . . acquire majority interests in
companies of such other Party; and . . . control and
manage enterprises which they have established or ac-
quired. Moreover, enterprises which they control .. .
shall, in all that relates to the conduct of the activities
thereof, be accorded treatment no less favorable than that
accorded like enterprises controlled by nationals and com-
panies of such other Party.

Paragraph 4 of Article VII provides that “[nJjationals and
companies of either Party, as well as enterprises controlled by

58a

such nationals and companies, shall in any event be accorded
most-favored-nation treatment with reference to the matters
treated in the present Article.”

The documents also support the distinction between a com-
pany’s rights under the Treaty’s substantive provisions and a
company’s nationality and status under Article XXII(3). Kis-
singer concluded that Article XXII(3) established a “proce-
dural test” of an entity’s status to determine “whether or not
to recognize it as a ‘company’ for purposes of the Treaty.”
Kissinger Airgram. In his view, one then looks to the substan-
tive provisions of the Treaty to determine the company’s
rights. Jd. He concluded on the basis of this distinction that
Japan could not deny treaty rights to a United States subsidi-
ary set up in Japan. The substantive rights he chose as
examples, however, do not support his conclusion directly. The
examples all refer to the Treaty rights of nationals and compa-
nies, not to rights of the subsidiaries that they control. See id.
Nevertheless, the distinction between “company” in the “pro-
cedural” and “substantive” senses lends support to Sumi-
tomo’s contentions.

In determining the intent of the Treaty negotiators, Kissinger
looked to Herman Walker, a principal formulator and negotia-
tor—according to Kissinger—of many Friendship, Commerce
and Navigation Treaties. In the law review article quoted
above—which was personal and not on behalf of the Depart-
ment of State, 50 Am. J. Int’! Law at 373 n.—Walker set out
the distinction between a company’s civil attributes (status and
nationality) and its functional or substantive ones. In a section
entitled “Utilization of the Domestic Company Device,” he
gave a brief history of the right to organize and operate
domestic companies. /d. at 386-88. He concluded that the
treaties current at the time he was writing—including the
Treaty with Japan at Article VII(1)—have revised the previous
approach to rights regarding domestic companies in three
ways. One revision was assuring the “ ‘controlled’ domestic
company. . . national treatment; discrimination against it in
any way by reason of its domination by alien interests is not
permissible.” Jd. at 388.

59a

During negotiation of the Treaty, a United States representa-
tive suggested the same distinction between civil and substan-
tive attributes by stating the limited purpose of Article
XXII(3): “The recognition mentioned in the second sentence of
paragraph 3. . . meant merely the recognition by either Party
of the existence and legal status of juridical persons organized
under the laws of the other Party.” Despatch No. 13, at 5. The
same document suggests that subsidiaries have rights to hire
treaty traders, id. at 4, as does Department of State Instruction
No. A-852. The statements regarding treaty traders do not bear
directly on the rights of the subsidiaries themselves, but they
do suggest that subsidiaries have a place within the scheme of
the Treaty and its implementing regulations. See generally
discussion at 473 F. Supp. at 512-13.

Sumitomo’s Claim of Standing
Under Article VIII(1)

Articles VI(4) and VII(1) & (4), by their terms, give “en-
terprises in which nationals and companies . . . have a sub-
stantial interest” and enterprises controlled by nationals and
companies, respectively, substantive rights. The drafter knew
how to give locally incorporated subsidiaries rights under
specific articles. In Article VIII(1) they did not do so. The
freedom-of-choice rights are given to “nationals and compa-
nies of either Party . . . within the territories of the other
Party.” Because the provision does not by its own terms extend
to locally incorporated subsidiaries,’ the Court must look to
Article XXII(3) to determine whether “nationals and compa-
nies” can be read to include subsidiaries. That Article provides
that “[c]ompanies constituted under the applicable laws and
regulations within the territories of either Party shall be
deemed parties thereof.” By this language Sumitomo is a
United States company. It is not a Japanese company and is

1 Although nationals and companies have some employment rights in
connection with enterprises in which they have financial interests, the
subsidiaries themselves are not in any plain terms given employment

rights.

60a

thereby ineligible for freedom-of-choice protection within, the
territories of the United States.

The documents do not enable Sumitomo to escape this
plain-term reading of the provision. They do not establish that
the negotiators intended to give locally incorporated subsidi-
aries rights under the freedom-of-choice provision. A liberal
reading of the Kissinger Airgram and its background suggest
that he might have given a locally incorporated subsidiary
rights under the freedom-of-choice provision. He did not,
however, explicitly conclude that a subsidiary has such rights,
nor did he refer to any documents that would establish such a
right running to Sumitomo. In his law review article, Walker
explained the difference between the civil attributes and the
functional rights of a company, but he does not indicate that
domestic subsidiaries have standing under Article VIII(1). He
indicates only that such companies are entitled to national
treatment—discrimination against it is impermissible. 50 Am.
J. Int’! Law at 380-83, 385-88. Despatch No. 13 does not even
discuss Article VIII(1), and its discussion of Article XXII(3)
merely supports the proposition—discussed above—that that
article does not by its own terms exclude subsidiaries from all
substantive rights under the Treaty. Sumitomo has failed to
point out any documents that directly support its claims under
Article VIII(1).

Correction of August 9, 1979
Opinion and Order

On page 3 of its Opinion and Order dated August 9, 1979,
___ F. Supp. ___., the Court stated:

If defendant is protected by the Treaty, it is not answer-
able in court to these claims of discrimination. If not,
then its practices are exposed to judicial evaluation.

The Court need not, and does not, reach the question whether
Article VIII(1), were it available to Sumitomo, would exempt
Sumitomo from judicial review against any or all of plaintiffs’
discrimination claims. The Court has no view on that issue, but
in the language quoted above it suggested otherwise. Accord-

6la

ingly, it deletes the quoted language from its August 9, 1979
Opinion and Order.’

Additionally, the word “seeks” on page 4 (second line from
the bottom) of the August 9, 1979 Opinion and Order should
be changed to “sees.”

CONCLUSION

In summary, the Department of State documents support the
conclusion that Article XXII(3) does not bar Sumitomo from
standing under the Treaty generally. However, the Court reaf-
firms its conclusion that the terms of the Treaty do not give
Sumitomo standing under Article VIII(1) and further con-
cludes that the documents do not establish otherwise.

Finally, the Court directs that its August 9, 1979 Opinion
and Order be amended in the manner indicated herein.

So ordered.

Dated: New York, New York
November 29, 1979

CHARLES H. TENNEY
U.S.D.J.

2 Much of the EEOC’s brief is directed to the argument that the
Treaty generally and Article VIII(1) specifically would not entitle
Sumitomo, if it had standing, to more than national treatment.
Walker, however, stated that the Treaty’s employment rights “techni-
cally [go] beyond national treatment,” 50 Am. J. Int’l Law at 386; but
cf. Linskey v. Heidelberg Eastern, Inc., 470 F. Supp. 1181, 1184-87
(E.D.N.Y. 1979) (under freedom-of-choice provision in treaty with
Denmark, foreign corporation does not have absolute privilege to hire
specialized personnel regardless of American laws prohibiting employ-
ment discrimination), but the Court does not reach the issue of the
substantive scope of the Treaty’s employment rights.

63a

APPENDIX F

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
UNITA

Saal

April 24, 1981
Docket No. 79-2382

+

MICHAEL E. SPIESS, JACK K. HARDY and
BENJAMIN F. ROUNTREE,

Plaintiffs-A ppellees,

—

C. ITOH & COMPANY (AMERICA), INC.,
Defendant-Appellant.

ae

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS.

—

Before:

COLEMAN, CHARLES CLARK and REAVLEY,
Circuit Judges.

as

64a

CHARLES CLARK, Circuit Judge:

This interlocutory appeal presents an important issue of first
impression in this circuit. C. Itoh & Company (America), a
New York corporation wholly owned by a Japanese parent
corporation, argues that a 1953 treaty between the United
States and Japan permits it to hire only Japanese citizens for
managerial and technical positions, in spite of American laws
prohibiting discrimination on the basis of national origin. We
hold that the treaty affords American subsidiaries of Japanese
corporations the limited right to discriminate in favor of
Japanese nationals in filling these positions.

Michael E. Spiess and other American employees of C.Itoh-
America filed a class action under Title VII of the Civil Rights
Act and 42 U.S.C. section 1981. The complaint charged that
the company had discriminated against its American employees
by making managerial promotions and other benefits available
only to Japanese citizens. C. Itoh-America filed a motion to
dismiss, asserting that the Treaty of Friendship, Commerce and
Navigation between the United States and Japan, April 2,
1953, 4 U.S.T. 2063, T.1.A.S. No. 2863, precluded the plain-
tiffs’ suit. Article VIII(') of the Treaty provides that

companies of either Party shall be permitted to engage,
within the territories of the other Party, accountants and
other technical experts, executive personnel, attorneys,
agents and other specialists of their choice.

C. Itoh-American argued that the language permitting compa-
nies to engage executive personnel “of their choice” cloaks the
company with absolute immunity from American employment
discrimination laws as to these positions.

The trial court denied C. Itoh-America’s motion to dismiss,
relying primarily on article XXII(3) of the Treaty. Under article
XXII(3),

65a

[clompanies constituted under the applicable laws and
regulations within the territories of either Party shall be
deemed companies thereof and shall have their juridical
status recognized within the territories of the other Party.

The trial court reasoned that C. Itoh-America, a New York
corporation, had been “constituted” under the laws of the
United States. As a result, the court concluded that C. Itoh-
America was a “company of the United States” under the plain
meaning of article XXII(3), even though it was wholly owned
by C. Itoh & Company, Ltd., a Japanese corporation. Because
C. Itoh-America, in this view, was not a company of one party
operating within the territory of the other, the trial court ruled
that it could not assert the article VIII({1) right to choose
executive personnel of its choice. See Spiess v. C. Itoh & Co.
(America), Inc., 469 F.Supp. 1, 6 (S.D.Tex. 1979). Upon a
motion by C. Itoh-America, however, the district court permit-
ted the company to take an interlocutory appeal. The follow-
ing question was certified to this court under 28 U.S.C. section
1292(b):

Does the 1953 Treaty of Friendship, Commerce and Navi-
gation between the United States and Japan provide
American subsidiaries of Japanese corporations with the
absolute right to hire managerial, professional and other
specialized personnel of their choice, irrespective of
American law proscribing racial discrimination in em-
ployment?

The Japanese Treaty is one in a long line of Friendship,
Commerce and Navigation (FCN) treaties negotiated on a
bilateral basis between the United States and other countries.
Since the negotiation of the first FCN treaty with France in
1778, American diplomats have used the FCN device to estab-
lish the ground rules by which private commerce between
American citizens and citizens of other countries is regulated.

66a

See generally Walker, Modern Treaties of Friendship, Com-
merce and Navigation, 42 Minn.L.Rev. 805, 806 (1958) [here-
inafter cited as Modern Treaties}. The FCN format is a flexible
one, and it has been used at different times to serve different
foreign policy goals. The central theme ofthe FCN treaty,
however, has remained. An FCN treaty is the medium through
which two nations provide “for the rights of each country’s
citizens, their property and other interests, in the territories of
the other, and for the rules mutually to govern their trade and
shipping.” Walker, Treaties for the Encouragement and Protec-
tion of Foreign Investment: Present United States Practice, 5
Am.J.Comp.L. 229, 230-31 (1956) [hereinafter cited as United
States Practice}.

The FCN treaties, including the Japanese Treaty, are self-ex-
ecuting treaties, that is, they are binding domestic law of their
own accord, without the need for implementing legislation. See
Zenith Radio Corp. v. Matsushita Electric Industrial Co.,
_ Ltd., 494 F.Supp. 1263, 1266 (E.D.Pa.1980). Such treaties are
“the supreme law of the land,” and supersede inconsistent state
law. U.S.Const. art. VI, cl. Il; United States v. Pink, 315 U.S.
203, 230, 62 S.Ct. 552, 565-66, 86 L.Ed. 796, 817-818 (1942);
De Tenorio v. McGowan, 510 F.2d 92, 95 (Sth Cir. 1975). See
also Oregon-Pacific Forest Products Corp. v. Welsh Panel
Co., 248 F.Supp. 903, 910 (D.Or.1965) (Japanese Treaty is
“supreme law of the land”). Even federal statutes “ought never
to be construed to violate the law of nations if any other
possible construction remains.” The Charming Betsy, 6 U.S. (2
Cranch) 64, 118, 2 L.Ed. 208, 226 (1804), quoted in McCulloch
v. Sociedad Nacional de Marineros de Honduras, 372 U.S. 10,
21, 83 S.Ct. 671, 678, 9 L.Ed.2d 547, 555 (1963). Only when
Congress clearly intends to depart from the obligations of a
treaty will inconsistent federal legislation govern. /d. Thus,
unless federal civil rights laws reflect an affirmative disavowal
of the rights provided by the Treaty, it is our duty to implement
the treaty rights.

67a

The district court held that C. Itoh-America was an Ameri-
can company for the purposes of the Treaty, and thus could
not assert the article VIII rights extended to Japanese corpora-
tions operating in this country. In the trial court’s view,
“[a}rticle XXII(3) unequivocally states that for the purpose of
the Treaty the nationality of the corporation is determined by
the place of incorporation.” Spiess v. C. Itoh & Co. (America),
Inc., 469 F.Supp. 1, 6 (S.D.Tex.1979). We reject this construc-
tion of article XXII(3).

The district court’s reading of article XXII(3) is compatible
with the text of the Treaty, but it fails to account for the unique
nature of an international agreement. Unlike domestic legisla-
tion, treaties must create a common ground between differing
cultures before the rights of the parties can be defined. The
negotiating history of the Treaty makes clear that article XXII
(3) was designed for this purpose. A contemporaneous memo-
randum prepared by State Department negotiators demon-
strates that the provision was intended, not to determine which
forms of corporate organization were entitled to assert Treaty
rights, but to ensure that unfamiliar organizations would be
recognized as “companies” by the legal institutions of the
respective countries. The memorandum noted the following
colloquy:

Mr. Nagai [a Japanese negotiator] then asked what
“juridical status” meant, and inquired whether the recog-
nition of juridical status mentioned in paragraph three [of
article XXII] meant anything more than the recognition
of the existence of a juridical person.

Mr. Bassin [the American negotiator] replied that
“juridical status” meant “legal status,” the legal position
of an organization in, or with respect to, the rest of the
community. The recognition mentioned in the second
sentence of paragraph three, he added, meant merely the
recognition by either Party of the existence and legal

68a

status of juridical persons organized under the laws of the
other Party.

Dispatch No. 13, Office of the United States Political Advisor
for Japan, dated April 8, 1952, at 5 [hereinafter referred to as
Bassin Memorandum]. '

FCN authority Herman Walker’ has expressed a similar
understanding of article XXII(3). In a 1956 article, Walker
described the “distinct problems” encountered in defining
“company” broadly enough to accommodate the varied pur-
poses of an FCN treaty. Walker, Provisions on Companies in
United States Commercial Treaties, 50 Am.J. Int’! L. 373, 380
(1956) [hereinafter cited as Provisions on Companies}. Walker
noted

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2245%3A02. Public record. Not legal advice.