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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2245%3A04

## Record

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

## Text

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,

2a

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

9a

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

l3a

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

17a

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2245%3A04. Public record. Not legal advice.