Appendix — Sumitomo Shoji America, Inc. v. Avagliano

APPENDIX A

IN THE

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

No. 81 C 1305

>

WILLIAM L. PORTO,

Plaintiff,

—vs.—

CANON, U.S.A., INC.,

Defendant.

>

MEMORANDUM OPINION AND ORDER

Plaintiff, William L. Porto, filed this action against defen-

dant, Canon, U.S.A., Inc., alleging violations of Title VI!, 42

U.S.C. § 2000e, and 42 U.S.C. § 1981. Specifically, plaintiff

alleges that defendant has established a hiring, promotional

and employment system which limits the employment and

promotional opportunities of non-Japanese national origin

employees. Moreover, plaintiff alleges that if he were of Japa-

nese national origin, he would not have been fired. Currently

pending is defendant’s motion to dismiss.

Plaintiff objects to the motion to dismiss because defendant

filed the motion after it had filed an answer to the complaint.

Rule 12(b) provides that a motion to dismiss “shall be made

before pleading if a further pleading is permitted.” Thus,

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courts have noted that motions to dismiss for failure to state a

cause of action upon which relief can be granted should be

made prior to service of a responsive pleading. See, e.g.,

Bowen v. Pan American World Airways, Inc., 474 F.Supp. 563

(S.D.N.Y. 1979); United States v. City of Philadelphia, 482

F.Supp. 1274 (E.D.Pa. 1979), aff’d, 644 F2d 187 (3d Cir.

1980). However, both these cases recognize that the substance

of a motion to dismiss may be considered after the pleadings

are closed as a motion for judgment on the pleadings under

Rule 12(c).

Moreover, the purpose of requiring a motion under 12(b) to

be filed before service of a responsive pleading is to determine

the sufficiency of the complaint before requiring the parties to

undergo the expense of discovery and further litigation. There

is no reason for this court to allow discovery and trial to

proceed, only to hold, after a trial on the merits, that the

complaint fails to state a cause of action as a matter of law.

Thus, whether the court considers the motion under 12(b) or

(c), the court still must reach the substance of defendant’s

arguments.

Defendant’s substantive argument is a most unique one.

Defendant argues that Title VII is not applicable because it has

been superseded by the Treaty of Friendship, Commerce and

Navigation between the United States and Japan. Defendant

also argues that plaintiff’s complaint does not state a cause of

action under § 1981 because that section does not apply to

discrimination based on national origin. Each argument is

considered in turn.

The treaty, entered into on April 2, 1953, provides in Article

VIII(1):

“Companies of either Party shall be permitted to engage,

within the territory of the other Party accountants and

other technical experts, executive personnel, attorneys,

agents and other specialists of their choice.” (Emphasis

supplied.)

Defendant contends that this provision allows it to discrimi-

nate in favor of Japanese nationals for executive and technical

3a

positions. The Fifth Circuit has accepted defendant’s argu-

ments despite the blistering and well-reasoned dissent of Judge

Reavley. Spiess v. C. Itoh & Company, Inc., 643 F.2d 353 (Sth

Cir. 1981). The Second Circuit has held to the contrary.

Avigliano v. Sumitomo Shoji America, Inc., 638 F.2d 552 (2d

Cir. 1981).

Defendant’s argument presents two questions. Since defen-

dant is a subsidiary, organized in the United States, of a parent

Japanese corporation, the first question is whether an Ameri-

can subsidiary of a Japanese corporation is a Japanese com-

pany for the purposes of the treaty. Assuming that defendant is

a Japanese company within the meaning of the treaty and

entitled to invoke the Article VIII rights, the second inquiry is

whether this article gives defendant a limited right to discrimi-

nate in favor of Japanese nationals. For the reasons stated

below, the court concludes that defendant is not a Japanese

company for treaty purposes and that even if it were, Article

VIII(1) does not exempt it from Title VII.

Article XXI1I(3) of the Treaty provides:

“[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.”

(Emphasis supplied.)

The clear language of this article suggests that a “company of

Japan” is only an entity constituted under the applicable laws

of that country and consequently a company for purposes of

the treaty should be determined by its place of incorporation.

Since defendant is incorporated under the laws of the United

States and not Japan, the clear language of the treaty dictates

that defendant “shall be deemed [a] compan[y]” of the United

States.

Despite this clear language, two courts of appeals have

concluded that an American subsidiary owned by a Japanese

corporation is a Japanese company within the meaning of the

treaty. Spiess, supra; Avigliano, supra. Both the Second and

Fifth Circuits admitted that they were departing from a literal

4a

reading of the treaty, but justified this departure on three

major grounds: (1) the purpose and history of the treaty

mandate the conclusion that Article XXII(3) merely guarantees

legal recognition to diverse forms of legal entities and does not

determine which of those entities can assert treaty rights; (2) to

read the treaty literally would exhalt form over substance; and

(3) to read the treaty literally would result in a “crazy-quilt

pattern” of rights for subsidiaries.

For the reasons stated in United States v. R.R Oldham Co.,

152 F.Supp. 818, 823 (N.D.Cal. 1957), and Judge Reavley’s

dissent, this court finds the Second and Fifth Circuit’s analysis

unpersuasive. The court, for the reasons stated by Judge

Reavley, concludes that Article XXII(3) does not allow Ameri-

can subsidiaries to invoke the rights of Article VIII(1).

The Japanese treaty is one in a long line of Friendship,

Commerce and Navigation treaties (FCN) negotiated on a

bilateral basis between the United States and other countries.

The purpose of these treaties is to create a 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); see, generally, Walker,

Modern Treaties of Friendship, Commerce and Navigation, 42

Minn.L.Rev. 805 (1958). The FCN treaties, including the

Japanese treaty, are self-executing treaties. Such treaties are the

supreme law of the land and supersede inconsistent state law.

Federal statutes should not be construed to violate the treaty if

any other possible construction remains and only when Con-

gress clearly intends to depart from the obligations of a treaty

will inconsistent federal legislation govern. Spiess, supra.

In interpreting Article XXII not to determine which forms

of corporate organization were entitled to assert treaty rights,

but only to ensure that unfamiliar organizations would be

recognized as companies by the legal institutions of the respec-

tive countries, the Fifth Circuit relied on several State Depart-

Sa

ment memoranda and several articles written by Herman

Walker, an FCN authority.’

Judge Reavley thoroughly discussed the materials relied on

by the majority in Spiess. For the same reasons that he found

them unpersuasive, this court also finds them unpersuasive.

The court need not repeat that discussion here. Spiess, 643 F.2d

at 371-72.

Moreover, Judge Reavley also found affirmative support for

his view in the history of the treaty. One such document is a

dispatch sent from the Secretary of State Acheson to the Treaty

negotiators. The dispatch apparently concerned the meaning of

Article XXI(e). It provides:

“The analysis of this question begins with the second

sentence of Article XXII, Paragraph 3, which establishes

that whether or not a juridical entity is a ‘company’ of

either Party, for treaty purposes, is determined solely by

the place of incorporation. Such factors as location of the

principal place of business or the nationality of the

majority stockholders are disregarded.” (Emphasis sup-

plied.)

Judge Reavley also noted that the view taken by Acheson that

a company for treaty purposes is determined solely by the place

of incorporation is confirmed by a State Department dispatch

from Secretary of State Kissinger. In this dispatch, Kissinger

clearly states that a “company’s status and nationality are

determined by place of establishment.” This court agrees with

Judge Reavley that these secondary sources confirm a literal

reading of the treaty and undermines the Fifth Circuit’s con-

clusion that the history of the treaty justifies a departure from

that literal reading.

Even if this court accepted the Fifth and Second Circuits’

conclusion that the treaty merely guarantees legal recognition

l The Second Circuit relied on the history of the negotiations preced-

ing the ratification of a similar treaty between the United States and

the Netherlands. While not irrelevant to the question before the court,

this court finds the history of the treaty with Japan more probative of

the question of the purpose of the treaty than the materials relied on by

the Second Circuit.

6a

to diverse forms of legal entities and does not determine which

of those entities can assert treaty rights, the court would still

have to determine whether an American subsidiary of a parent

Japanese corporation is a Japanese company or an American

company. That is, if Article XXII does not define a corpora-

tion’s nationality for purposes of the treaty, how does interna-

tional law determine the nationality of a corporation? Interna-

tional law is clear that an international corporation has the

nationality of its place of incorporation. Barcelona Traction,

Light and Power Company, Lid. (Belgium v. Spain), 1970

I.C.J. Rep. 3, 42 (International Court of Justice) H. Walker,

Companies, ch. Vil in R.R. Wilson, United States Commercial

Treaties and International Law 182, 193 (1960). Thus, under

international law, since defendant is incorporated under the

laws of the United States, for purposes of the treaty, it would

be an American company and not a Japanese company. In

sum, the clear language of the treaty, the history of the treaty

and the settled principles of international law all establish that

an American subsidiary of a Japanese company is an American

company for treaty purposes.

The Second Circuit also argued that “to hold that [a]

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.” Avigliano, 638 F.2d at 556. This court

disagrees with this conclusion for two reasons. First, as Judge

Reavley points out in his dissent, wholly owned subsidiaries of

Japanese corporations are specifically given several rights un-

der the treaty. Indeed, the only “right” of major practical

importance that depends on the company’s place of incorpora-

tion is the one given in Article VIII(1). Second, whether a

company chooses to operate as a wholly owned subsidiary or a

branch of an existing corporation is not an inconsequential

decision, as the Second Circuit suggests. The choice will have

many legal consequences. For example, service of process on a

subsidiary usually does not constitute effective service on the

parent. As well, when a corporation decides to form a subsidi-

7a

ary, it considers the tax and conflict of laws consequences of its

decisions. If a corporation decides to organize under American

law in order to invoke these benefits, it does not seem unfair to

require it to accept the burdens of American law. Conse-

quently, this court cannot agree that its interpretation of the

treaty disregards substance for form.

Finally, both the Second and Fifth Circuits argued that

interpretation of Article XXII(3) as to subsidiaries would

create a “crazy-quilt pattern” in which branches of Japanese

corporations would enjoy broad rights under the treaty while

subsidiaries would be entitled only to minor protection. Under

a literal reading of the treaty, a company is considered a

“company of Japan” only if it is incorporated in Japan.

Consequently, American incorporated subsidiaries of Japanese

corporations are only entitled to treaty protection when they

are specifically mentioned. Both the Second Circuit and Fifth

Circuit argue that “[i]t is illogical to infer that the drafters of

the Treaty intended to make such a dramatic distinction be-

tween forms of business operation.” Avigliano, 638 F.2d at

556. Once again, for the reasons stated by Judge Reavley, this

court must disagree with the conclusion of the Fifth and

Second Circuits.

The most important reason why this court disagrees with the

argument of the Fifth and Second Circuits is that it defies the

plain meaning of Article XXII(3). The court agrees with both

the Fifth and Second Circuits that one of the purposes of this

article is to determine when the juridical entity designated as a

“company” exists. But, if this is the only purpose of the clause,

the existence of the phrase “shall be deemed companies

thereof” is rendered superfluous. As Judge Reavliey asked,

“What is the meaning of this phrase if not to determine

corporate nationality for the purposes of the Treaty?” Spiess,

643 F.2d at 364.

An analysis of the treaty structure and articles supports a

literal reading of Article XXII(3), despite the Second and Fifth

Circuits’ arguments to the contrary.

First, the treaty consistently uses three terms of art to

allocate benefits among private parties: “nationals,” “compa

nies” and “enterprises controlled by such nationals or compa-

nies.” The fact that the framers used three separate terms

indicates that each term was to represent a distinct entity. But

under the Fifth and Second Circuits’ views, there would be no

reason to use the term “enterprises controlled by such na-

tionals or companies” since that entity is already a “company”

or a “national.” Thus, that view renders the last term meaning-

less and creates additional confusion and redundancy. This

court’s analysis, on the other hand, gives each term a distinct

meaning and eliminates any confusion or redundancy.

Second, two articles of the treaty are clearly based on the

assumption that a company has the nationality of its place of

incorporation. The first sentence of Article VII(1) provides

that nationals and companies of Japan are entitled to equality

of treatment with nationals and companies of the United

States. The second sentence, however, confers a narrower right

on Japanese controlled American companies—the right of

equality of treatment with subsidiary enterprises controlled by

nationals and companies of the United States. This distinction,

of course, only makes sense, if a Japanese controlled American

subsidiary is considered a company of the United States. If this

entity is a company of Japan, it would already be entitled to

national treatment, and the grant of the narrower right would

be meaningless.

Article XXI(1)(e) of the treaty also indicates that the na-

tionality of the corporation is to be determined by its place of

incorporation. Judge Reavley’s dissent makes this point per-

suasively, and his discussion need not be repeated here. Spiess,

643 F.2d at 366.

Third, under normal principles of statutory interpretation, if

an item is specifically enumerated in one section of a statute

but omitted from a similar enumeration in a closely related

section, the exclusion is held to be intentional and meaningful

unless plain reason or authoritative sources indicate otherwise.

Articles VII(1), VII(4), XVI(2), VI(3) (read in conjunction with

paragraph 2 of the protocol) and VI(4) grant express rights to

nationals and companies of either party operating in the

territory of the other party and then specifically extend the

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same or similar rights to “enterprises controlled by such

nationals or companies.” Other adjacent articles, however,

extend rights only to nationals and companies of either party

and make no mention of controlled enterprises. The Fifth and

Second Circuits conclude that such distinctions are haphazard.

This court, applying accepted principles of statutory construc-

tion, cannot agree. The history of the treaty shows that it was

drafted with great care and thought. The court must conclude

that the drafters meant what they wrote and that the exclusion

of the phrase “enterpises controlled by such nationals or

companies” was intentional. Thus, the court must also con-

clude that the exclusion of the phrase, “enterprises controlled

by such nationals or companies” from Article VIII(1) is inten-

tional.

Moreover, the specific inclusion of the phrase “enterprises

controlled by such nationals or companies” would be com-

pletely redundant if such enterprises were already companies.

This is particularly true since in other articles the treaty also

grants the same rights to “companies” that these five articles

grant to enterprises controlled by such nationals. This court’s

construction of these two phrases eliminates the redundancy

since each phrase is given a distinct meaning.

Furthermore, as Judge Reaviey has noted, the “crazy-quilt

pattern” of which the Fifth and Second Circuits complain does

not emerge in as a dramatic form as one might think. While it

is true that some 20 articles of the treaty do not use the phrase,

“enterprises controlled by such nationals or companies,” this

court agrees with Judge Reaviey that “the distinctions make

little practical difference.” Spiess, 643 F.2d at 369.’

Finally, these distinctions are not necessarily arbitrary as the

Second and Fifth Circuits suggest. It makes perfect sense that

the drafters of the treaty would want to confer a more

complete set of rights on companies that are incorporated in

Japan than they would for American subsidiaries that are

owned by Japanese companies or nationals. For all of these

2 Judge Reaviey has explained in his dissent why the distinctions do

not have any great practical importance and his discussion need not be

repeated here.

10a

reasons, the court concludes that defendant is an American

company for purposes of the treaty.

Even assuming, however, that defendant is a company of

Japan for purposes of the treaty, it is less than clear that the

phrase “of their choice” exempts the defendant from the

mandates of Title VII.

Again, both the Fifth and Second Circuits have considered

this question. The Fifth Circuit has concluded that the treaty

does exempt American subsidiaries of Japanese parents from

Title VII, Spiess, supra, while the Second Circuit has reached

the opposite conclusion. Avigliano, supra. Accord, Linsky v.

Heidelberg Eastern, Inc., 470 F.Supp. 1181 (E.D.N.Y. 1974).

This court finds itself in agreement with the Second Circuit

on this issue. At the time the treaty was negotiated, a number

of American states and many foreign countries severely re-

stricted the employment of noncitizens within their boundaries.

Avigliano, supra; Note, Commercial Treaties and the American

Civil Rights Laws: The Case of Japanese Employers, 31

Stan.L.Rev. 947 (1979). Article VIII of the treaty, which allows

companies of either party to hire executive personnel “of their

choice” when operating in the other party’s land, was intended

to exempt companies from these state restrictions on the

employment of noncitizens. Avigliano, 638 F.2d at 559.

While it appears that Article VIII was intended to facilitate a

party’s employment of its own nationals, there is no evidence

to support the broad interpretation which defendant urges.

Defendant’s argument, taken to its logical conclusion, would

not only mean that defendant is exempt from Title VII, but

from laws granting rights to unions and employees, Labor

Management Relations Act, 29 U.S.C. §§ 141-187, and the

like, and even possibly from laws prohibiting employment of

children, § 12 of the Fair Labor Standards Act, 29 U.S.C.

§ 212. It also seems implausible that the treaty was intended to

exempt defendant from Title VII since Title VII was passed

after the treaty was ratified.

In view of these facts, the court concludes that subjecting a

Japanese company to the mandates of Title VII is consistent

with both the language and purpose of the treaty. This is

lla

particularly true since Title VII does not preclude defendant

from employing Japanese nationals in positions where such

employment is reasonably necessary to the successful operation

of its business. Avigliano, supra; 42 U.S.C. § 2000e-2(e). (The

bona fide occupation qualification (BFOQ).) The Second Cir-

cuit has also noted that although the “BFOQ” is usually

construed narrowly, in this situation, the “BFOQ” defense

“must be 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.” Avigliano, 638 F.2d at

559.’

For this second and independent reason, the court concludes

that the treaty cannot form a basis upon which to dismiss the

complaint.

This leaves for discussion plaintiff’s claim under 42 U.S.C.

§ 1981. It is defendant’s theory that 1981 does not prohibit

discrimination on the basis of national origin. Plaintifi : re-

sponse is two-fold: (1) § 1981 does prohibit discrimination on

the basis of national origin; and (2) even if it does not, the

complaint also alleges discrimination on the basis of race. Each

of plaintiff’s contentions is considered in turn.

The law is well settled in this district that in order for a

plaintiff to predicate an action on this section, he must allege

3 Although the complaint states that defendant is discriminating on

the basis of national origin, the complaint also complains that defen-

dant is discriminating in favor of Japanese citizens. While Title VII

clearly forbids discrimination on the basis of national origin, it does

not prohibit discrimination on the basis of citizenship. Espinoza v.

Farah Manufacturing Co., 414 U.S. 86 (1973). See, Note, Treosies and

Civil Rights Law, supra. Thus, if defendant is illegally discziminating

in favor of persons of Japanese national origin who are not Japanese

citizens, a cause of action under Title VII may be stated. However, if

defendant is discriminating only in favor of Japanese citizens, and not

in favor of persons of Japanese national origin, it is doubtful that a

cause of action is stated under Title VII. Espinoza, supra. Since neither

party has raised this issue in their briefs, and the success of this

argument may depend on a question of fact, the court declines to base

its ruling on Espinoza, at this time. The court will, of course, entertain

a motion to dismiss or for summary judgment on this theory if it does

appear that defendant is only allegedly discriminating on the basis of

citizenship.

12a

discrimination on the basis of race. The section does not

pertain to discrimination on the grounds of national origin.

Abshire v. Chicago and Eastern Illinois Railroad Co., 352

F.Supp. 601, 602 (N.D.IIl. 1972) (Judge Bauer); Vasquez v.

Werner Continental, Inc., 429 F.Supp. 513, 515 (N.D.IIl. 1977)

(Judge Crowley); Plummer v. Chicago Journeyman Plumbers,

452 F.Supp. 1127 (N.D.IIl. 1978); see, Jones v. Alfred H.

Mayer Co., 392 U.S. 409, 413 (1968). Consequently, the court

concludes that § 1981 does not prohibit discrimination on the

basis of national origin.

Although plaintiff in a few paragraphs of its complaint

alleges that he is being discriminated against because of his

race, the facts alleged do not support this conclusion. The

plaintiff is not complaining that he is discriminated against

because he is white. Rather, the complaint clearly alleges that

plaintiff is being discriminated against because he is not of

Japanese origin. There is nothing in the complaint to indicate

that plaintiff is treated any differently than blacks, hispanics,

American Indians or orientals. The only facts alleged indicate

that defendant is giving preference to persons of Japanese

national origin over all other persons. Consequently, the com-

plaint focuses on national origin as the basis for the dis-

crimination and does not state a claim for discrimination on

the basis of race. Consequently, plaintiff’s § 1981 claim must

be dismissed.

For the reasons stated above, defendant’s motion to dismiss

is granted in part and denied in part; defendant’s motion to

dismiss plaintiff’s claim under Title VII is denied; defendant’s

motion to dismiss plaintiff’s claim under 42 U.S.C. § 1981 is

granted, and the § 1981 claim is hereby ordered dismissed.

ENTER:

/s/ Bernard M. Decker

United States District Judge

DATED: September 9, 1981

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APPENDIX B

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

No. 81 C 1304

_—

EDWARD L. MATTISON,

Plaintiff,

—e

CANON U.S.A., INC.,

Defendant.

>

DECISION ON DEFENDANT’S MOTION TO DISMISS

Defendant, after filing an answer to the complaint, filed a

motion to dismiss pursuant to F.R.C.P. 12(b)(6) for failure to

state a claim. The motion is supported by certain official

documents and is opposed by an affidavit of the plaintiff.

Therefore it can be considered as a motion for summary

judgment, particularly since the motion raises important sub-

stantive issues which must be decided before we reach the

merits.

The complaint alleges discrimination against the plaintiff on

the basis of race, color and national origin. One of the

jurisdictional bases alleged is the Fourteenth Amendment to

the Constitution of the United States. This amendment does

not reach claims of discrimination against private corpora-

tions. Therefore, this allegation of jurisdiction in paragraphs |

and 15 are of no legal significance and should be stricken.

Shelley v. Kraemer, 334 U.S. 1 (1948).

l4a

Plaintiff also alleges jurisdiction under the Civil Rights Act

of 1866, 42 U.S.C. § 1981. This section applies to discrimina-

tion on the basis of race but not on the basis of national origin.

Johnson v. Railway Express Agency, 421 U.S. 454 (1975).

Plaintiff alleges discrimination against himself, a white person,

and in favor of “Japanese” persons on the basis of “national

origin or race” (pars. 13 and 15). Whether plaintiff can prove a

claim of discrimination based upon “race” remains an issue of

fact, perhaps one subject to expert testimony. In any event, the

allegation of jurisdiction based on § 1981 is proper.

The third alleged basis for jurisdiction is Title VII of the

Civil Rights Act of 1964 (42 U.S.C. § 2000e ef seq.), which

proscribes discrimination on the basis of either race or national

origin. Defendant contends, however, that the pre-existing

Treaty of Friendship, Commerce and Navigation between the

United States and Japan dated April 2, 1953 gives it a right to

favor Japanese Nationals and takes precedence over Title VII.

Article VIII(1) of that Treaty provides:

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.

Plaintiff alleges that by the time of his termination of

employment on July 25, 1980 he held the position of Order

Department Manager. Whether or not this constituted him an

“executive personnel. . .[or] other specialists” within the

meaning of the foregoing clause is another question of fact

which cannot be decided on a motion to dismiss. We believe we

can, however, decide whether or not the defendant is a “Com-

pany of either Party.”

Defendant Canon is allegedly a wholly-owned subsidiary of

Canon, Inc. Japan, a Japanese corporation. Plaintiff also

alleges that defendant itself is a “Japanese” corporation with

its principal place of business in Illinois (par. 6 of the com-

plaint). However, the parties argue in their memoranda that

defendant is incorporated under the laws of the United States.

15a

Assuming this to be the fact, then the defendant is not within

the coverage of Aiticle VIII(1) of the Treaty. Article XXII(3)

provides:

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.

The foregoing language seems clear enough to us to mean

that when a citizen (or corporation) of Japan creates a corpo-

ration in the United States for the purpose of doing business

here, it then remains a corporation constituted under the laws

and regulations of the United States. The fact that it is owned

or controlled by persons who are not citizens of the United

States is irrelevant under the above definition, and the Uniied

States subsidiary is therefore subject to Title VII which was

adopted by Congress after the Treaty, and to § 1981 which was

in existence before the Treaty was adopted.

In this we concur with the dissent of Judge Reavley in Spiess

v. Itoh & Co., 643 F.2d 353 (Sth Cir. 1981) and disagree with

the majority decision in that case and the decision in Avigliano

v. Sumitomo Shoji America, 638 F.2d 552 (2d Cir. 1981).

Our foregoing difference of opinion with the Second and

Fifth Circuit Courts of Appeals is of course of no significance

if plaintiff was not the type of employee covered by Article

VIII(1) or if he cannot prove a prima facie case of discrimina-

tory discharge. Furthermore, the Second Circuit at least has

ruled that the language of Article VIII(1) does not give any

employer, domestic or otherwise, a blanket exemption from

Title VII merely because it can employ certain persons “of

their choice.”

The Civil Rights Act of 1964 is a basic part of the legal

fabric of our Nation and was passed by both branches of

Congress. The statute grants an exemption for hiring on the

basis of national origin when “reasonably necessary to the

normal operation of that. . .business” (42 U.S.C. § 2000e

2(e)). We must assume that Congress either believed the two

l6a

documents were thereby made consistent or it intended to

amend the favored nationality provision of Article VIII(1) of

the Treaty. We prefer to adopt the former alternative, but even

if this is unrealistic, treaties are not graven in stone in perpe-

tuity and regardless of the historical developments which have

occurred since 1953.

In any event, defendant’s motion to dismiss, filed May 20,

1981, is denied, with the exception that it is granted as to the

allegations of violation of the Fourteenth Amendment to the

Constitution of the United States.

This case will be called for a report on status on Tuesday,

October 13, 1981 at 11:00 a.m. for the purpose of setting a

time for completion of all discovery and for trial.

ENTER:

/s/ Thomas R. McMillan

JUDGE, U.S. DISTRICT COURT

DATED: Oct. 1, 1981

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APPENDIX C

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

No. 77 C 833

>

JAMES M. LINSKEY,

Plaintiff,

—against—

HEIDELBERG EASTERN, INC., THE EAST ASIATIC

COMPANY, INC., THE EAST ASIATIC COMPANY, LTD.,

Defendants.

>

MEMORANDUM OF DECISION AND ORDER

COSTANTINO, D.J.

This is a motion by the defendants for summary judgment

and/or dismissal of the complaint. The issue in this motion

concerning the defendants’ liability under Title VII of the Civil

Rights Act of 1964 (‘‘Title VII’’), 42 U.S.C. § 2000e ef seq.,

was previously before this court and the court denied defen-

dants’ motion. See Linskey v. Heidelberg Eastern, Inc., 470 F.

Supp. 1180 (E.D. N.Y. 1979). Defendants now maintain that

that recent appellate case law in the Second Circuit, see

Avigliano v. Sumitomo Shoji America, Inc., 638 F.2d 552 (2d

Cir. 1981), and in the Fifth Circuit, see Spiess v. C. Itoh & Co.

(America), Inc. , 643 F.2d 353 (Sth Cir. 1981), suggests that this

court’s previous decision was improper, and that the court

should now grant defendants’ motion. The court has reviewed

the documents and case law submitted by defendants in sup-

port of their position, and concludes that its previous decision

was correct, and should not be disturbed. Thus, for reasons set

forth below, the motion is denied.

The facts and parties in this action are well known to the

court. Briefly, plaintiff, James Linskey (‘‘Linskey’’), was an

employee of Heidelberg Eastern, Incorporated (‘‘Heidelberg’’)

for 14 years before his discharge on October 31, 1975.

Heidelberg is a subsidiary of the East Asiatic Company,

Incorporated (‘‘EAC, American’’). EAC, American is a sub-

sidiary of East Asiatic Company, Limited (‘‘EAC, Den-

mark’’). Both Heidelberg and EAC, American are domestic

corporations doing business in New York. EAC, Denmark is a

foreign corporation incorporated under the laws of Denmark.

In 1961, Heidelberg hired Linskey as an Assistant Treasurer.

By 1975, Linskey, then 55 years of age, had advanced to

become the Treasurer of Heidelberg. As treasurer, Linskey was

the second highest ranking officer in Heidelberg and was

responsible for fiscal affairs. His two claims for relief charge

Heidelberg, EAC, American and EAC, Denmark with dis-

charging him because he was an older American citizen, and

not a Danish citizen. He bases his first claim on an assertion of

national origin discrimination in violation of Title VII and his

second claim on a violation of the age discrimination provi-

sions of the Age Discrimination in Employment Act of 1967

(‘‘ADEA’’), 29 U.S.C. § 621, et seq.

The defendants maintain, herein, that their actions, as a

Danish corporation and its American subsidiaries, are exempt

from the mandates of Title VII because of certain provisions in

the Treaty of Friendship, Commerce and Navigation (‘‘FCN’’)

with Protocol between the United States of America and the

Kingdom of Denmark, (1951), 12 U.S.T. 908, T.1.S. 4797, 421

U.N.T.S. 105 (‘The Danish Treaty’’).' Specifically, the defen-

1 When The Danish Treaty defense was first before this court, the

only defendant who asserted the defense was EAC, Denmark. The

Second Circuit, however, in Avigliano v. Sumitomo Shoji America,

Inc., supra, permitted Japanese subsidiaries incorporated in the United

States to invoke FCN treaty provisions to the same extent as native

19a

dants rely on Article VII, § 4 of The Danish Treaty which

provides as follows:

Nationals and companies of either party shall be permit-

ted to engage, within the territories of the other Party,

accountants . . . other technical experts, and executive

personnel . . . of their choice, regardless of nationality.

(emphasis supplied)

It is defendants’ position that this provision permits Danish

companies under prescribed circumstances to discriminate in

favor of Danish nationals. Thus, defendants argue that, since

Linskey’s office as Treasurer fell within the definition of

**executive personnel’’ in Article VII, § 4, they had the right to

dismiss and select this officer without regard to the mandates

of Title VII.

In support, defendants cite the Second Circuit’s decision in

Avigliano v. Sumitomo Shoji America, Inc., supra, and the

Fifth Circuit’s decision in Spiess v. C. Itoh & Co. (America),

Inc., supra. In Avigliano, female employees filed suit against

the defendant alleging sexual and national origin discrimina-

tion under Title VII for defendants’ practice of hiring only

male Japanese nationals for management level positions. As in

this case, the defendant asserted that its acts were exempt from

Title VII because of certain provisions in the 1953 Treaty of

Friendship, Commerce and Navigation between the United

States and Japan, 4 U.S.T. 2063 (‘‘The Japanese Treaty’’).

Specifically, the defendant cited Article VIII of The Japanese

Treaty which provides as follows:

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-

nel, attorneys, agents and other specialists of their choice.

(emphasis supplied)

Japanese corporations operating in the United States. On the basis of

Avigliano, the defendants herein have moved for summary judgment

and/or dismissal on behalf of all three defendants including the Danish

subsidiaries, Heidelberg and EAC, America.

20a

In its decision, the Avigliano court acknowledged the applica-

bility of the ‘‘of their choice’’ language, but refused to allow

the defendant to use this language as the basis for an executive

personnel exception from the nationality discrimination restric-

tions in Title VII. The Avigliano court reasoned that the

purpose of the ‘‘of their choice’ language provision was to

give citizens of foreign countries, in that case Japan, the same

status as citizens of the host country, not to afford the foreign

company the option of discriminatory in favor of its nationals

when hiring and discharging employees. /d. at 559. As the

Second Circuit noted

Although the clause ‘‘of their choice’ was. . . intended,

in furtherance of the overall purpose of the Treaty, to

facilitate a party’s employment of its own nationals to the

extent necessary 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 employment of children, § 12 of

the Fair Labor Standards Act, 29 U.S.C. § 212, laws

granting rights to unions and employees, Labor Manage-

ment Relations Act, 29 U.S.C. §§ 141-87, and the like.

Id. at 559.

As opposed to allowing a loop-hole to be made in the

dictates of Title VII, the Avigliano court concluded that

subjecting the defendant to the ‘‘bona fide occupational quali-

fication’’ (*‘bfoq’’) exception in Title VII, see section 703(e) of

Title VII, 42 U.S.C. § 2000e-2(e), and forcing the defendant to

show that national origin is a necessary qualification for the

position in question would ‘‘not . . . impose undue burden on

foreign employees.’’ Avigliano v. Sumitomo Shoji America,

Inc., supra, 638 F.2d at 559.’

2 Section 703(e) of Title VII, 42 U.S.C. § 2000¢-2(e), expressly pro-

vides 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 qualification reasonably necessary to the

normal operation of that particular business or enterprise. . . .

2la

In a contrary ruling, the Fifth Circuit, in Spiess v. C. Itoh &

Co. (America), Inc., supra, when faced with the identical

provision in The Japanese Treaty and with allegations of

discrimination under Title VII, rejected the Avigliano court's

ruling making the following observation:

Considering the Treaty as a whole, the only reasonable

interpretation is that article VIII(1) means exactly what it

says: Companies have a right to decide which executives

and technicians will manage their investment in the host

country laws. /d. at 361.

The Fifth Circuit has thus split the circuits and has elevated

the ‘‘of their choice’’ language to a point where foreign

companies whose native countries are parties to FCN treaties

with similar provisions may openly discriminate on the basis of

nationality, and give additional consideration to their national

employees in this country. Specifically, the Spiess court held

that ‘** [tlo make this right subject to Title VII’s bfoq require-

ments. . . would render its inclusion in the [Japanese] Treaty

meaningless. Thus, we hold that the article VIII(1) ‘of their

choice’ provision permits Japanese companies to discriminate

in favor of their fellow citizens.’’ Jd. at 362.

With this background, defendants argue that, unlike the

broad ‘‘of their choice’’ provision in The Japanese Treaty, the

more narrow regardless of nationality’? provision in The Dan-

ish Treaty carves out a limited exception for nationality, and

that consequently, they do not have to meet the bfoq exception

of Title VII to avoid potential liability. Moreover, defendants

assert that the Avigliano court’s interpretation of the ‘‘of their

choice’’ provision in The Japanese Treaty does not mandate a

contrary result because, unlike the instant case, the ‘‘of their

choice’ language threatened to open the door to numerous

exceptions to Title VII, whereas the ‘‘regardless of national-

' ity’’ language in The Danish Treaty offered merely a limited

exemption for nationals.

This argument, however, fails to consider that when faced

with the rather broad ‘‘of their choice’’ language, the Avig-

liano court specifically focused on how the ‘‘nationality’’

22a

aspect of this phrase would conflict with Title VII. As a

practical matter, the Avigliano court treated the “‘of their

choice’ language as synonomous with the ‘regardless of

nationality’? language, and it still refused to carve out an

exception from Title VII for nationals. This argument by the

defendants seeks to create a distinction, when in fact, none

exists.

In reality, defendants are asking this court to reject the

Second Circuit’s holding in Avigliano and adopt the Fifth

Circuit’s holding in Spiess. This court does concede that the

Fifth Circuit’s rationale is quite compelling as there is a strong

argument for the theory that American businessmen like for-

eign businessmen sought provisions such as those contained in

the Danish and Japanese Treaties ‘‘to ensure that the. . .

businessman’s investment in the host country would remain

within his control.’’ Spiess v. C. Itoh & Co. (America), Inc.,

supra, 643 F.2d at 361. However, in the absence of legislative

history demonstrating that Title VII was not intended to

override the provisions of The Danish Treaty, this court must

abide by its prior decision and the authority of A vigliano.

The court agrees with the defendants that fears expressed by

the Avigliano court regarding exemption from child labor !aws

and laws concerning union relations, see Avigliano v. Sumi-

tomo Shoji America, Inc., supra, 638 F.2d at 559, which could

result by exempting signatories to FCN treaties from the

prescriptions of Title VII do not pertain to the instant action.

There is, nonetheless, a firm commitment to uphold and

support the progress of Title VII in its attempt to wipe out all

forms of invideous discrimination, and this court perceives no

compelling reason to put a chink in that armor. This court

does not think it unduely burdensome to compel a party

discriminating on the basis of nationality to meet the bfoq

exception of Title VII to avoid potential liability. Such a

procedure will afford the discriminating employer the opportu-

nity to justify its actions while also safeguarding those rights

that Title VII seeks to protect. Accordingly, the motion is

denied.

23a

The defendants also argue that even assuming plaintiff's

Title VII claim, the claim fails on the merits because plaintiff

was replaced by an American citizen, and thus, there was no

nationality discrimination. Citing Hudson v. International

Business Machines, 602 F.2d 351 (2d Cir. 1980), cert. denied,

101 S.Ct. 794 (1981). In rebuttal, plaintiff responds by con-

tending that, while it may be that an American replaced him as

Treasurer, plaintiff’s actual duties were taken over by several

Danish employees. The court will not dismiss plaintiff's claim

at this point on the basis of defendants’ broad allegations.

There will come a time when plaintiff will be put to his proof,

and at such time, a decision will be made regarding who took

over what tasks, and whether such a division of responsibilities

transpired after plaintiff's dismissal. At this time, however,

proper facts are not before the court to make a final deter-

mination.

Finally, even if the court were to dismiss plaintiff’s claim of

nationality discrimination, the court would still be compelled

to deny the motion to dismiss because there still remains the

age discrimination question under the ADEA. The defendants

never addressed this issue, and as far as the court is concerned,

it continues to be an issue before the court.

Accordingly, defendants’ motion is denied in all respects.

The next conference in the matter is scheduled for October 23,

1981.

So Ordered.

/s/ Mark A. Costantino

United States District Judge