Appendix — In re C. Itoh & Co. (America) Inc.

8 3 a Q 56 Office-Sunrems Court, Us.

as. & D

ALEXAND=? L.. STEVAS,

CLE RRKo

No Se |

OCTOBER TERM 1983

2”

IN RE

C. Iron & COMPANY (AMERICA) INC.,

Petitioner

APPENDIX TO PETITION FOR COMMON-LAW WRIT

OF CERTIORARI TO THE UNITED STATES |

COURT OF APPEALS FOR THE FIFTH CIRCUIT

Neit MARTIN

NANCY MORRISON O’CONNOR

STEPHEN W. SMITH

Counsel for Petitioner

C. IroH & COMPANY

(AMERICA) INC.

Of Counsel:

FULBRIGHT & JAWORSKI

Bank of the Southwest Building

Houston, Texas 77002

(713) 651-5151

1|

i

TABLE OF CONTENTS

PAGE

Opinion of United States Court of Appeals for the

Fifth Circuit (725 F.2d 970 (1984)) ......-......

Order of United States District Court for the

Order of the United States Court of Appeals for the

Fifth Circuit on Remand from the Supreme Court

of the United States (687 F.2d 129 (1983)) .......

Order of Supreme Court of the United States

Granting Certiorari and Remanding to the Court of

Appeals (457 U.S. 1128 (1982))........2..... hs

Opinion of United States Court of Appeals for the

Fifth Circuit (643 F.2d 353 (1981))..............

Memorandum and Opinion of United States District

Court for the Southern District of Texas (469

S06 OB A a SR ere ere re

Order of the United States Court of Appeals

Denying Petition for Rehearing and Suggestion for

Rehearing En Banc dated March 8, 1984.........

Relevant Treaty and Statutory Provisions.........

RULE 28.1 DESIGNATION

C. Itoh & Co. Ltd. (Japan) is the parent corporation of

Petitioner, C. Itoh & Company (America) Inc.

IN THE

United States Court of Appeals

FOR THE FIFTH CIRCUIT

No. 83-2646

Summary Calendar

MICHAEL E. SPIESS, ET AL.,

Plaintiffs-Appellees,

Vv.

C. Iron & Co. (AMERICA), INC.,

Defendant-Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE

SOUTHERN DISTRICT OF TEXAS

(FEBRUARY 10, 1984)

Before TATE, GARWOOD, and HIGGINBOTHAM,, Circuit

Judges. PER CURIAM:

Although all parties take the position that we have jurisdiction

of this appeal, we notice sua sponte, as we are obliged to do, our

own want of jurisdiction. Arango v. Guzman Travel Advisors

Corp., 621 F.2d 1371, 1374 (Sth cir. 1980). For the reasons

stated below, we hold that we lack appellate jurisdiction because

the order sought to be appealed is not a final judgment. We

accordingly dismiss the appeal.

This is an employment discrimination suit brought by plain-

tiffs-appellees under Title VII of the Civil Rights Act and 42

U.S.C. § 1981 against their employer, defendant-appellant C.

Itoh-America, a New York corporation wholly owned by a

Japanese parent corporation. Defendant moved under Rule

12(b)(6), Fed.R.Civ.P., to dismiss the complaint for failure to

2

state a claim on which relief can be granted, relying on the 1953

Treaty of Friendship, Commerce and Navigation between the

United States and Japan (the “Treaty”’), particularly the provi-

sion of its Article VIII(1) that:

“[C]ompanies 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.”

In 1979 the district court denied the motion to dismiss, relying

primarily on the conclusion that defendant-appellant, since it

was incorporated under the laws of New York, was a company

of the United States, not of Japan, within the definition con-

tained in Article XXII(3) of the Treaty, and hence could not

avail itself of the rights provided by Article VIII(1), notwith-

standing that it was the wholly owned subsidiary of an admit-

tedly Japanese company. Spiess V. C. Itoh & Co. (America),

Inc., 468 F.Supp. | (S.D. Tex. 1979). The district court also

ruled that even if defendant-appellant had standing to raise the

Treaty rights of its parent, a question which it did not reach, this

would not provide a defense since “[a]ny latitude in hiring pro-

vided to Itoh-Japan [the parent] by Article VIII(1) [of the

‘Treaty] extends [only] to employees whom Itoh-Japan itself

hires. The hiring questioned by plaintiffs in the instant case is

that of Itoh-America [defendant]” and “[a]ny absolute rights

granted [by the Treaty] to Itoh-Japan apply only to its own

hiring decisions; the practices challenged in the present litigation

are those of [the defendant] Itoh-America.” /d. at 8, 9. The

district court, however, certified to this Court under 28 US.C.

§ 1292(b) the question of whether the appellant could success-

fully urge the Treaty as a defense to the suit. Jd. at 9-11. We

accepted the appeal and reversed, ruling that appellant was a

company of Japan within the meaning of Articles VIII(1) and

XXII(3), and that Article VIII(1) did provide it a defense, ©

notwithstanding that it was a New York corporation, because it

was a wholly owned subsidiary of a Japanese company. Spiess V.

3

C. Itoh & Co. (America), Inc., 643 F.2d 353 (Sth Cir. 1981).

Because we held that appellant was a company of Japan under

the Treaty and entitled to assert, in its own right, the protection

of Article VIII(1), we did not reach the issue of appellant’s

standing to raise the Treaty rights of its parent, nor whether the

parent's Treaty rights extended to staffing of the subsidiary, nor

whether the complained of practices were those of the parent or

the subsidiary.

Subsequent to our decision, the Supreme Court held that a

corporation incorporated in the United States was not a com-

pany of Japan under the Treaty and was not entitled to assert in

its own right the protection of Article VIII(1), notwithstanding

it was the wholly owned subsidiary of an admittedly Japanese

company. Sumitomo Shoji America, Inc. v. Avagliano, 457

U.S. 176 (1982). In the course of its opinion the Supreme Court

observed. ““We also express no view as to whether Sumitomo

[the defendant subsidiary] may assert any Article VIII(1) rights

of its parent.” Jd. at 189 n. 19. Thereafter, the Supreme Court

granted the application of plaintiffs-appellees for certiorari in

the instant case, vacated the judgment of this’ Court and

remanded the case to this Court “for further consideration in

light of Sumitomo Shoji America, Inc. v. Avagliano. . . .” Spiess

Vv. C. Itoh & Co. (America), Inc., ...... US. asady IZA.

2951, 73 L.Ed. 2d 1344 (1982). Following the Supreme Court’s

remand, on January 10, 1983 we remanded to the district court,

Stating:

“The parties urge this court to consider the remaining issues

in the case. We decline to do so without first remanding the

matter to the district court.

“C. Itoh presents several grounds for its motion to dismiss.

For example, it argues that it has standing to assert the sub-

stantive treaty rights of its parent company. Resolution of

these remaining issues may involve several factual determina-

tions that have not yet been made. Therefore, we have

4

determined that no decision should be made by this court at

this time. We remand the cause to the district court with

directions to conduct further proceedings to finalize the action

in light of the mandate of the Supreme Court.”

Subsequent to our remand, the parties filed further briefs in

the district court, and defendant-appellant reurged its Rule

12(b)(6) motion to dismiss for failure to state a claim on which

relief could be granted, generally contending that it had standing

to raise the Article VIII(1) Treaty rights of its parent, and that

the Japanese staff who filed the positions at issue, though

employees of defendant-appellant, were employees of the parent,

which “engaged these Japan staff members, each of whom is an

employee of C. Itoh (Japan) [the parent], to work for

Defendant” and that:

“Tt is undisputed that Japan staff members are employees of

the parent company both before and after their rotation to C.

toh (America) [defendant]. Based upon this and other

factors in the Record, especially the integrated relationship of

the parent and subsidiary, Japan staff members must also be

considered employees of the parent company during their

assignment to C. Itoh (America).

“

“(T]here is no reason to assume, as Plaintiffs do, that

Article VIII(1) must be limited to employment relationships,

thereby excluding other means by which ‘to engage’ such

individuals.

“Even under the most restrictive view, C. Itoh (Japan) [the

parent] has certainly exercised its Treaty right ‘to engage’ the

Japan staff. As the Record shows, each member of the Japan

staff has been hired and trained by the parent company in

Japan. The parent company determines which positions with

the subsidiary are to be filled with Japan staff, and selects the

individuals to fill those positions. The parent company assigns

5

these individuals to work for the subsidiary for a period of

from three to five years. While in the United States, Japan

staff compensation and promotions are determined by the

parent. After completing their rotation in the United States,

they return to Japan where they continue to work for the

parent company. Based on these circumstances, there can be

no doubt that C. Itoh Japan [the parent] has exercised its

Article VIII(1) right ‘to engage’ managerial and other

specialists in this instance.”

Defendant-appellant in its submission also stated:

“.... Defendant respectfully requests the [District] Court

to make thé appropriate findings of fact regarding the rela-

tionship between the parent and the subsidiary, as well as

the circumstances surrounding the selection, assignment,

compensation, promotion, and rotation of the Japan staff.”

Additionally, defendant-appellant’s submission expressly

requested the district court “in the event this Motion is denied,

to certify the question for appeal to the U.S. Court of Appeals

for the Fifth Circuit pursuant to 28 U.S.C. § 1292(b).”

Thereafter, the district court on September 27, 1983 entered

its order denying “defendant’s Motion to Dismiss for Failure to

State a Claim pursuant to Rule 12(b)(6), Fed. R. Civ. P.” It is

from this order of September 27, 1983 that defendant-appellant

decks to appeal. The order recites that the court, in its 1979

ruling, had found that “ ‘[t]he hiring questioned by plaintiffs in

the instant case is that of Itoh-American [defendant].’” The

order also recites, in reference to defendant-appellant’s request

for “additional findings of fact,” that pursuant to Rule 52(A),

Fed.R.Civ.P., findings of fact “are unnecessary on decisions of

Motions under Rules 12 or 56....” No fact findings are

expressly made in the order. The order continues by stating:

“The defendant, by contending that it has standing to assert

the substantive treaty rights of its parent, is attempting to

accomplish indirectly what it cannot accomplish directly.

The Court does not believe that either the Treaty or the

6

Sumitomo case would permit that to occur. Accordingly,

defendant’s motion to dismiss for failure to state a claim is

denied in toto.”

The district court in the same order directed defendant-appel-

lant to respond to all of. plantiffs’ outstanding interrogatories

which were the subject of plaintiffs’ pending motion to compel

discovery. The district court did not act on, or acknowledge the

existence of, the defendant’s request for certification under sec-

tion 1292(b). |

On October 4, 1983 defendant moved the district court to

amend its September 27, 1983 order so as to certify the ruling

_ denying defendant’s motion to dismiss for appeal under section

1292(b). Defendant’s motion in this respect states that plaintiffs

oppose the motion. On October 14, 1983 the district court

entered an order directing plaintiffs to file a response to

defendant’s motion to amend by October 31, 1983 and setting

argument thereon for November 21, 1983. On October 24, 1983,

before any response by plaintiffs to the motion to amend was

filed, defendant-appellant gave its notice of appeal “pursuant to

28 U.S.C. § 1291... from the Order of the district court deny-

ing Defendant’s Motion to Dismiss for Failure to State a Claim

Upon Which Relief Can Be Granted, entered in this action on

the 27th day of September, 1983.”

No section 1292(b) certificate has ever been issued in respect

to the district court’s September 27, 1983 order, and it is

apparent that such order is not a “final decision[ ]’ of the

district court within the generally applicable meaning of that

term as it is used in 28 U.S.C. § 1291. The general test of

whether a given decision is “final” for these purposes is whether

it “ ‘ends the litigation on the merits and leaves nothing for the

court to do but execute the judgment.’ ”” Coopers & Lybrand v.

Livesay, 437 U.S. 463, 467 (1978). Obviously, the instant order

does not remotely approach meeting that general test, as it does

not even establish liability, let alone fix damages or other relief.

7

See also Newpark Shipbuilding & Repair, Inc. v. Roundtree,

Slip op. 1717, No. 81-4308, Sth Cir., January 23, 1984 (en

banc). While not contending otherwise, appellant and appellees

nevertheless urge that this appeal lies under section 1291 by .

virtue of the “collateral order doctrine” of Cohen v. Beneficial

Industrial Loan Corporation, 337 U.S. 541 (1949). In Cohen

the defendant corporation in a stockholders’ suit was allowed to

appeal an order denying its motion to require the plaintiffs to

post security for costs and attorneys’ fees. Holding the order

appealable, the Supreme Court stated that it fell within:

“[T]hat small class which finally determine claims of right

separable from, and collateral to, rights asserted in the

action, too important to be denied review and too

independent of the cause itself to require that appellate-

consideration be deferred until the whole case in adjudi-

cated...

“We hold this order appealable because it is a final dis-

position of a claimed right which is not an ingredient of the

cause of action and does not require consideration with it.”

Id. at 546-47.

We think it evident that the September 27, 1983 order, deny-

ing the Rule 12(b)(6) motion to dismiss, for failure to state a

claim on which relief can be granted, which raised an essentially

merits defense, is wholly unlike the order denying security for

costs involved in Cohen. In Coopers & Lybrand the Court sum-

marized the “collateral order doctrine” as follows:

“To come within the ‘small class’ of decisions excepted from

the final-judgment rule by Cohen, the order must conclu-

sively determine the disputed question, resolve an important

issue completely separate from the merits of the action, and

be effectively unreviewable on appeal from a final judg-

ment.” 437 U.S. 463 at 468 (footnote omitted).

This formulation was again approved in Firestone Tire & Rub-

ber Co. Vv. Risjord, 449 U.S. 368, 375 (1981). We think it

evident that the issue resolved by the district court’s September

27, 1983 order cannot be fairly described as one “completely

8

separate from the merits of the action’; rather, the issue is one

of the existence, vel non, of a merits defense. Moreover.

Firestone makes clear that even if an order meets all the other

tests of the “collateral order doctrine,” it will nevertheless not be

appealabie under section 1291 (if not otherwise final) unless it

would “be effectively unreviewable on appeal from a final judg-

ment.” Jd. at 376. Plainly, the September 27, 1983 order deny-

ing the Rule 12(b)(6) motion to dismiss would be fully and

wholly effectively reviewable on appeal from any final judgment

adverse to defendant-appellant. Hence, the September 27, 1983

order is clearly not within the ambit of the “collateral order

doctrine” as it is normally defined, understood and applied. See -

Parr v. United States, 351 U.S. 513, 519 (1956); Arango v.

Guzman Travel Advisors Corp., 621 F.2d 1371, 1378 n. 8 (Sth

Cir. 1980). |

Appellant and appellees, however, rely on Nixon v. Fitzger-

ald, 457 U.S. 731, 73 L.Ed. 2d 349 (1982). Nixon was a civil

suit against former President Nixon in his individual capacity

for alleged violations of the plaintiff's civil rights claimed to have

been committed by the defendant while President. The

defendant sought to appeal the district court’s denial of his

motion for summary judgment based on the claimed absolute

immunity which the office of President afforded him. The

Supreme Court held that the denial of the motion for summary

judgment claiming such absolute immunity was appealable pur-

suant to section 1291 under the “collateral order doctrine.” A

recognized text has explained this decision as follows: “The

absolute immunity is conceived to be a protection against the

burdens of tria! as well as liability; immediate appeal is the only

effective means of avoiding the burdens of trial.” Wright, Miller

& Cooper, Federal Practice and Procedure: Jurisdiction § 3911,

1982 pocket part (Wright, Miller, Cooper & Elliott) at 197. We

agree with this explanation. The Nixon opinion expressly notes,

though in connection with the issue of absolute immunity itself

9

rather than appealability as such, that “[b]ecause of the singular

importance of the President’s duties, diversion of his energies by

concern with private lawsuits would raise unique risks to the

effective functioning of government.” 457 U.S. 731 at ..., 73

L.Ed. 2d 349 at 365. It is relevant for these purposes that the

“concern” to which reference is made is that with “private law-

suits,” not “private liability.” Moreover, the Nixon opinion

expressly relies, in respect to its appealability holding on

Helstoski v. Meanor, 442 U.S. 500 (1979) (immunity under the

Speech and Debate Clause) and Abney v. United States, 431

U.S. 651 (1977) (immunity under the Double Jeopardy Clause).

_ See Nixon, 457 U.S. 731 at ..., 73 L.Ed. 2d 349 at 359. In

both of the cited decisions the Court emphasized that the pur-

pose of the immunity created by the particular constitutional

clause in question was not merely to immunize the protected

individual from punishment or liability but also to immunize

him from trial seeking to impose such punishment or liability.

An appeal after final judgment would be wholly ineffective in

respect to vindicating the latter protective purpose, and hence an

immediate appeal from a pretrial order denying the claimed

immunity was necessary. As the Court said in Helstoski:

“Here, the holding of Abney becomes highly relevant; by

analogy, if a Member ‘is to avoid exposure to [being ques-

tioned for acts done in either House] and thereby enjoy the

full.protection of the Clause, his .. . challenge to the indict-

ment must be reviewable before ... exposure [to trial]

occurs.’ Abney, supra, at 662, 52 L.Ed. 2d 651, 97 S.Ct.

2034.” 442 U.S. 500 at 508.

We do not believe that the present case is within the rationale

of the Nixon, Abney and Helstoski line of cases, for, unlike the

immunity involved in those cases, the Treaty, in our view,

though it is intended to confer substantive rights on Japanese

companies in .respect to certain employment practices, is

nevertheless not intended to confer immunity from the litigation

process as such, certainly not tc American subsidiaries of

J

10

Japanese companies which are merely seeking to assert their

Japanese parents’ substantive rights. We have stated that the

Cohen doctrine “should be strictly construed,” Arango v.

Guzman Travel Advisors Corp., supra at 1378 n. 8, and have

likewise narrowly restricted other exceptions to the finality

requirement. Newpark Shipbuilding & Repair, Inc. v. Round-

tree, supra. We accordingly hold that the September 27, 1983

order denying defendant-appellant’s Rule 12(b)(6) motion to

dismiss is not appealable under section 1291 as it is neither a

final decision of the district court nor within any exception to'the

finality requirement applicable to section 1291 appeals.

Appellant also urges that the September 27, 1983 order deny-

ing its Rule 12(b)(6) motion to dismiss is appealable because the

issue of whether appellant has standing to assert the substantive

Treaty rights of its parent company was raised in appellant’s

section 1292(b) appeal from the district court’s 1979 order deny-

ing appellant’s Rule 12(b)(6) motion to dismiss, and is raised

again on this attempted appeal, “and to date no appellate court

has rendered any determination thereon.” Appellant cites no

authority in support of this proposition, and we have difficulty in

understanding just what particular legal theory of appealability

appellant intends to advance thereby. Perhaps appellant is con-

tending that the prior section 1292(b) certificate extends to the

September 27, 1983 order. However, appellant does nct predi-

cate its appeal on section 1292(b). In any event, any such con-

tention would be clearly lacking in merit. The 1979 section

1292(b) certificate for the 1979 order did not purport to apply to

any other order, and appellant and the district court have plainly

recognized this, as appellant twice requested section 1292(b)

certification of the September 27, 1983 order and the district

court ordered briefing and a hearing on the second request. .

Nothing in our prior orders suggests that the earlier section

1292(b) certification would “carry over.” When the September

27, 1983 order was issued the case was in a distinctly different

1]

posture, for section 1292(b) purposes, than it was in 1979, as by

1983 one central, and previously quite debatable, issue of law

had been resolved, namely, whether American corporations,

which were wholly owned subsidiaries of Japanese corporations,

themselves had substantive rights under the Treaty. We are

unable to find anything in the pre-September 1983 history of this

case which can properly serve as a basis for appellate jurisdiction

of the instant attempted appeal.

For the reasons above stated, we hold that we are without

appellate jurisdiction over the instant attempted appeal. There-

fore, the appeal is dismissed for want of jurisdiction.

APPEAL DISMISSED.

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

MICHAEL E. SPIESS, ET AL. . ,

Vv. C.A. No. 75-H-267

C. IToH & Co. (AMERICA), INC.

ORDER

Pending before the Court is defendant’s Motion to Dismiss for

Failure to State a Claim pursuant to Rule 12(b)(6), Fed. R. Civ.

P. Quickly stated, defendant contends that it has standing to

assert the substantive rights of its parent, C. Itoh (Japan), under

the 1953 Treaty of Friendship, Commerce and Navigation

between the United States and Japan. While the Court’s previ-

ous ruling on the motion did not express an opinion on this issue,

the Court did find that, “The hiring questioned by plaintiffs in

the instant case is that of Itoh-America”,’ Spiess v. C. Itoh &

Co. (America), Inc., 469 F. Supp. 1, 8 (S.D. Tex. 1979). Subse-

quent to that ruling, the United States Supreme Court held that

a United States incorporated subsidiary wholly-owned by a

Japanese trading company was not a company of Japan under

Article XXII(3) of the Treaty and thus could not directly invoke

Article VIII(1)’s staffing rights in defense to a Title VII suit.

Sumitomo Shoji America, Inc. v. Avagliano, 102 S.Ct. 2374

(1982). The defendant, by contending that it has standing to

assert the substantive treaty rights of its parent, is attempting to

accomplish indirectly what it cannot accomplish directly. The

Court does not believe that either the Treaty or the Sumitomo

case would permit that to occur. Accordingly, defendant’s

‘To the extent that the defendants would request the Court to make

additional findings of fact, the Court refers the defendants to Rule

52(A) Fed. R. Civ. P., which provides, in relevant part:

Findings of fact and conclusions of law are unnecessary on deci-

sions of motions under Rules 12 or 56 or any other motion except

as provided in Rule 41(b).

B-2

motion to dismiss for failure to state a claim is denied in ‘oto.

Additionally, the Court is of the opinion that the plaintiffs are

entitled to answers to all outstanding interrogatories that are

subject to the plaintiffs’ motion to compel discovery. Defendant

shall have 60 days to provide those answers. It is so ORDERED.

DONE at Houston, Texas, on this the 27th day of Sept., 1983.

CarRL O. Bug, JR.

UNITED STATES DISTRICT JUDGE

APPENDIX C

Michael E. SPIESS, Jack K. Hardy, and

Benjamin F. Rountree,

Plaintiffs-A ppellees,

v.

C. ITOH & COMPANY (AMERICA),

INC., Defendant-Appellant.

No. 79-2382.

United States Court of Appeals,

Fifth Circuit.*

Oct. 4, 1982.

As Amended Jan. 10, 1983.

Fulbright & Jaworski, Joe P. Martin, Neil Martin, Nancy

Morrison O’Connor, Houston, Tex., for defendant-appellant.

Porter & Clements, Houston, Tex., Edward John O’Neill, Jr.,

Charles E. Humphrey, Jr., Houston, Tex., for plaintiffs-

appellees.

Lutz Alexander Prager, Marcia Beth Ruskin, E.E.O.C.,

Washington, D.C., for amicus curiae.

Appeal from the United States District Court for the

Southern District of Texas, Carl O. Bue, Jr., Judge.

ON REMAND FROM THE SUPREME

COURT OF THE UNITED STATES

Before CLARK, Chief Judge, COLEMAN and REAVLEY,

Circuit Judges.

PER CURIAM:

On June 21, 1982, the Supreme Court, ... U.S. ....., 102

S.Ct. 2951, 73 L.Ed. 2d 1344, vacated the judgment of this court

rendered April 24, 1981, 643 F2d 353 (Sth Cir. 1981), and

* Former Fifth Circuit case, Section 9(1) of Public Law 96-

452—October 14, 1980.

C-2

remanded this cause to this court for further consideration in

light of Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S.

vas , 102 S.Ct. 2374, 72 L.Ed.2d 765 (1982). The appeal was

reopened and the parties were directed to file memoranda stating

their positions as to this court’s further action in compliance

with the Court mandate. The parties urge this court to consider

the remaining issues in the case. We decline to do so without first

remanding the matter to the district court.

C. Itoh presents several grounds for its moti~n to dismiss. For

example, it argues that it has standing to assert the substantive

treaty rights of its parent company. Resolution of these remain-

ing issues may involve several factual determinations that have

not yet been made. Therefore, we have determined that no deci-

sion should be made by this court at this time. We remand the

cause to the district court with directions to conduct further

proceedings to finalize the action in light of the mandate of the

~- Supreme Court.

APPENDIX D

Supreme Court of the United States

No. 81-1496

MICHAEL’E. SPIESS, ET AL..,

Petitioners,

Vv.

C. ITOH & COMPANY (AMERICA), INC.

ON WRIT OF CERTIORARI to the United States Court of

Appeals for the Fifth Circuit.

THIS CASE having been submitted on the petition for writ of

certiorari and response thereto,

ON CONSIDERATION WHEREOF, it is ordered and

adjudged by this Court that the judgment of the above court in

this cause is vacated with costs, and that this cause is remanded

to the United States Court of Appeals for the Fifth Circuit for

further consideration in light of Sumitomo Shoji America, Inc.

Vv. Avagliano, 457 U.S. ... (1982).

IT IS FURTHER ORDERED that the petitioners, Michael

E. Spiess, et al., recover from C. Itoh & Company (America),

Inc. Two Hundred Dollars ($200.00) for their costs herein

expended.

June 21, 1982

Clerk’s costs: $200.00

APPENDIX E

Michael E. SPIESS, Jack K. Hardy and

Benjamin F. Rountree,

Plaintiffs-Appellees,

Vv.

C. ITOH & COMPANY (AMERICA), INC.,

Defendant-Appellant.

No. 79-2382.

United States Court of Appeals,

Fifth Circuit.

Unit A

April 24, 1981.

Employees of a company wholly owned by a Japanese

corporation filed a class action under equal employment

opportunities provisions of the Civil Rights Act of 1964

and under the 1870 statute providing for equal nghts of

all citizens. The United States District Court for the

Southern District of Texas at Houston, Carl O. Bue, Jr.,

J., 469 F. Supp. 1, denied a motion to dismiss but permit-

ted the company to take an interlocutory appeal, and a

question was certified. The Court of Appeals, Charles

Clark, Circuit Judge, held that the employer in question

could assert rights under the Treaty of Friendship, Com-

merce and Navigation between the United States and Ja-

pan and that such rights permitted the employer to hire

only Japanese personnel for executive and technical posi-

tions.

Reversed and remanded with directions to dismiss.

Reavley, Circuit Judge, dissented and filed opinion.

E-2

Fulbright & Jaworski, Joe P. Martin, Neil Martin,

Nancy Morrison O’Connor, Houston, Tex., for defend-

ant-appellant.

Foreman, Dyess, Prewett, Rosenberg & Henderson,

Edward John O’Neill, Jr., Charles E. Humphrey, Jr.,

Houston, Tex., for plaintiffs-appellees.

Lutz Alexander Prager, Marcia Beth Ruskin, E. E. O.

C., Washington, D.C. for amicus curiae.

Appeal from the United States District Court for the

Southern District of Texas.

Before COLEMAN, CHARLES CLARK and REAV-

LEY, Circuit Judges.

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 posi-

tions, 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 discriminatesin favor of Japanese na-

tionals in filling these positions.

I.

Michael E. Spiess and other American employees of

C. Itoh-America filed a class action under Title VII of the

E-3

Civil Rights Act and 42 U.S.C. section 1981. The com-

plaint charged that the company had discriminated against

its American employees by making managerial promo-

tions 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 be-

tween the United States and Japan, April 2, 1953, 4

U.S.T. 2063, T.I.A.S. No. 2863, precluded the plaintiffs’

suit. Article VIII(1) of the Treaty provides that

companies of either Party shall be permitted to en-

gage, within the territories of the other Party, ac-

countants and other technical experts, executive per-

sonnel, attorneys, agents and other specialists of their

choice.

C. Itoh-America argued that the language permitting com-

panies to engage executive personnel “of their choice”

cloaks the company with absolute immunity from Ameri-

can employment discrimination laws as to these positions.

The trial court denied C. Itoh-America’s motion to dis-

miss, relying primarily on article XXII(3) of the Treaty.

Under article XXII(3),

[c]ompanies 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.

rf

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

E-4

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 execu-

tive 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 permitted the company to take an interlocutory

appeal. The following question was certified to this court

under 28 U.S.C. section 1292(b):

Does the 1953 Treaty of Friendship, Commerce and

Navigation between the United States and Japan pro-

vide American subsidiaries of Japanese corporations

with the absolute right to hire managerial, profes-

sional and other specialized personnel of their choice,

irrespective of American law proscribing racial dis-

crimination in employment?

I.

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 establish the ground rules by which private

commerce between American citizens and citizens of other

countries is regulated. See generally Walker, Modern

Treaties of Friendship, Commerce and Navigation. 42

Minn.L.Rev. 805, 806 (1958) [hereinafter cited as Mod-

ern 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 of the FCN treaty, how-

at a tat hh bili iii

E-5

ever, has remained. An FCN treaty is the medium through

which two nations provide “for rights of each country’s

citizens, their property and other interests, in the terri-

tories of the other,.and for the rules mutually to govern

their trade and shipping.” Walker, Treaties for the En-

couragement and Protection of Foreign Investment: Pres-

ent United States Practice, 5 Am.J.Comp.L. 229, 230-

31 (1956). [hereinafter cited as United States Practice}.

[1-3] The FCN treaties, including the Japanese Treaty,

are self-executing treaties, that is, they are binding do-

mestic law of their own accord, without the need for im-

plementing legislation. See Zenith Radio Corp. v. Matsu-

shita 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. II; 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 (5th

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 re-

mains.” The Charming Betsy, 6 U.S. (2 Cranch) 64, 118,

2 L.Ed. 208, 226 (1804), quoted in McCulloch v. Soci-

edad 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 obliga-

tions of a treaty will inconsistent federal legislation

govern. Jd. 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.

E-6

{4] The district court held that C. Itoh-America was

an American company for the purposes of the Treaty, and

thus could not assert the article VIII rights extended to

Japanese corporations 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 construction of article

XXII(3).

The district court’s reading of article XXII(3) is com-

patible with the text of the Treaty, but it fails to account

for the unique nature of an international agreement. Un-

like domestic legislation, 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 memorandum pre-

pared by State Department negotiators demonstrates 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 fol-

lowing colloquy:

Mr. Nagai [a Japanese negotiator] then asked

what “juridical status” meant, and inquired whether

the recognition of juridical status mentioned in para-

graph three [or article XXII] meant anything more

than the recognition of the existence of a juridical

person. :

E-7

Mr. Bassin [the American negotiator] replied that

“juridical status” meant “legal status,” the legal posi-

tion 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 status of juridical persons organ-

ized under the laws of the other Party.

Dispatch No. 13, Office of the United States Political Ad-

visor 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 purposes of an FCN treaty. Walker, Provisions on

Companies in United States Commercial Treaties, 50 Am.

J. Int’l L. 373, 380 (1956) [hereinafter cited as Provi-

1. The necessity for such a provision is well illustrated by another

excerpt from the memorandum:

Mr. Otabe inquired whether a Zaidan Hojin was covered by

paragraph 3, and, if so, what would be the nature of national

treatment accorded such organizations in the United States. He

explained that a Zaidan Hojin is a duly organized juridical

person with given property, established for the purpose of em-

ploying or disposing of said property for a given public purpose.

An example of a Zaidan Hojin, he added, would be an endowed

private library.

Mr. Bassin replied such an organization would be considered

a juridical person in the United States, pursuant to the provi-

sions of paragraph 3, if it were so considered in Japan.

Bassin Memorandum, at 5.

2. A State Department cable notes that Mr. Walker formulated

the modern concept of FCN treaties and negotiated many treaties

on behalf of the United States. Airgram from Secretary of State

Kissinger to American Embassy in Tokyo, No. A-105, dated Jan. 9,

1976. Mr. Walker also served the State Department as Advisor on

Commercial Treaties. See United States Practice, supra, at 229.

e

E-8

sions on Companies]. Walker noted that “[t]he standard

definition is exemplified by Art. XXII, par. 3, of the 1953

Japan treaty.” Jd. at 380 n.34. In this definition, Walker

explained,

[a] “company” is defined simply and broadly to

mean... any “artificial” person acknowledged by

its creator, as distinguished from a natural person,

whether or not for pecuniary profit. Every associa-

tion meeting this simple test of valid existence must

be accounted by the other party a company of the

party of its creation, and have its juridical status

recognized without any reservation for the laws of

the forum.

Id. at 380-81. Walker also emphasized that there was a

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

acknowledgment of a fact—the existence and legiti-

mate paternity of an association—is not confused

with problems associated with the functional rights

and activities of alien-bred associations.

Id. at 383. Thus, both the negotiators on location in

Tokyo and the architect of the modern FCN treaty agree

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.

The Department of State has remained faithful to this

interpretation of the Treaty. In a 1976 cable from Secre-

tary Kissinger, the Department informed the American

embassy in Tokyo that

E-9

all that para 3 [of article XXII] is meant to accom-

plish 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.

Airgram from Secretary of State Kissinger to American

embassy in Tokyo, No. A-105, dated Jan. 9, 1976. A

subsequent opinion from a State Department legal ad-

visor reaches the same conclusion. Letter from Lee R.

Marks to Abner W. Sibal (October 17, 1978). Thus, the

consistent view of the State Department has been that

American subsidiaries of Japanese corporations are en-

titled to the full protection of the Treaty.* This view

weighs heavily in our analysis.‘ See Kolovrat v. Oregon,

3. Spiess calls to our attention a State Department letter of Sep-

tember 1979, in which a deputy legal advisor suggests that “it was

not the intent of the negotiators to cover locally incorporated sub-

sidiaries.” Letter from James R. Atwood to Lutz Alexander Prager

(September 11, 1979). This letter represents the first time, to our

knowledge, that the State Department departed from the position

expressed in the 1952 Bassin Memorandum, the 1976 Kissinger

cable, and the 1978 letter by James Atwood. For this reason, we

regard it as an aberration in State Department policy.

4. C. Itoh-America argues that State Department practice in ad-

ministering the immigration laws is further evidence that Japanese

subsidiaries incorporated in the United States are entitled to Treaty

protection. The company argues that articles I, VII, and VIII of the

Treaty should be read together to create a right of “companies of

Japan” to employ Japanese citizens. Article ‘I(1) permits Japanese

citizens to enter and remain in the United States “for the purpose

of carrying on trade between the territories of the two Parties.” In

C. Itoh-America’s view, this right is implemented by section 10!

(a)(15)(E)(i) of the Immigration and Nationality Act, 8 U.S.C.

§ 1101(a)(15)(E)(i) (1970), which grants foreign nationals speciai

£-10

366 U.S. 187, 194, 81 S.Ct. 922, 926, 6 L.Ed.2d 218,

223 (1961).

Finally, we think that the district court’s interpretation

of article XXII(3) would ¢reate an unreasonable distinc-

tion between treatment of American subsidiaries of Japa-

nese corporations on the one hand, and branches of

Japanese corporations on the other. According to the

district court, a company is considered a “company of

Japan” for purposes of the Treaty only if it is incorpo-

rated in Japan. Under this analysis, American-incorpo-

rated subsidiaries of Japanese corporations would be en-

titled to Treaty protection only when they are specifically

mentioned, and would not fall within the “companies of

either Party” formula used throughout the Treaty. As the

Second Circuit recently has observed, this would create a

“crazyquilt pattern” in which branches of Japanese cor-

porations would enjoy broad rights under the Treaty,

while subsidiaries would be entitled only to minor pro-

tection. See Avigliano v. Sumitomo Shoji America, Inc.,

visa privileges to enter the United States as “treaty traders.” The

Department of State has granted treaty trader status to Japanese

employees working for American subsidiaries of Japanese corpora-

tions. See 22 C.F.R. § 4140(a) (treaty trader must be empioved by

“an organization which is principally owned by a person or persons

having the nationality of the treaty country”). C. Itoh-America con-

cludes that the Department has permitted American subsidiaries of

Japanese corporations to assert a right to entry under article I, and

that it should be permitted to assert rights under article VIII as well.

Article I grants only a right to individuals to enter the country.

C. Itoh-America can assert this right only as an adjunct of its own

right to employ Japanese citizens. Thus, the argument depends on

a unitary construction of articles I, VII, and VIII. The company

has presented no evidence, other than the text of the Treaty and

the immigration laws, that articles I, VII, and VIII were meant to

be interpreted in this way. Walker lends some support to this theory.

See Modern Treaties, supra, at 813 & n. 18. Nevertheless, because

our decision that C. Itoh-America can assert Treaty rights is amply

supported 6n other grounds, we need not, and do not, reach this issue.

E-11

638 F.2d 552, 556 (2d Cir. 1981). In view of article

VII's guarantee that companies shall be allowed to con-

duct business activities “through the medium of any form

of lawful juridical entity,” including both branches and

locally organized subsidiaries, we agree that “[i]t is il-

logical to infer that the drafters of the Treaty intended

to make such a dramatic distinction between forms of

business operation.” Avigliano, supra, at, 556; cf. also

United States Practice, supra, at 233 (branches and local

subsidiaries treated alike in Treaty).

We are aware that other courts have disagreed with

our conclusion. The district court relied on United States

v. R. P. Oldham Co., 152° F.Supp. 818, 823 (N.D. Cal.

1957), which held that article XXII(3) precluded Ameri-

can subsidiaries from asserting Treaty rights. Cf. also,

Zenith Radio Corp. v. Matsushita Electric Industrial Co.,

Ltd., 494 F.Supp. 1263, 1265 n. 4 (E.D. Pa. 1980)

(standing issue raised but not decided). While their

analysis may be supported by the literal text of article

XXII(3), the clearly established intent of the parties to

the treaty overrides such literalism. Accordingly, we hold

that C. Itoh-America, a New York corporation wholly

owned by a Japanese parent, may assert all rights ex-

tended to “companies of either Party” by the Japanese

treaty.°

5. The dissent repeatedly characterizes our holding as a view that

“the nationality of a company under the Treaty is to be determined

by the nationality of its shareholders.” E. g., post, at 370. This is

not the holding of the court. Rather, we assert that article XXII(3)

provides no explicit definition of ‘company of either Party,” just

as it provides no definition for “national of either Party,’ another

oft-used Treaty expression. Our conclusion that C. Itoh-America is a

company of Japan for Treaty purposes is based, not on the applica-

tion of an explicit test conjured up from the text of the Treaty, but

E-12

IV.

The parties also disagree as to the scope of the rights

established by the Treaty. According to C. Itoh-America,

article VIII(1) provides the company with an absolute

exemption from American employment discrimination

laws. On its face, article VIII(1) seems to confirm this

view. It provides that “companies of either Party shall

be permitted to engage . . . executive personnel . . . of

their choice.” We are mindful, however, especially after

our treatment of article XXII(3), that the apparent plain

meaning of a treaty provision may not always reflect the

provision’s actual purpose. Spiess argues that a literal

reading of the “of their choice” provision would fly in

the face of the Treaty’s general policy. In his view,

article VIII(1) provides only national treatment to Japa-

nese corporations. After a thorough examination of the

structure of the Treaty and the setting in which it was

negotiated, we hold that article VIII(1) does exempt

C. Itoh-America from domestic employment discrimina-

tion laws to the extent of permitting discrimination in

favor of Japanese citizens in employment for executive

and technical positions.

on the clearly expressed intent of the parties to extend Treaty pro-

tection evenly to subsidiaries whether unincorporated or incorporated

under the law of either Party. We do not reach or decide whether

a corporate subsidiary in which a Japanese trader owns less than a

100 percent interest should be considered a company of Japan under

the Treaty.

Under a proper understanding of our holding, Judge Reavley’s

views, though reasonable, lose much of their force. We agree with

Judge Reaviey that the Acheson and Kissinger cables belie the view

that the Treaty establishes a test of corporate nationality based on

the nationality cf the shareholders. We disagree. however, with the

suggestion that these cables convert the language of article XXII(3)

into a definitive test of the Treaty term “companies of either Party.”

E-13

A.

[5] The Japanese Treaty belongs to a group of sixteen

treaties negotiated in the years immediately following

World War II. These treaties share the salient characteris-

tics of FCN treaties, but they reflect several innovations

designed to adapt the FCN device to the realities of

modern international commerce. Thus, these treaties ex-

tended explicit protection to corporations, as well as to

natural persons. See Provisions on Companies, supra at

380. The animating purpose of American treaties of this

period was to provide a stable environment for private

international investment. See United States Practice, supra,

at 231.

Under the post-war treaties, the rights of foreign na-

tionals operating in the host country were measured, for

the most part, by two so-called “contingent standards.”

Modern Treatizs, supra, at 810-11. Under the first stand-

ard, foreign nationals were guaranteed “national treat-

ment,” that is, the same treatment afforded to native

citizens. The national treatment standard was viewed as

a progressive one by American diplomats, and negotiators

sought, whenever possible, to use it as the measure of a

foreigner’s rights in the host country. /d. The Japanese

Treaty reflects this effort, and guarantees its signatories

“national treatment with respect to engaging in all types

of commercial, industrial, financial and other business ac-

tivities.” Treaty, art. VII(1); see also art. III (national

treatment in pension and social security laws); art. IX

(1)(a) (national treatment in leasing, occupying, and

using property).

[6] The nationalistic fervor of the post-war era, how-

ever, prevented universal application of the national treat-

E-14

ment rule. Thus, in sensitive areas where the host country

could not ignore the divided loyalties of foreigners—areas

such as shipbuilding, or domestic air transport—a second

standard was used. Under this standard, foreign nationals

were guaranteed “most favored nation” treatment, or

treatment as favorable as that enjoyed by the citizens of

any foreign nation. See United States Practice, supra, at

236. Thus, article VII(2) of the Japanese Treaty provides

most favored nation treatment for foreigners who seek

to operate a public utility in the host country, or who

would engage in shipbuilding, air or water transportation,

deposit banking, or exploitation of land and natural re-

sources. See also art. XIII (most favored nation treat-

ment for foreign travelers entering and leaving country);

art. XIV(5) (most favored nation treatment in matters

of export and import).°

Although the two contingent standards were widely

used in the post-war FCN treaties, they were not the ex-

clusive means by which the rights of foreigners were

protected. As Walker has observed, there was also “a

certain margin for the play of non-contingent standards,

or ‘absolute’ rules in the formulation of treaty provisions.”

Modern Treaties, supra, at 811. Absolute rules were in-

tended to protect vital rights and privileges of foreign

nationals in any situation, whether or not a host govern-

6. Although the most-favored-nation standard was considered less

desirable than national treatment at the time the Japanese Treaty

was negotiated, it was used in previous treaties to confer special

privileges on aliens. See Modern Treaties, supra, at 811. As a result,

the national treatment and most-favored-nation standards were often

used in conjunction, even in the post-war treaties, to guarantee that

foreigners would benefit from the most extensive protection in every

case. See e. g., Treaty, art. IV(1) (companies of either party “ac-

corded national treatment and most-favored-nation treatment with

respect to access to the courts of justice’’).

E-15

ment provided the same rights to the indigenous popula-

tion. Jd. at 823. According to Walker, foreign nationals

were to receive “not only equal protection, but also a

certain minimum degree of protection, as under- inter-

national law, regardless of a Government’s possible lapses

with respect to its own citizens.” United States Practice,

supra, at 232. The use of absolute rules is well illustrated

in the Japanese Treaty. Article I permits foreign nationals

to enter and leave the host country, and provides for rights

of free travel, liberty of conscience, religious freedom,

and other personal rights. By the same token, article II

(2) provides for notification of an alien’s consulate in

the event he is arrested, article VI(3) guarantees the

payment of just compensation for expropriated property,

and article XX(a) allows nationals of one party freedom

of transit by the most convenient route through the terri-

tory of the other party.

B.

Spiess argues that the “of their choice” provision of

article VIII(1) should be read to grant national treat-

ment te companies of either party. In his view, this read-

ing would comport well with the Treaty’s emphasis on

national treatment; he finds it incongruous that a treaty

providing for equal treatment of all parties could be used

to provide special privileges to foreign nationals in the

host country. This view recently was adopted by the

Second Circuit in the Avigliano case. See Avigliano v.

Sumitomo Shoji America, Inc., supra, at 559. -A district

court in the Second Circuit had previously applied the

same theory to the Danish FCN treaty, which includes

a similar provision. See Linskey v. Heidelberg Eastern,

Inc., 470 F.Supp. 1181, 1185-86 (E.D.N.Y. 1979).

E-16

We agree that an overriding goal of the Treaty nego-

tiators was to provide national treatment to foreign busi-

nesses operating in the host country. However, national

treatment was not the Treaty’s-exclusive measure of the

rights to be accorded to foreign nationals. It is apparent

that article VIII(1)’s “of their choice” provision was

intended, not to guarantee national treatment, but to

create an absolute rule permitting foreign nationals to

control their overseas investments. As we noted above,

absolute rules played a significant role in defining the

rights of parties. The language of article VIII(1) makes

clear that the “of their choice” provision was designed

to establish such a rule. Use of the phrase “of their choice”

does not express the requirement that the parties are

limited to national treatment. This is accentuated by the

fact that the phrase “nationals of either Party shall be

accorded national treatment” appears repeatedly in other

provisions of the Treaty. 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, without re-

gard to host country laws.

Our understanding of article VIII(1) is reinforced by

Walker and the negotiating history of the Treaty. In

discussing immigration rights under the FCN treaties,

Walker notes that,

firm rights are provided for the entry and indefinite

sojourn of international traders and principal in-

vestors. Though equal provision for subordinate in-

vestor-enterprise employees is not yet possible owing

to lack of statutory authority, such personnel is to

an extent provided for. in that management is as-

CO wn = rene arthhegeaes

E-17

sured freedom of choice in the engaging of essential

executive and technical employees in general regard-

less of their nationality, without legal interference

from “percentile” restrictions and the like.

United States Practice, supra, at 234. In a footnote,

Walker identifies article VIII(1) as an example of this

a ee Id. at 234 n. 15. Walker also explains

that “[iJn the matter of employment, provisions have

been developed technically going beyond national treat-

ment, to prevent the imposition of ultra-nationalistic poli-

cies with respect to essential executive and technical per-

sonnel.” Provisions on Companies, supra, at 386. Again,

Walker identifies the Japanese Treaty as an example of

this principle, and continues in a footnote to point out

that article VIII(1) allows “free choice” in the selection

of specialized personnel. Jd. at 386 n. 62.

Despite the clear evidence that article VIII(1) was

intended to go beyond national treatment, Spiess insists that,

if it is broader it does not go far enough beyond national

treatment to immunize C. Itoh-America from American em-

ployment discrimination laws. According to Spiess, if the

“of their choice” provision goes beyond national treatment,

it does so only to protect Japanese companies from state

laws that restrict the activities of aliens employed in the

United States. In this view, article VIII( 1) would protect C.

Itoi-America from “ultranationalistic” state laws discrimin-

ating against Japanese citizens, but not from federal laws

forbidding the company. itself to discriminate. In much the

same vein, the Second Circuit held that the Treaty could be

interpreted to be consistent with the nation’s employment

discrimination laws. See Avigliano, supra, at 559. Under

this theory, the Title VII exemption for bona fide occu-

E-18

pational qualification (bfoq) requirements is broad

enough to encompass any rights that Japanese corpora-

tions legitimately could assert under the Treaty. The

Equal Employment Opportunity Commission also raised

this possibility in an amicus curiae brief submitted in

this case.

[7] Although the Treaty and commentary offer some

support for this point of view, the argument misappre-

hends the nature of a right created in the course of inter-

national bargaining. From the American perspective, the

Japanese Treaty was “intended primarily to facilitate

American private-sector investment in foreign nations.”

Zenith Radio Corp. v. Matsushita Electric Industrial Co.,

Ltd., 494 F.Supp. 1263, 1267 (E.D. Pa. 1980); Avigii-

ano, supra, at 556; see United States Practice, supra, at

231. The article VIII(1) right to free choice of technical

and managerial personnel sought to ensure that the Ameri-

can businessman’s investment in the host country would

remain within his control. The legislative history cited

to us by C. Itoh-America demonstrates that the Senate,

in consenting to ratification of the Treaty, was concerned

about the right of American companies to use American

personnel to control their investments in Japan. Sce

Commercial Treaties—Treaties of Friendship, Commerce

& Navigation, with Isreal, Ethiopia, Italy, Denmark,

Greece, Finland, Germany, and Japan: Hearings before

the Subcom. of the Senate Comm. on Foreign Relations,

83d Cong., Ist Sess. 2, 3, 6-9 (1953). It is self-evident

that this same goal of American negotiators in formulating

article VIII(1) was the goal of Japanese negotiators who

sought it to protect Japanese companies operating in

the United States.

E-19

[8] Clearly, article VIII(1) provides some right to Ja-

panese companies to manage their own affairs.’ It is ir-

relevant whether the source of potential interference with

that right is state legislation characterized as “ultranation-

alistic” or a federal statute labeled “progressive.” The

right of Japanese companies to choose essential personnel

is a right to maintain Japanese control of the overseas in-

vestment. To make this right subject to Title VII's bfoq

requirements, or to interpret it to override only state law,

would render its inclusion in the Treaty virtually meaning-

less. Thus, we hold that the article VIII(1) “of their

choice” provision permits Japanese companies to discrim-

inate in favor of their fellow citizens."

{9] Title VII was enacted after the Treaty, and thus

might be thought to nullify inconsistent principles of do-

7. Even Avigliano concedes that “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 be the

extent necessary to ensure its operational! success in the host country.”

Avigiiano, supra, at 559.

8. Spiess suggests that implementation of the article VIII(1) right

would permit companies like C. Itoh-America to violate, not only

Title VII, but also labor relations statutes and laws preventing ex-

ploitation of workers and practices such as child labor. The Second

Circuit has expressed a similar concern. See Avigliano, supra, at 559.

C. Itoh-America, on the other hand, argues that the “of their choice’”’

provision entails a broad immunity from all domestic employment

legislation.

The extent to which this principle applies outside the context of

nation origin discrimination is unclear. See Note, Commercial Treaties

and the American Civil Rights Laws: The Case of Japanese Employ-

ers, 31 Stan. L. Rev. 947, 955 (1979). We need not decide in today’s

case whether the article VIII(1) right extends beyond discrimination

in favor of Japanese nationals in executive and technical positions,

supervisory jobs which would hardly be filled by union members,

minors or exploited workers. We note only that article VIII(1) is

based on the principle of home office control of the foreign invest-

ment.

E-20

mestic law created as a by-product of the Treaty. The

general rule is that subsequent federal legislation will

invalidate treaty obligations if the congressional intent

to do so is clearly expressed.’ See, e.g., 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).

No evidence suggests that Congress intended to repudiate

article VIII(1) when it enacted Title VII. Domestic em-

ployment discrimination laws occupy a high priority on

the nation’s agenda, and courts often resolve statutory

conflicts in their favor. In this case, however, resolving

doubts in favor of Title VII would go beyond the judicial

sphere of interpretation. In the absence of congressional

guidance, we decline to abrogate the American govern-

ment’s solemn undertaking with respect to a foreign na-

tion.

Spiess raises an additional argument which merits at-

tention. He contends that any right to discriminate af-

forded by the Treaty is contrary to the Charter of the

United Nations and thus is invalid because it is in con-

flict with higher law. Spiess points out that article 55 of

the Charter encourages “universal respect for, and ob-

servance of, human rights and fundamental freedoms for

all without distinction as to race, sex, language or reli-

gion.” Spiess argues that this language prohibits the Unit-

ed States and Japan from agreeing to allow each other's

businesses to hire fellow citizens when operating in the

other country.

9. Spiess and his fellow plaintiffs filed suit under section 1981

as well as under Title VII. Because the Treaty was ratified after the

enactment of section 1981, it supersedes the federal statute. See Hijo

v. United States; 194 U.S. 315, 324, 24 S.Ct. 727, 729, 48 L.Ed. 994,

996 (1904).

E-21

(10, 11] We note initially that the national origin

distinction at issue in this case does not fall within the

enumerated categories: of “race, sex, language or religion.”

In any event, the Charter of the United Nations, although

adopted by the United States, is not a self-executing

international obligation. Hitai v. Immigration and Natu-

ralization Service, 343 F.2d 466, 468 (2d Cir. 1965);

Davis v. District Director, Immigration and Naturalization

Service, 481 F. Supp. 1178, 1183 n. 7 (D.D.C. 1979).

Spiess argues that even though the Charter is not self-

executing, Title VII was enacted to implement its pro-

visions, and thus partakes of the lex superior character-

istics of the Charter. We do not agree. Title VII is legis-

lation independent of the Charter. It was enacted in the

domestic interest of the nation. It thus possesses no over-

riding authority and does not, of its own accord, invali-

date antecedent treaty obligations of the United States.

¥.

In summary, we hold that C. Itoh-America may assert ©

article VIII(1) rights under the Treaty, and that those

rights permit it to hire only Japanese personnel for execu-

tive and technical positions. The opinion of the district

court is reversed, and the case is remanded with directions

to dismiss.

REVERSED AND REMANDED WITH DIREC-

TIONS.

E-22

REAVLEY, Circuit Judge, dissenting:

The majority opinion concludes that C. Itoh-America

is exempt from the requirements of Title VII of the Civil

Rights Act of 1964 because article VIII(1) of the FCN

Treaty between Japan and the United States grants to

“companies of [Japan]” the right to hire executives and

technical personnel “of their choice.” Obviously, this

conclusion depends upon the finding that a company in-

corporated in the United States and doing business here

is nevertheless a “company of Japan” merely because it

is owned by a Japanese parent corporation. In my view,

the drafters of the Treaty created in article XXII(3) a

precise definition for the term “company of [Japan],”

clearly stating that a corporation has the nationality of

its place of incorporation. That interpretation of the

article is consistent with the other provisions of the

Treaty, while the majority view creates substantial incon-

sistencies and redundancies. Furthermore, secondary

sources of the highest authority support the conclusion

that C. Itoh-America is a company of the United States

and not of. Japan.

I. The Article XXII(3) Definition

The drafters of the Treaty wanted to distribute the

benefits of commercial exchanges between the United

States and Japan broadly and expediently. In choosing

the terminology of the document that would achieve this

end, they faced the historical and cultural fact that Japan

and the United States had developed widely diverse forms

of commercial organization.’ The drafters thus chose to

1. For example, the Bassin Memorandum records an exchange

between Mr. Bassin and Mr. Otabe. one of the Japanese representa-

tives, as to whether a zaidan hojin would be considered a “company”

E-23

avoid problems of semantics by adopting only two basic

terms of art to describe the commercial entities indige-

nous to each nation: “nationals of either Party” and

“companies of either Party.” The term “nationals” ob-

viously covers individual businesspersons and entrepre-

neurs having United States or Japanese citizenship. The

term “companies” is specifically defined in article XXII

(3) of the Treaty to include every form of business as-

sociation: “As used in the present Treaty, the term ‘com-

panies’ means corporations, partnerships, companies and

other associations, whether or not with limited liability

and whether or not for pecuniary profit.” Article XXII

(3). The Treaty also recognized a third form of business

entity that is likely to come into existence when, for ex-

ample, a national or company of Japan’ enters the United

States under the broad commeycial and legal rights estab-

lished by the Treaty. That third entity is the individual

proprietorship or company (in the broad Treaty sense)

that is formed in the United States, does business here,

and yet is owned and controlled, in whole or part, by a

national or company of Japan. The Treaty’s term of art

for this third form of international commercial activity

is “enterprises controlled by nationals and companies of

[Japan].”* The Treaty generally distributes rights among

private parties by specific reference to one or more of

these three forms of commercial entities.

under the Treaty. A zaidan Aojin is a juridical person charged with

the duty of using or employing certain property for a public purpose,

such as an endowed public library. Bassin Memorandum at S.

2. I will not attempt to use neutral terms at all points but will

occasionally discuss the Treaty only in terms of the rights it confers

upon Japan to do business in the United States. I adopt this con-

vention for simplicity of expression and because that choice embodies

the specific legal question we face in this case.

3. See the Treaty sections quoted in notes 6-10 below.

E-24

But the term “company of [Japan]” is not completely

defined merely by saying that every form of business as-

sociation shall be deemed a company under the terms of

the Treaty. Thus article XXII(3) continues in a second

sentence to specify, first, the test of when a corporation

may claim nationality from either Japan or the United

States and, second, when a juridical entity entitled to be

called a “company” comes into existence: “Companies

constituted under the applicable laws and regulations

within the territories of either Party shall be deemed com-

panies thereof and shall have their juridical status recog-

nized within the territories of the other Party” (emphasis

added).

The first purpose of this sentence, to define a test of

corporate nationality, is addressed by the simple phrase

placed in italics. The second purpose, to define the crea-

tion of a juridical entity that must be recognized as a

“company”, is addressed by the remainder of the sentence

after the italicized phrase. The two purposes become

conceptually muddled, especially in some of the docu-

ments cited by the majority, only because they coincide

in one event: when either nation creates a company under

its own laws, that company has the nationality of the

Creating nation and must be recognized as a juridical

entity by the other nation.

The primary flaw in the majority’s analysis is that

it ignores the existence of the phrase “shall be deemed

companies thereof” in article XXII(3). The majority

argues that the only purpose of this article is to determine

when the juridical entity designated as a “company”

exists. I agree that is one purpose of the article, but the

phrase “shall be d@zemed companies thereof” is totally

E-25

unnecessary to that end. What is the meaning of this

phrase if not to determine corporate nationality for the

purposes of the Treaty? If the majority rejects the plain

meaning of this phrase, it has three initial problems. The

first is to say what this phrase does mean. The second is

to explain how the drafters could fail to specify an answer

to a question as important as the determination of co--

porate nationality,‘ for the issue is certainly addressed

nowhere else in the Treaty or Protocol. The third problem

is that the majority must justify its own conclusion that

the nationality of a corporation is to be determined by

the nationality of some unspecified percentage of share-

holders,® because this test is only one of several other

possibilities, and the majority cites no authority for its

own choice. For instance, an international corporation

could claim nationality based upon place of incorpora-

tion, nationality of shareholders, place of principal office,

place of principal assets, derivation of income, or any

combination thereof. International law has for many years

4. The importance of the term “company of [Japan or the United

States]’”’ is shown by the fact that it is used at least 40 times in the

Treaty and Protocol. Article XXI(1)(e) is another indication that

the drafters were highly sensitive to the issue of corporate nationality.

That section addresses the possibility that nationals of third countries

might try to gain Treaty rights illegitimately merely by incorporating

in Japan or the United States. That article is fully discussed in

section II.B. of this dissent.

5. The majority states in footnote 5 of their opinion that they

do not mean to establish a general test of corporate natiynality under

the Treaty. This may reserve a question of degree or quantity, but

the effect of their construction of the Treaty is nevertheless to derive

the nationality of a company from the nationality of the controlling

shareholders.

If the majority means to imply that they might reach a different

test of corporate nationality if a company were only 70% (or 51%

or 40%) owned by Japanese interests, they make the Treaty even

more ambiguous and vague.

E-26

resolved this complex question with the principle that an

international corporation has the nationality of its place

of incorporation.* Article XXII(3) certainly appears to

follow this well-established. principle, and if the majority

rejects that view, it must justify its own choice.

II. Analysis of the Treaty Structure and Articles

Anyone doubting that article XXII(3) was intended to

specify that a corporation has the nationality of its place

of incorporation should examine the Treaty structure and

the internal consistency of the other articles. The results

of such an analysis confirm that article XXII(3) means

exactly what it says.

A. The Basic Terms of Art

To begin with the basic semantics of the Treaty, the

drafters consistently used three terms of art to allocate

benefits among private parties, “nationals of [Japan or

the United States],” “companies of [Japan or the United

States],” and “enterprises controlled by such nationals or

companies.” The very creation of these three terms of art

6. The principle was clearly stated in the celebrated decision of

the International Court of Justice in Barcelona Traction, Light and

Power Company, Limited (Belgium v. Spain), 1970 I.C.J. Rep. 3, 42:

In allocating corporate entities to States for purposes of diplo-

matic protection, international law is based, but only to a limited

extent, on an analogy with the rules governing the nationality

of individuals. The traditional rule attributes the right of diplo-

matic protection of a corporate entity to the State under the

laws of which it is incorporated and in whose territory it has

its registered office. These two criteria have been confirmed by

long practice and by numerous international instruments.

Dr. Herman Walker, the FCN authority so heavily relied upon by

the majority, has called this the ‘simple ‘classical’ test” of corporate

nationality. H. Walker, Companies, ch. VII, in R.R. Wilson, United

States Commercial Treaties and International Law 182, 193 (1960).

E-27

is a strong indication that the drafters viewed each as

representing a distinct entity. Yet under the majority

view a company incorporated in the United States but

controlled by a Japanese national or company (which I

will refer to as a “Japanese-controlled American com-

pany”) is already a “company of Japan.” That view

equates the latter two terms, deprives the last term of all

meaning and purpose, and creates the additional con-

fusion and redundancy that I will discuss below.

B. Provisions Based on the Place of

Incorporation Test

Two articles of the Treaty are clearly based on the as-

sumption that a company has the nationality of its place

of incorporation. The first is article VII(1), which the

State Department identified as the “heart of the treaty.”

Airgram from the State Department to the American

embassy in Tokyo, No. A-453, dated January 7, 1952.

The first sentence of that article says,

“Nationals and companies of [Japan] shall be ac-

corded national treatment with respect to engaging

in all types of commercial, industrial, financial, and

other business activities within the territories of the

[United States], whether directly or by agent or

through the medium of any form of lawful juridical

entity.”

The final sentence says,

“Moreover, enterprises which [nationals and com-

panies of Japan] control, whether in the form of

individual proprietorships, companies, or otherwise

shall, in all that relates to the conduct of the activit-

ies thereof, be accorded treatment no less favorable

E-28

than that accorded like enterprises controlled by na-

tionals and companies of [the United States}.”

There is a subtle difference between the degree of rights

conferred by these two sentences. The first sentence says

that nationals and companies of Japan doing business

within the United States are entitled to equality of treat-

ment with nationals and companies of the United States,

expressed in the term of art common to such treaties,

“national treatment.” The second sentence, however, does

not confer simple “national treatment” on Japanese-con-

trolled American companies, but a narrower right: equal-

ity of treatment with subsidiary enterprises controlled

by nationals and companies of the United States. I will

call this “national subsidiary treatment.” This specific

grant of a narrower right to Japanese-controlled American

corporations makes sense only if such a corporation is

a company of the United States. If it were already a

company of Japan, it would have gained full “national

treatment” from the first sentence of article VII(1),

which would defeat the subsequent grant of a narrower

right.

Article XXI(1)(e) of the Treaty also indicates that the

nationality of a corporation is normally to be determined

by its place of incorporation. This article provides as

follows:

The present Treaty shall not preclude the application

of measures . . . denying to any company in the

ownership or direction of which nationals of any

third country or countries have directly or indirectly

the controlling interest, the advantages of the present

Treaty, except with respect to recognition of juridical

status and with respect to access to courts of justice

and to admunistrative tribunals and agencies.

On tae ee S

E-29

T read this to mean that, although a company incorporated

in Japan may normally claim all the privileges of a “com-

pany of Japan” while doing business in the United States,

if the United States discovers that nationals of a third

country own the Japanese company, the United States

may deny the benefits of the Treaty to such company,

with the listed exceptions. For instance, if a company

incorporated in Japan is in fact owned and controlled

by North Korea, the United States may “pierce the cor-

porate veil” and prevent North Korea from gaining broad

commercial rights within the United States by such devi-

ous means. If the majority were correct in saying that a

corporation under the Treaty has the nationality of its

controlling shareholders, a Japanese company controlled

by nationals of North Korea would not be a company of

Japan to begin with, and there would be no need for this

explicit and exceptional reservation of authority by both

countries.

C. Specific Inclusions of Controlled Enterprises

Under normal principles of statutory interpretation, if

a party or 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 in-

tentional and meaningful unless plain reason or authorita-

tive sources indicate otherwise. Article VII(1),’ VII(4),°

7. Article VII(1) reads as follows:

Nationals and companies of either Party shall be accorded na-

tional treatment with respect to engaging in all types of com-

mercial, industrial, financial and other business activities within

the territories of the other Party, whether directly or by agent

or through the medium of any form of lawful juridical entitv.

Accordingly, such nationals and companies shall be permitted

within such territories: (a) to establish and maintain branches,

agencies, offices, factories and other establishments appropriate

E-30

XVI(2),° VI(3) (read in conjunction with paragraph 2

of the Protocol),’® and VI(4)** grant express rights to

to the conduct of their business; (b) to organize companies

under the general company laws of such other Party, and to

acquire miajority interests in companies of such other Party;

and (c) to control and manage enterprises which they have

established or acquired. Moreover, 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 ac-

corded like enterprises controlled by nationals and companies of

such other Party (emphasis added).

8. Article VII(4) reads as follows:

Nationals and companies of either Party, as well as enterprises

controlled by such nationals and companies, shall in any event

be accorded most-favored-nation treatment with reference to the

matters treated in the present Article (emphasis added).

9. Article XVI(2) reads as follows:

Articles produced by nationals and companies of either Party

within the territories of the other Party, or by companies of

the latter Party controlled by such nationals and companies,

shall be accorded therein treatment no less favorable than that

accorded to like articles of national origin by whatever person

or company produced, in all matters affecting exportation, taxa-

tion, sale, distribution, storage and use (emphasis added).

10. Article VI(3) reads as follows:

Property of nationals and companies of either Party shall not

be taken within the territories of the other Party except for a

public purpose, nor shall it be taken without the prompt payment

of just compensation. Such compensation shall be in an effec-

tively realizable form and shall represent the full equivalent of

the property taken; and adequate provision shall have been

made at or prior to the time of taking for the determination

and payment thereof.

Article VI(3) is extended by paragraph 2 of the Protocol, which

was specifically incorporated into the Treaty as follows:

The provisions of Article VI, paragraph 3, providing for the

payment of compensation shail extend to interests held directly

or indirectly by nationals and companies of either Party in

property which is taken within the territories of the other Party

(emphasis added).

11. Article VI(4) reads as follows:

Nationals and companies of either Party shall in no case he

accorded, within the territories of the other Party less than

E-31

“nationals and companies of either Party” operating in

the territory of the other party and then specifically ex-

tend the same or similar rights to “enterprises controlled

by such nationals or companies.” Other articles that are

directly adjacent, including the article VIII(1) provision

upon which C. Itoh-America seeks to rely, extend rights

only to “nationals and companies of either Party” and

make no mention of controlled enterprises. This is especi-

ally significant in relation to article VIII, which the State

Department considered the “companion” to article VII.

Airgram from the Department of State to the American

embassy in Tokyo, No. A-453, dated January 7, 1952.

The majority would interpret such distinctions as being

purely haphazard. I am unable to accept that view when

the negotiating documents and historical context of the

Treaty indicate that it was crafted with the greatest care.

Furthermore, the specific inclusion of controlled enter-

prises in the five articles listed above becomes completely

redundant if Japanese-controlled American companies are

already companies of Japan, because in each article the

right has previously been extended to companies of Japan.

One could argue that the additional extension of the

rights to controlled enterprises in these five articles was

only done out of an excess of caution, to address a per-

national treatment and most-favored-nation treatment with re-

spect to the matters set forth in paragraph 2 [relating to the

right to be free from unlawful entry, molestation and search]

and 3 [relating to right to be free from condemnation of prop-

erty except for a public purpose, and right to compensation

therefor} of the present Article. Moreover, enterprises in which

nationals and companies of either Party have a substantial in-

terest shall be accorded, within the territories of the other

Party, not less than national treatment and most-favored-nation

treatment in all matters relating to the taking of privately owned

enterprises into public ownership and to the placing of such

enterprises under public control (emphasis added).

E-32

ceived ambiguity or possible misunderstanding. Yet if

that were the case, surely the drafters would have either

exhibited the same caution in adjacent articles, such as

article VIII(1), or devoted similar effort to correct the

ambiguity at its source, by specifying that a Japanese-

owned American company is nevertheless a “company of

Japan.” The majority sees a “crazyquilt pattern” in the

Treaty if a Japanese-controlled American company is not

a company of Japan, a characterization that I dispute in

the next part of this dissent. But the majority has its own

“crazyquilt pattern” to explain in these five Treaty ar-

ticles that, under the majority view, blatantly duplicate

grants of rights.

D. The Pattern of Rights Distribution

The numerous redundancies and ambiguities discussed

above are all created by the distortion of article XXII

(3) urged upon us by the majority. In contrast, if we

simply read that article in accord with its plain meaning,

all of these problems disappear and each of these sections

becomes a concise, appropriate, and meaningful extension

of valuable rights to American business enterprises con-

trolled by nationals or companies of Japan. But the ma-

jority maintains, along with the Second Circuit in Avigli-

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

Cir. 1981), that this reading of article XXII(3) “would

create a ‘crazyquilt pattern’ in which branches of Japanese

corporations would enjoy broad rights under the Treaty,

while subsidiaries would be entitled only to minor pro-

tection.” The majority finds it “illogical to infer that the

drafters of the treaty intended to make such a dramatic

distinction between forms of business operation,” quoting

Avigliano, 638 F.2d at 556.

eee

E-33

I find these generalities either inaccurate or too broad.

First of all, if the rights conferred on companies of Japan

by this Treaty were assigned a weighted value, one right

would probably far outweigh all others: the article VII(1)

grant of “national treatment with respect to engaging in

all types of . . . business activities.” Article VII(1) specifi-

cally extends this right of national treatment to Japanese-

controlled American companies, in a narrower form of

little practical significance.’* It is therefore inaccurate to

say that such a company gains only “minor protection”

from the Treaty. The broadest and most important right

granted by the Treaty, outweighing all others combined,

is shared on a virtually equal basis by companies of Japan

and their American subsidiaries.

Secondiy, a close examination of the Treaty shows that

the “crazyquilt pattern” seen by the majority is not as

dramatic as they seem to tink. Only about 20 paragraphs

of the Treaty confer rights on “companies of [Japan]”

without specifically extending the same right to American

enterprises controlled by such companies.’* Almost all

of these 20 paragraphs confer rights that would fall into

one or more of the following categories:

(1) The right is so essential! to the conduct of business

activities that any reasonable interpretation of the

Treaty would hold it to be already conferred on

American subsidiaries of Japanese companies by

12. See the discussion in part IT.B. above.

13. See daticles IV(1), (2); V(1); VIC1), (2); VIIT(), (3):

IX(1), (2), (3), (4); X; X(1), (3), (4); MIM(1), (4); XIV(S);

XV(2); and XVII(2).

E-34

the general article VII(1) grant of “national sub-

sidiary treatment” in all business activities;**

(2) The right is separately protected by the Constitu-

tion of the United States, and could therefore

never be denied to an American subsidiary of a

Japanese corporation under any circumstances;*®

(3) The right is so fundamental to the design of our

commercial and legal system that it would never

be denied to American subsidiaries of United

States companies, and therefore could not be de-

nied to American subsidiaries of Japanese com-

panies because of the article VII(1) grant of

“national subsidiary treatment.”*°

I have cited examples in footnotes. My point is only that

the Treaty rights of a company of Japan and its American

subsidiary are virtually identical in practice. I acknowl-

edge that the conceptual structure of the Treaty is not

entirely apparent or logical in relation to these 20 para-

14. See, e. g., articles IX(1) (right to lease land and buildings

appropriate to conduct of activities otherwise permitted under

Treaty), IX(2) (right to acquire movable property), IX(4) (right

to dispose of property), and XI(1) (right to be taxed on a basis

equal to national corporations).

15. See, e. g., articles IV(1) (right of access to courts and a/-

ministrative bodies), VI(1) (right to protection of property within

the host country), VI(2) (right to be free from unlawful entry,

molestation, and search), and IX(3) (right to dispose of property

within 5 years if laws of testate or intestate succession prevent na-

tional treatment).

16. See, e. g., articles XII(1) (right to transfer funds and in-

struments outside the United States), XIV(5) (right to import and

export), XV(2) (right to have an appeals procedure from adminis-

trative decisions in relation to customs matters), and XVII(2) (right

of national treatment in access to government sales, contracts, and

concessions).

F-35

graphs.*’ But the distinctions make little practical differ-

ence.

I can identify only one provision of the Treaty that, in

_ practical and significant terms, is likely to cause a diverg-

ence between the Treaty rights of a Japanese-controlled

American company and its Japanese parent corporation.

That one provision is the article VIII(1) right from which

C. Itoh-America seeks protection in this litigation. As-

suming that article VIII(1) does, in fact, grant to “com-

panies of [Japan]” an exemption from the requirements

of our civil rights legislation,’* then a Japanese-incorpo-

rated company doing business in the United States may

discriminate in favor of its Japanese managerial and tech-

nical employees to the detriment of American employees,*”

while the American-incorporated subsidiary of that same

company would not be able to so discriminate under my

interpretation of articles XXII(3) and VIII(1). This is

17. But as I noted in section II.C. above, the majority’s view

creates equal or greater illogic in the Treaty.

18. Under my analysis, we would have no need to reach this

question.

19. For instance, C.. Itoh-America currently classifies its em-

ployees into a “Japanese staff” and an “American staff.” Over 90%

of management-level positions are filled exclusively by the Japanese

staff. The Japanese staff also receives higher salaries, benefits, and

bonuses than counterparts on the American staff. All federal, state,

and local taxes on these greater benefits are paid by the company.

Some of these practices may be justified by the need of Japanese

investors “to control and manage enterprises which they have estab-

lished or acquired.” Article VII(1). That right is guaranteed

by the Treaty in absolute terms, and United States law may not

infringe upon that right unless there is a clear Congressional intent

otherwise. If some of C. Itoh-America’s discriminatory practices are

protected by article VII(1), I suspect that they could also claim

protection from the BFOQ exception to Title VII. But these are

questions that should be determined at trial.

E-36

really the only point at which the majority’s “crazyquilt

pattern” emerges in practice.

Thirdly, if article VIII(1) and perhaps a few other

articles do confer a superior degree of rights upon com-

panies of Japan and not upon their American subsidiaries,

I do not view this as an “illogical . . . distinction.” It is

very reasonable that the two nations would reserve the

most extraordinary degree of Treaty protection only for

business enterprises created under their own laws, and

would allow enterprises created under the laws of the

other party to be subject to those laws on a basis equal

to all other companies of that party. If a company of

Japan wishes to safeguard a few superior legal rights

under the Treaty, it may choose to do business in the

form of a branch office. But if the Japanese company

seeks to gain the additional tax and legal benefits that

our laws confer on American-incorporated companies,

they will create a separate legal entity under the aegis

of American law. The line between Japanese incorpora-

tion and American incorporation is a bright and distinct

one. If Japanese investors choose to cross that line in

order to gain all the benefits of our legal system on a

basis equal with American corporations, I find it eminent-

ly reasonable that they accept legal responsibilities and

duties on an equal basis as well.

Il. Secondary Sources of Interpretation

My analysis up to this point has been based entirely

on the language and structure of the Treaty itself. In con-

trast, the majority relies entirely on four secondary

sources. It is certainly proper to use such sources, Block

v. Compagnie Nationale Air France, 386 F.2d 323, 336-

E-37

38 (Sth Cir. 1967), but they should not be read selec-

tively. For instance, the majority does not discuss a dis-

patch that Secretary of State Dean Acheson sent at the

height of the Treaty negotiations to the American Em-

bassy in Japan (hereinafter cited as the Acheson dis-

patch) with the heading “FCN Treaty. Interpretation of

Certain Provisions.” The Acheson dispatch was a response

to a previous telegram from the embassy asking a set of

questions that are not available to us now. From the tone

of the Acheson dispatch, the contents were apparently

intended to be delivered to the American negotiators and

interpreted to the Japanese representatives. The first para-

graph of the dispatch seems to be an attempt to clarify

the purpose of article XXI(1)(e), an exception to the

general test of corporate nationality, which I discuss in

part II.B. above. That paragraph reads as follows:

The analysis of this question begins with the second

sentence of Article XXII, Paragraph 3, which es-

tablishes 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 added).

I cannot imagine a more authoritative or explicit rejection

of the majority’s view that the nationality of a company

under the Treaty is to be determined by the nationality of

its controlling shareholders.

Secretary Acheson’s view was strongly confirmed

twenty-four years later by a State Department dispatch

from Secretary of State Henry Kissinger. In the summer

of 1975, the American embassy in Tokyo was involved

E-38

in discussions with the Government of Japan regarding

the Treaty status of an American-owned Japanese com-

pany—the mirror image of the question we face. The

Japanese government had taken the position that such

a company had Japanese nationality and was thus ex-

cluded from Treaty benefits inside Japan. The American

embassy had argued in response that the nationality of a

majority of the shareholders determined the nationality

of a corporation—exactly the position taken by the ma-

jority opinion here. Telegram from the American em-

bassy in Tokyo to the Department of State, Tokyo 11177,

dated August 15, 1975. Secretary Kissinger and the State

Department explicitly rejected the embassy’s view in the

reply dispatch of January 1976. The airgram first contains

the general language quoted by the majority to the effect

that article XXII(3) is only “meant to accomplish . . . 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.”

The Secretary then continues with more specific language

omitted by the majority opinion: |

For reasons stated above, argument in para 2 of

reftel [the embassy’s original telegram of inquiry]

that nationality of a company is determined by na-

tionality of shareholders is not correct. Rather, a

company has nationality of place where it is estab-

lished (see pp. 382-83 of Walker) [referring to the

Herman Walker article cited in the majority opinion

as Provisions on Companies). However, this does

not mean that GOJ [Government 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 recog-

nition does not itself create substantive rights, which

E-39

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 ac-

quired. Therefore, an American company (i.e., one

“organized under U.S. law), may manage its Japan-

ese subsidiary (i.e., a company set up under Japan-

ese law). . . . In sum, the substantive rights of U.S.

nationals and companies vis-a-vis their Japanese in-

vestments 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. (Emphasis added).

Airgram from Secretary of State Kissinger to American

embassy in Tokyo, No. A-105, dated Jan. 9, 1976 (here-

after cited as the Kissinger dispatch).

Secretary Kissinger was arguing against two extreme

views, the Japanese government’s view that the American-

owned company incorporated in Japan had no rights

under the Treaty, and the embassy view that an American

controlled Japanese company was still a company of the

United States. Speaking to the Japanese government’s

view, Secretary Kissinger states that the definition of

“company” in article XXII(3) does not deny rights under

the Treaty. Of course, it is quite accurate to say that a

definition does not create or deny substantive rights, but

it inherently limits the scope of rights conferred in other,

substantive sections of the Treaty. Rejecting the extreme

positions taken by the Government of Japan and the

American embassy, Secretary Kissinger chose the middle

view that conforms with the plain meaning of article

XXII(3): an American-owned company incorporated in

/

E-40

Japan is a “company of Japan” but still has the specific

rights expressly granted to controlled enterprises by other

sections of the Treaty, most notably the article VII(1)

grant of national subsidiary treatment. I would apply that

same analysis to C. Itoh-America.

The four secondary sources relied upon by the majority

opinion are pale authority compared to such explicit

statements by Secretaries of State Acheson and Kissinger.

A careful reading of the first of these authorities, the

Bassin Memorandum, shows that the writer was discussing

article XXII in the context of a specific question from

one of the Japanese negotiators about what “juridical

status” meant as used in the article. Mr. Bassin answered

only that limited question, and the subject of corporate

nationality never came up because it is discussed in a

separate and independent phrase of the article. Recogni-

tion of a juridical entity and ascription of its nationality

are separate questions, and the Bassin Memorandum,

quite simply, never addresses the latter.

The second authority cited by the majority opinion is

a pair of statements by FCN authority Herman Walker.

I read the first of these passages as direct and unambigu-

ous support for the place-of-incorporation test:

“Every association meeting this simple test of valid

existence [acknowledgement by the state under whose

laws the corporation was created] must be accounted

by the other party a company of the party of its

creation, and have its juridical status recognized

without any reservation for the laws of the forum”

(emphasis added).

Provisions on Companies at 380-81. The Kissinger dis-

patch cites the same article by Dr. Walker as authority

E-41

for this view, and the article as a whole clearly supports

the place-of-incorporation test. Jd. at 380-82. The second

Walker quotation is, like the majority‘s quotation from

the Kissinger dispatch, directed at a question that is dif-

ferent from the one we face. Dr. Walker states that “[t]he

recognition of status and nationality does not of itself

create substantive rights; these are dealt with elsewhere

on their own merits.” /d. at 383. No party to this suit has -

argued that the definition of corporate status and nation-

ality in article XXII(3) creates substantive rights, but, as

discussed above, a statutory definition inherently limits

the distribution and scope of rights created elsewhere.

The majority’s quotations from Dr. Walker are entirely

consistent with my interpretation of article XXII‘3).

The final authorities relied upon by the majority are

the 1976 cable from Secretary Kissinger and the October

1978 letter from Lee R. Marks to Abner W. Sibal. I have

discussed portions of the Kissinger cable omitted by the

majority, and find that the entire cable offers overwhelm-

ing support to the view that the nationality of a corpora-

tion is to be determined by the place of incorporation.

The Marks-Sibal letter is only one of a pair of letters from

State Department deputy legal advisors, written about one

year apart, that take directly opposite views on the ques-

tion before us. The letter that supports my view of articles

XXII(3) and VIII(1) is dated September 11, 1979, and

is from State Department Deputy Legal Advisor James

R. Atwood to Lutz Alexander Prager, Assistant General

Counsel of the EEOC. The majority quotes the Atwood-

Prager letter in their footnote 3, but dismisses the letter

as an “aberration” in State Department policy. After a

full reading of the Bassin Memorandum and the Acheson

and Kissinger dispatches, it seems apparent that the

E-42

Marks-Sibal letter is, in fact, the aberration. But I find

both letters to be entirely conclusory and largely insignifi-

cant in light of the clear position taken in the Acheson

and Kissinger dispatches.

To summarize, the majority rejects the plain meaning

of article XXII(3) even though their reading creates

major problems in the internal structure and consistency

of the Treaty. Their authorities for this reading are four

secondary sources, two of which (the Kissinger dispatch

and Herman Walker articles) clearly support the plain

meaning of article XXII(3), one of which (the Bassin

Memorandum) is inconclusive, and one of which (the

Marks-Sibal letter) is offset by an equal or superior inter-

pretation to the contrary (the Atwood-Prager letter). The

majority ignores the Acheson dispatch, the most authori-

tative secondary source available to us. In contrast, if we

simply follow the clear test set out in article XXII(3)

and hold that a company incorporated under United

States law is a “company of the United States,” the Treaty

is a precise and cohesive document. This reading of article

XXII(3) is supported by consistent, explicit, and authori-

tative interpretations by the State Department dating back

to the height of the Treaty negotiations in 1952. I would

hold that C. Itoh-Ameria is not a company of Japan but

a company of the United States and is, therefore, not

within the terms of article VIII(1).

APPENDIX F

Michael E. SPIESS et al.,

Plaintiffs,

v.

C. ITOH & CO. (AMERICA), LNC.,

Defendant.

Civ. A. No. 75-H-267.

UNITED STATES DISTRICT COURT

S. D. Texas,

Houston Division.

Memorandum and Opinion March 1, 1979.

On Motion to Amend Judgment and for

Certification for Immediate Appeal

April 10, 1979.

Non-Japanese employees of New York corporation,

which was a wholly owned subsidiary of Japanese cor-

poration, filed employment discrimination suit. Defend-

ant moved to dismiss for failure to state a claim. The

District Court, Carl O. Bue, Jr., J., held that: (1) 1953

Treaty of Friendship, Commerce and Navigation between

United States and Japan does not provide American sub-

sidiaries of Japanese corporations with the absolute right

to hire managerial, professional and other specialized per-

sonnel of their choice, irrespective of American law pro-

scribing racial discrimination in employment; (2) even

F-2

if subsidiary had standing to raise any treaty right of

its foreign parent corporation to discriminate in hiring,

the subsidiary could not engage in such practices since

any latitude in hiring provided by the treaty extended to

those employees whom the parent itself hired, and (3)

matter was to be certified to the Court of Appeals.

Motion to dismiss denied; motion for certification for

immediate appeal allowed.

See also 408 F.Supp. 916.

Charles E. Humphrey, Jr., Edward John O’Neill, Jr.,

Foreman, Dyess, Prewett, Rosenberg & Henderson, Hous-

ton, Tex., for plaintiffs.

Neil Martin, Joe P. Martin, Nancy Morrison O’Connor,

Fulbright & Jaworski, Houston, Tex., for defendant.

MEMORANDUM AND OPINION

CARL O. BUE, Jr., District Judge.

I. Jatroduction

[1] Plaintiffs, non-Japanese employees of defendant,

have filed suit against defendant pursuant to Title VII

of the Civil Rights Act of 1964, as amended, 42 U.S.C.A.

§ 2000e (1974), and 42 U.S.C.A. § 1981 (1970), alleg-

ing racially discriminatory employment practices. Defend-

ant C. Itoh & Co. (America), hereinafter “Itoh-America,”

is a domestic corporation incorporated under the laws

of New York and a wholly-owned subsidiary of C. Itoh

& Co., Ltd., of Japan, hereinafter “Itoh-Japan,” a Japa-

nese corporation which is not a party to the instant suit.

F-3

Presently before the Court for consideration is Itoh-

America’s Rule 12(b) motion to dismiss for failure to

state a claim upon which relief may be granted. The issue

presented is a novel question of first impression: 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 and other specialized

personnel of their choice, irrespective of American law

proscribing racial discrimination in employment? Con-

sideration of the terms of the Treaty, its legislative history

and relevant judicial precedent leads the Court to the

conclusion that the Treaty conveys no such absolute right

to Itoh-America, and that the motion to dismiss should

be denied.

Simply stated, Itoh-America’s argument is that it has

an absolute right to hire personnel of its choice derived

from the interaction of Articles I, VII and VIII of the

Treaty. According to Itoh-America, Article VII au-

thorizes Japanese corporations to organize American

branches, affiliates and subsidiaries; Article VIII autho-

rizes Japanese corporations to staff branches, affiliates

and subsidiaries organized pursuant to Article VII with

Japanese managerial, professional and other specialized

personnel of its choice; and Article I authorizes and facili-

tates the entry of Japanese managerial personnel into the

United States to staff branch offices and subsidiaries.

Plaintiffs’ response to this argument is manifold. They

contend: (1) that pursuant to the Treaty’s own definition-

al terms Article VIII(1), the key section of the Treaty

for purposes of the instant motion, does not apply to

Itoh-America, an American subsidiary of a Japanese cor-

F-4

poration; (2) that any immunity from Title VII provided

by Article VIII(1) applies only to Itoh-Japan, and that

Itoh-America lacks standing to raise Itoh-Japan’s rights;

(3) that even if Itoh-America had standing to raise Itoh-

Japan’s rights, it would not be entitled to any immunity

because the hiring practices questioned are those of Itoh-

America, not Itoh-Japan; and (4) that even if Itoh-

America could invoke the full benefit of Article VIII(1)

it would not be immune from Title VII because “Article

VIII(1) was designed to prevent the imposition of ultra-

nationalistic policies with respect to employment, not

shield them” and because United Nations Charter pro-

visions, which supersede conflicting treaty provisions, state

that all members pledge themselves to promote freedom

for.all without distinction as to race, thereby vitiating any

right to discriminate that Itoh-America may have under

the Treaty.

In view of the Court’s conclusion that Itoh-America

does not come within the purview of Article VIII(1) and

that any rights Itoh-Japan has under this article do not

shield the employment practices in question, the Court

need not determine whether Article VIII(1) provides any

immunity from Title VII to any entity in any situation,

or whether, assuming such immunity exists under the

terms of the Treaty, it has been superseded by United

Nations Charter provisions or subsequent foreign policy

practice of the United States and Japan. Accordingly, the

focus of the following discussion is upon the questions of

whether Itoh-America itself is entitled to the rights con-

veyed by Article VIII(1) and, if not, whether it is

shielded from Title VII in the instant case by any Article

VIII(1) rights of Itoh-Japan that it may invoke.

F-5

Il. Absolute Rights Claimed by Itoh-America

On July 22, 1953, the United States and Japan con-

summated a Treaty of Friendship, Commerce and Naviga-

tion for the purpose, as stated in the preface of the Treaty,

of “strengthening the bonds of peace and friendship tra-

ditionally existing between them and of encouraging closer

economic and cultural relations between their peoples .. .

by arrangements promoting mutually advantageous com-

mercial intercourse, encouraging mutually beneficial in-

vestments, and establishing mutual rights and privileges

. based in general upon the principles of national and

of most-favored nation treatment pennereminen ac-

cord

: Itoh-America asserts that the Treaty gives it three ab-

solute rights, the combined effect of which “is to create

an absolute right on the part of United States and Japan-

ese nationals and companies to send their own nationals

to the other country to hold managerial and specialized

positions within their respective affiliates and subsidiaries”.

The rights claimed are:

1. The absolute right to establish, maintain, control

and manage a wide variety of commercial enter-

prises by nationals and companies of one country

in the other country (Article VII, paragraph 1).

2. The absolute right of nationals of the two countries

to enter the other country for the purpose of carry-

ing on trade and engaging in related commercial

activities between the two countries (Article I,

paragraph 1).

3. The absolute right of nationals and companies of

either country to engage, within the other country

F-6

managerial, professional, and other specialized per-

sonnel “of their choice,” including their own na-

tionals (Article VIII, paragraph 1).

Article VII, paragraph 1 provides in relevant part:

| : ; ee

“Nationals and companies of either Party shall be

accorded national treatment with respect to engaging

in all types of commercial, industrial, financial and

other business activities within territories of the other

Party, whether directly or by agent or through the

medium of any form of lawful juridical entity. Ac-

cordingly, such nationals and companies shall be per-

mitted within such territories: (a) to establish and

maintain branches, agencies, offices, factories, and

other establishments appropriate to the conduct of

their business; (b) to organize companies under the

general company laws of such other “Party, and to

acquire majority interests in companies of such other

such Party; and (c) to control and manage enter-

prises which they have established or acquired... .”

Article I, paragraph 1 provides in relevant part:

“Nationals of either Party shal! be permitted to enter

the territory 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; (b) for the purpose of i

developing and directing the operations of an enter- |

prise in which they have invested, or in which they

are actively in the process of investing, a substantial

amount of capital... .”

a a ey

Article VIII, paragraph | provides in relevant part:

“Nationals and companies of either Party shall be

permitted to engage, within the territories of the

other Party, accountants and other technical experts,

a aa \

executive personnel, attorneys, agents and other

specialists of their choice. Moreover, such nationals

and companies shall be permitted to engage account-

ants and other technical experts regardless of the

extent to which they have qualified for the vractice

of a profession within the territories of the- other

Party, for the particular purpose of making examina-

tions, audits, and technical investigations exclusively

for, and rendering reports to, such national and com-

panies in connection with the planning and opera-

tion of their enterprises, and enterprises in which

they have a financial interest, within such territories.”

| III. Scope of Article VIII(1)

As stated above, plaintiffs take the position that pur-

suant to the Treaty no entity is given the absolute right

to hire managerial and specialized personnel in a racially

discriminatory manner. In the alternative, plaintiffs con-

tend that even if such a treaty right exists, which they

deny, pursuant to the definitional terms of the Treaty it

would extend only to a Japanese company doing business

directly in the United States through a branch office and

not to a subsidiary of a Japanese corporation which is

incorporated under the laws of the United States. Since

the Court is persuaded that such an absolute right, assum-

ing it existed, would be inapplicable to Itoh-America in

the instant case, the question of whether such a right

exists at all need not be reached.

he crucial section of the Treaty relied upon by Itoh-

America is Article VIII(1) which by its terms provides

that “nationals and companies of either Party shall be

permitted to engage within the territories of the other .

Party [personnel] of their choice.” Stated otherwise in

terms of the instant inquiry, a company of Japan is en-

F-8

titled to engage within the territory of the United States

personnel of its choice. Thus, the pivotal issue becomes

the nationality of Itoh-America. Plaintiffs urge that the

Treaty’s own definitional section provides the unequivo-

cal answer to this question. Article XXII(3) provides

that “(c]ompanies constituted under the applicable laws

and regulations within the territories of either Party shall

be deemed companies thereof. . . .” Under this definition

Itoh-America is a company of the United States because it

is incorporated under the laws of the State of New York.

Its business operations in the United States are, therefore,

those of a United States company in the United States,

not the activities of a company of one party within the

territory of the other party. Accordingly, plaintiffs argue

any immunity from United States discrimination laws con-

veyed by Article VIII(1) does not apply to Itoh-America.

A. Corporate Nationality Under Oldham

This analysis is supported by the case of United States

v. R. P. Oldham, 152 F.Supp. 818 (N.D. Cal. 1957),

wherein the court used a similar standard for determining

corporate nationality for purposes of the 1953 Japanese-

American Treaty. Kinoshita & Co. Ltd., U.S.A. (“Kino-

shita-America”), an American subsidiary of Kinoshita &

Co. Ltd., Tokyo, was indicted along with others for con-

spiracy in restraint of commerce in Japanese wire nails.

Kinoshita-America argued that Article XVIII of the

Treaty dealing with antitrust violations provided the ex-

clusive remedy available to the government in dealing

with antitrust violations by American corporations which

are wholly owned by Japanese corporations. The district

court held that Article XVIII was not intended as an

- F-9

exclusive remedy; rather than replace American antitrust

laws Article XVIII was intended to supplement them.

This conclusion was based on the fact that “[t]he tenor of

the entire Treaty is equal treatment to nationals of the

other party, not better treatment”. Jd. at 823. The court

further held that even if Article XVIII were held to pro-

vide an exclusive remedy for antitrust violations, Kino-

shita-America lacked standing to invoke its protection.

The Court engaged in a two-step process to arrive at

the conclusion that Kinoshita-America was not shielded

from United States antitrust laws by Article XVIII. The

first step was the determination of the nationality of Kino-

shita-America. In order to resolve this question the court

looked to Article XXII, the only definitional section of

the Treaty, dnd pursuant to paragraph three of that Ar-

ticle determined that:

“(Bly the terms of the Treaty itself, as well as by

established principles of law, a corporation organized

under the laws of a given jurisdiction is a creature

of that jurisdiction, with no greater rights, privileges

or immunities than any other corporation of that

jurisdiction.”

Id.

~

Once the question of the nationality of Kinoshita-

America was determined, the court completed the two-

step inquiry by concluding that an American corporation

has no standing to invoke Article XVIII as a defense to

United States antitrust laws. Any protection this Article

might afford against application of United States law

would extend only to Japanese corporations, concluded

the Court.

F-10

“If con-conspirator [sic] Kinoshita & Co. Ltd.,

Tokyo 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

_ corporations by operating through an American sub-

sidiary, it has for most purposes surrendered its

Japanese identity with respect to the activities of this

subsidiary.”

Id.

Itoh-America urges that the Oldham rationale is inap-

plicable to the instant case on several grounds. It argues

that determination of corporate nationality for purposes

of Article VIII(1) should not turn on the place of incor-

poration and that Oldham was wrongly decided on this

point. Instead, it contends, the same test used to determine

corporate nationality for purposes of assaying the “treaty-

trader” status of aliens desiring to enter this country—

nationality of majority stockholders—should be used. In

support of this argument, Itoh-America cites excerpts

from the Treaty’s legislative history. It further argues that

the specific holding in Oldham has been tacitly overruled

by Calnetics Corporation v. Volkswagen of America,

Inc., 532 F.2d 674 (9th Cir. 1976), cert. denied, 429

U.S. 940, 97 S.Ct. 355, 50 L.Ed.2d 309 (1976), and by

recent judicial authority liberalizing standing require-

ments. Analysis of these contentions reveals that they are

without merit.

B. “Treaty-Trader’ Test of Corporate Nationality

[2] Despite the fact that the Treaty’s own definitional

section provides that the place of incorporation deter-

mines the nationality of a company for purposes of the

Se ee ee

F-11

Treaty and the fact that the court in Oldham determined

that an entity identically situated to Itoh-America was an

American corporation for purposes of the Treaty, Itoh-

America urges this Court to reach a different result.

As support for its argument that it should be considered

a Japanese corporation, Itoh-America refers to guidelines

promulgated by the Department of State for use by con-

sular officials in determining whether a foreigner seeking

admission to the United States qualifies as a “treaty-

trader”. Article I, paragraph 1 of the Japanese-American

Treaty authorizes Japanese nationals to enter the United

States as so-called treaty-traders “for the purpose of carry-

ing on trade between the territories of the two Parties and

engaging in related commercial activities... .” In order

to qualify as a treaty-trader an alien must satisfy Depart-

ment of State regulations which require, among other

things, that the alien “be employed by an individual em-

ployer having the nationality of the treaty company, or 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 (1977). Department of State guidelines

provide further that:

“(t]he nationality of the employing firm is deter-

mined by those persons who own more than 50%

of the stock of the employing corporation ‘regard-

less of tiie place of incorporation’.”

9 Foreign Affairs Manual Part II. Since is is wholly

owned by Japanese interests, and thus is a Japanese ~

corporation for treaty trader purposes, Itoh-America urges

that it should be considered a Japanese corporation for

purposes of Article VIII(3). Any other conclusion, it

F-12

argues, requires the absurd result that once a Japanese

corporation exercises the right given to it by Article VII

(1) to incorporate an American subsidiary, that subsi-

diary loses all other rights under the Treaty.

The Court finds that resort to the treaty trader guide-

lines 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. Article XXII(3)

unequivocally state that for the purpose of the Treaty

the nationality of a corporation is determined by the place

of incorporation. The fact that nationality is determined

by a different standard for other purposes cannot alter

the clearly stated test of the treaty itself.

Such a result, far from absurd, is entirely consistent

with the purpose of the Treaty as stated in the preface:

“[to promote] mutually beneficial investments [by] es-

tablishing mutual rights and privileges . . . based in gen-

eral upon the principles of national and of most-favored-

nation treatment. . . .” Article VII allows Itoh-Japan to

incorporate a subsidiary like Itoh-America under the laws

of the United States, and the fact that once such a subsi-

diary is incorporated it is considered a United States cor-

poration does not mean that it is thereupon bereft of all

rights under the Treaty. Article VII(1)(c) specifically

provides that such subsidiaries shall be accorded national

treatment, defined in Article XXII(1) as “treatment no

less favorable than that accorded like enterprises con-

trolled by nationals and companies of such other Party”.

As the court stated in Oldham,

“Although [Article VII] equates domestic subsidi-

aries with their foreign parents, it does so only for

oF i”

F-13

purposes of that Article, which has the effect of

according nationals of one party engaging in business

within the territory of the other party the same treat-

ment accorded nationals of the other party. For ex-

ample, an American subsidiary of a Japanese parent

is to have the same rights as any domestically owned

corporation. The Article nowhere attempts to give

greater rights to such subsidiaries.”

152 F.Supp. 823-24.

[3] Thus, while Itoh-America cannot claim whatever

benefit Article VIII(1) was designed to convey, it can

claim the most important right conveyed by the Treaty—

the right to be treated as favorably as American corpora-

tions in this country. For, as the Oldham court stated:

“The tenor of the entire Treaty is equal treatment

to nationals of the other party, not better treatment.”

Id. at 823.

C. Nationality Under § 2 of the Protocol

Further support for the proposition that Article VIII

(1) does not apply to Itoh-America may be gieaned from

an analysis of Article VI(3) read in conjunction with § 2

of the Protocol signed and entered simultaneously with

the Treaty. Article VI(3) deals with compensation for

property of companies of one country which is taken

within the territory of the other country and provides in

pertinent part: “Property of nationals and companies of

either Party shall not be taken within the territories of

the other Party except for a public purpose, nor shall it

be taken without the prompt payment of just. compensa-

tion.” By its terms and pursuant to Article XXII defini-

tional provisions, this protection would not extend to sub-

F-14

sidiaries like Itoh-America, since they are companies of

the United States. In an obvious attempt to extend this

pretection to such entities, the United States and Japan

agreed to add § 2 of the Protocol, which provides:

“The provisions of Article VI, paragraph 3, provid-

ing for the payment of compensation shall extend

to interests held directly or indirectly by nationals

and companies of either Party in property which is

taken within the territories of the other Party.”

if indirect interests, e. g., subsidiaries like Itoh-America,

were considered foreign corporations for purposes of Ar-

ticle VI(3), the addition of § 2 of the Protocol —

have been redundant.

D. Legislative History

As further authority for its argument that Article VITI

(1) is applicable to United States-incorporated subsidi-

aries, Itoh-America cites broad language in the legislative

history of the Treaty. It is true that the general references

to Article VIII(1) contained in the legislative histor; do

not specifically\state that subsidiaries are not within the

scope of that Article’s protection; however, they are not

inconsistent with such a conclusion. Furthermore, it is

a fundamental rule of statutory construction that in the

absence of “statutory ambiguity, the court may not con-

sider the legislative history. . . .” Glenn v. United States,

571 F.2d 270 (Sth Cir. 1978). “[T]he plainer the lan-

guage, the more convincing contrary legislative history

must be.” United States v. United States Steel Corp., 482

F.2d 439, 444 (7th Cir. 1973), cert. denied, 414 USS.

909, 94 S.Ct. 229, 38 L.Ed.2d 147 (1973). Not only

is the intended scope of Article VIII(1) unambiguous

cn

F-15

when examined in view of the Treaty’s own definitional

section, but also the legislative history is far from con-

Vincing that the interpretation advanced by Itoh-America

is warranted. Commercial Treaties, Hearings Before the

ub-Comm. of the Comm. on Foreign Relations 87th

ae Ist Sess., at 3839 (1952).

IV. Standing of Itoh-America to Raise

Rights of Itoh-Japan

In addition to attacking the Oldham court’s analysis

of corporate nationality, Itoh-America contends that sub-

sequent development and expansion of the concept of

standing render obsolete the Oldham court’s conclusion

that an American subsidiary lacks standing to invoke

Treaty provisions which by their terms apply only to

Japanese corporations. In support of this argument, it

cites, among other cases, Calnetics Corporation v. Volks-

wagen of America, Inc., 532 F.2d 674 (9th Cir. 1976),

cert, denied, 429 U.S. 940, 97 S.Ct. 355, 50 L.Ed.2d

309 (1976), as well as the recent Supreme Court decision

in Association of Data Processing Service Organizations,

Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d

184 (1970) (hereinafter “ADP”).

It should be noted that the issue of standing becomes

relevant only after the threshold finding that Itoh-

America is not a company of Japan for purposes of Ar-

ticle VII[(1). For, if Itoh-America is determined to be

a company of Japan, then it would fall within the specific

terms of Article VIII(1) and it would be unnecessary

to determine whether it has standing to invoke Itoh-

Japan’s rights under that article. Thus, the following dis-

cussion of the standing issue is predicated on the Court's

F-16

above-stated conclusion that Itoh-America, as an Ameri-

can subsidiary, is provided no direct benefits under Ar-

ticle VIII(1).

In ADP the Supreme Court articulated a two-prong

test for determining whether a party has standing. Stand-

ing exists when the party raising the claim “alleges that

the challenged action has caused injury in fact, economic

or otherwise” and that “the interest sought to be pro-

tected by the Complainant is arguably within the zone of

interest to be protected or regulated by the [law] in ques-

tion”. 397 U.S. 152-53, 90 S.Ct. 829-830.

[4] Given the clear language of the Treaty and the

facts in dispute in the instant case the Court concludes

that a detailed analysis of the standing issue is unneces-

sary. Even assuming that Itoh-America has standing to

raise the rights of its foreign parent corporation, a ques-

tion upon which the Court expresses no opinion, no ex-

emption from employment discrimination laws is pro-

vided. Any latitude in hiring provided to Itoh-Japan by

Article VIII(1) extends to employees whom Itoh-Japan

itself hires. The hiring questioned by plaintiffs in the

instant case is that of Itoh-America. Thus, even assuming

that Article VIII(1) provided Itoh-Japan with absolute

immunity from review of its employment decisions in the

United States and that Itoh-America had standing to in-

voke this immunity, it is inapplicable to the hiring prac-

tices of Itoh-America.

Itoh-America’s reliance upon Calnetics Corp. v. Volks-

wagen of America, Inc. appears to be two-fold: (1) it

contends that Calnetics endorses a much-broader concept

of standing which effectively overturns Oldham on that

issue, and (2) it argues that Calnetics stands for the

ATS nt

F-17

Proposition that not only does it have standing to raise

the rights of Itoh-Japan, but also it is entitled to those

same rights itself—that is, any right belonging to a

foreign corporation under the Treaty automatically be-

longs to its wholly-owned, United States incorporated

subsidiary.

For the reasons discussed above, the question of

whether Itoh-America has standing to raise Itoh-Japan's

Article VIII(1) rights is of no moment; thus, it is of

little importance whether Calnetics articulates a more

liberalized standing test. Moreover, analysis of Calnetics

reveals that it does not stand for the proposition that a

United States-incorporated subsidiary of a foreign cor-

poration has, in addition to all Treaty rights specifically

granted it, those Treaty rights granted its foreign parent.

There is nothing in Calnetics which is inconsistent with

the conclusion reached in Oldham that nationality is deter-

mined by place of incorporation, and that United States

incorporated subsidiaries of Japanese corporations are

considered American corporations for purposes of dis-

cerning their rights under the Treaty.

In Calnetics a private antitrust action was brought

against Volkswagen of America, Inc., (“WW-America”),

a United States-incorporated subsidiary of a West German

corporation, and its wholly-owned American-incorporated

air-conditioning manufacturing subsidiary. The trial court

concluded that defendants had violated the antitrust :aws

and as part of the remedy ordered divestiture of the locai

air-conditioning manufacturing company and prohibited

VW-America from importing into the United States any

Volkswagens with factory-installed air-conditioners for

seven years. This remedy was ordered despite the fact

F-18

that the West German Embassy previously had written

the Department of State that such a ban would heavily

discriminate against German citizens and German industry

and in its opinion, would violate the provisions of a 1954

Treaty between Germany and the United States proscrib-

ing discrimination against the products of one party with-

in the territory of the other. The Ninth Circuit reversed

the lower court finding of antitrust violations and ques-

tioned the remedy of an import ban restriction on the

grounds that it “discriminates against the German auto-

mobile manufacturer because it forbids him to sell in the

United States cars with factory-installed air-conditioning

while imposing no similar restriction on domestic auto-

mobile manufacturers”. Jd. 532 F.2d at 693.

Read in a light most favorable to Itoh-America, Cal-

‘ netics: stands for the proposition that a United States

incorporated subsidiary of a foreign corporation has stand-

ing to raise the claim that the Treaty rights of its parent

may be affected by court ordered relief. In this respect,

it is important to note the distinction between the facts

in Calnetics and the instant case. In Calnetics 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, given this Court’s interpreta-

tion of the Treaty involved in the instant case, Itoh-Japan

has no Article VIII(1) right to staff Itoh-America. Ac-

cordingly, as stated above even if Itoh-America has stand-

ing to invoke the Treaty rights of Itoh-Japan, it can claim

no shield against application of Title VII to its own em-

ployment practices.

F-19

V. Conclusion

Faced with an interesting question of first impression,

the Court concludes that the 1953 Japanese-American

Treaty does not provide Itoh-America with immunity from

Title VII. Although many novel issues were raised by

the parties in their extensive legal memoranda, not all

were addressed or resolved by this Court in view of the

dispositive nature of the threshold inquiries.

Given the Treaty’s own definitional terms, Itoh-America

is a company of the United States for purposes of the in-

terpretation of Article VIII(1). Thus, it can claim no

direct protection under Article VIII(1), which applies

only to companies of one party within the territories of

the other party. Furthermore, even assuming that Article

VIII(1) provides absolute immunity from Title VII to

Itoh-Japan and that Itoh-America has standing to assert

Itoh-Japan’s Treaty rights in this action, questions the

Court need not resolve, the motion to dismiss must be

denied. Any absolute rights granted to Itoh-Japan apply

only to. its own hiring decisions; the practices challenged

in the present litigation are those of Itoh-America. Itoh-

America is a United States. company for purposes of

Title VII and, like othe: United States companies, is sub-

ject to suit on the grounds that its employment practices

are racially discriminatory. Accordingly, Itoh-America’s

motion to dismiss for failure to state a claim upon which

relief. may be granted is hereby denied.

F-20

ON MOTION TO AMEND JUDGMENT

AND FOR CERTIFICATION FOR

IMMEDIATE. APPEAL

On March 1, 1979, this Court entered a Memorandum

and Opinion denying defendant’s motion to dismiss. De-

fendant subsequently filed a motion to amend interlocu-

tory order on March 9, 1979, requesting certification of

this Court’s Order to the Fifth Circuit Court of Appeals

pursuant to 28 U.S.C. § 1292(b) (1970). The Court

concludes that the March 1 Order involves a controlling

question of law 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. Given the complex nature of the case and

the fact that the Court has certified a nationwide class,

it is apparent that a trial on the merits may prove long,

arduous and expensive to all of the parties. In addition,

as discussed below, it has come to the Court’s attention

that the Department of State has issued an opinion letter

reaching a different conclusion as to the key issue in the

March 1 Order.

In Kelley v. Societe Anonyme Belge D’Exploitation,

Etc., 242 F.Supp. 129, 148 (E.D.N.Y. 1965) (herein-

after “Kelley”) the Court was faced with the interpreta-

tion of a treaty and after construing the treaty the Court

stated: é

“While the court reaches this decision with cer-

tainty, it is not unmindful of the admonition of Mr.

Justice Cardozo, then sitting on the New York Court

of Appeals, in Techt v. Hughes, 229 N.Y. 222, 247,

128 N.E. 185, 193, 11 A.L.R. 166, cert. .denied,

254 U.S. 643, 41 S.Ct. 14, 65 L.Ed. 454 (1920):

F-21

‘No one can study the vague and wavering state-

ments of treatie$ and decision in this field of inter-

national law [the application of a treaty] with any

feeling of assurance at the end that he has chosen

the right path. One looks in vain either for uni-

formity of doctrine or for scientific accuracy of

exposition. There are wise cautions for the states-

men. There are few precepts for the judge.’

The court, therefore, deems it advisable to certify

this decision to the Court of Appeals for the Second

Circuit pursuant to 28 U.S.C. § 1292(b).”-

[5] Similarly, this Court concludes that in view of the

above-stated considerations and the novelty of the issue

involved, the logic of the Kelley court is applicable, and

certification to the Fifth Circuit of the following question

is appropriate: Does the 1953 Treaty of Friendship, Com-

merce and Navigation between the United States and

Japan provide American subsidiaries of Japanese corpora-

tions with the absolute right to hire managerial, profes-

sional and other specialized personnel of their choice,

irrespective of American law proscribing racial discrimina-

tion in employment?

For purposes of computing the allowable time for the

filing of a petition for permission to appeal pursuant to

28 U.S.C. § 1292(b), the Court’s March 1, 1979, Order

shall be deemed to be entered as of the date indicated

below. All proceedings in this action shall be stayed

pending resolution of the appeal.

Subsequent to the March 1 Order this Court learned of

the pendency of a very similar case in the Southern Dis-

trict of New York styled Avigliano, et al. v. Sumitomo

Shoji America, Inc., 77 Civ. 5641, wherein the same

F-22

issue involving the 1953 Treaty of Friendship, Commerce

and Navigation between the United States and Japan is

presented. The Equal Employment Opportunity Commis-

sion (EEOC) contacted the Department of State request-

ing an opinion on four questions raised in the Avigliano

case. On October 26, 1978, the EEOC sent the court

in Avigliano the Department of State’s opinion letter con-

taining an analysis of the very issue deemed controlling

by this Court in its March 1 Order. In response to the

question of whether the rights conveyed by Article VIII

differ depending upon where the challenged company is

incorporated the Department of State replied:

“Article VIII is addressed to ‘nationals and com-

panies of either Party . . . within the territories of

the other Party.’ Article XXIII defines ‘companies’

as ‘corporations, partnerships, companies and other

associations, whether or not with limited liability and

whether or not for pecuinary profit.’ In determining

the scope of Article VIII, we see no grounds for dis-

tinguishing between subsidiaries incorporated in the

United States owned and controlled 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.”

In view of this Court’s conclusion in its March 1 Order

that Article VIII(1) does not apply to United States in-

corporated subsidiaries of Japanese corporations, it is

apparent that there exists a conflict between this Court’s

interpretation of the Treaty and the Department of State’s

interpretation. Well-established principles of treaty inter-

pretation provide that:

ee Pee OF e NE Se ~ ee oo

F-23

“While courts interpret treaties for themselves, the

meaning given them by the departments of govern-

ment particularly charged with their negotiation_and

enforcement is given great weight.”

Kolovrat v. Oregon, 366 US. 187, 194, 81 S.Ct. 922,

926, 6 L.Ed.2d 218 (1961). Nonetheless,

“Writers of authority agree that treaties are to be

interpreted upon the principles which govern the in-

terpretation of contracts in writing between indi-

viduals, and are to be executed in the. utmost good

faith, with a view to making effective the purposes

of the high contracting parties; that all parts of a

treaty are to receive a reasonable construction, with

a view to giving a fair operation to the whole.”

Sullivan v. Kidd, 254 U.S. 433, 439, 41 S.Ct. 158, 160-

61, 65 L.Ed. 344 (1920). Thus,

“Courts are to give substantial weight to the con-

struction, if any, which is placed upon the treaty

by the political branch; however, they are not re-

quired to abdicate what is basically a judicial func-

tion.”

Kelley, supra at 136.

[6] Application of these rules of construction to the

present case dictate that this Court reconsider its earlier

decision in light of the opinion letter of the Department

of State, since that opinion is entitled to, great weight.

After careful consideration and analysis, and with all

due respect and deference to the Department of State

opinion letter, the Court concludes nonetheless that the

March 1 Order_should stand as written. The Department

\/

/

F-24

of State letter contains a very brief analysis of the cor-

porate nationality question and its bearing on the appli-

cability of Article VIII(1) of the Treaty. No mention

whatsoever is made of the Article XXIII(3) provision

which provides that corporate nationality is determined

by place of incorporation and which, when construed

‘with Article VIII(1), led the Court to conclude that

Itoh-America is not entitled to whatever benefits are

conveyed by Article XIII(1). Similarly, no reference is

made to the case of United States v. R. P. Oldham, 152

F.Supp. 818 (N.D. Cal. 1957), which interprets cor-

porate nationality under the Treaty the same way as

this Court.

Despite the contrary conclusion reached by the Depart-

ment of State, the Court cannot “abdicate” its judicial

function and ignore fundamental rules of legal construc-

tion which require “that ail parts of a treaty are to re-

ceive a reasonable construction, with a view to giving

a fair operation to the whole”. Sullivan, supra at 439.

Such an analysis compels the conclusion that Itoh-America

is a company of the United States under the terms of the

Treaty and that its employment activities in this country

are not the activities of a company of Japan within the

meaning of Article VIII(1). Accordingly, the Court con-

cludes that the Department of State opinion letter does

not warrant a reversal of the Court’s earlier order deny-

ing defendant’s motion to dismiss.

~

APPENDIX G

IN THE

| United States Court of Appeals

FOR THE FIFTH CIRCUIT

No. 83-2646

MICHAEL E. SPIESS, ET AL.,

Plaintiffs-Appellees,

¥.

C. IroH & COMPANY (AMERICA), INC.,

Defendant-Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

9 elicit o0 he

ON PETITION FOR REHEARING AND SUGGESTION

FOR REHEARING EN BANC

(Opinion February 10, 1984, 5 Cir., 198.., ...... F.2d. .)

(March 8, 1984)

Before TATE, GARWOOD and HIGGINBOTHAM,, Circuit

Judges.

PER CURIAM:

( ) The Petition for Rehearing is DENIED and no member

of this panel nor Judge in regular active service on the Court

having requested that the Court be polled on rehearing en banc,

(Fedéral Rules of Appellate Procedure and Local Rule 35) the

Suggestion for Rehearing En Banc is DENIED.

( ) The Petition for Rehearing is DENIED and the Court

having been polled at the request of one of the members of the

Court and a majority of the Circuit Judges who are in regular

active service not having voted in favor of it, (Federal Rules of

/

G-2

Appellate Procedure and Local Rule 35) the Suggestion for

Rehearing En Banc is also DENIED.

( ) A member of the Court in active service having requested

a poll on the reconsideration of this cause en banc, and a

majority of the judges in active service not having voted in favor

of it, rehearing en banc is DENIED.

ENTERED FOR THE COURT:

United States Circuit Judge

‘tatite et

APPENDIX H

The Treaty of Friendship, Commerce & Navigation be-

tween the United States and Japan, [1953] 4 U.S.T. 2063,

T.ILA.S. No. 2863 provides in pertinent part:

*» e

ARTICLE I

1. 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 engag-

ing in related commercial activities; (b) for the pur-

pose of developing and directing the operations of

an enterprise in which they have invested, or in

which they are actively in the process of investigating,

a substantial amount of capital; and (c) for other

purposes subject to the laws relating to the entry and

sojourn of aliens.

* * *

ARTICLE VII

1. Nationals and companies of either Party shall

be accorded national treatment with respect to en-

gaging in all types of commercial, industrial, finan-

cial and other business activities within the territories

of the other Party, whether directly or by agent 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, agencies, offices,

factories and other establishments appropriate to the

conduct of their business; (b) to organize companies

under the general company laws of such other Party,

and to acquire majority interests in companies of

H-2

such other Party; and (c) to control and man-

age enterprises which they have established or

acquired. Moreover, enterprises which they con-

trol, whether in the form of individual proprietor-

ships, companies or otherwise, shall, in all that re-

lates to the conduct of the activities thereof, be

accorded treatment no less favorable than that ac-

corded like enterprises controlled by nationals and

companies of such other Party.

* * *

ARTICLE VIII

1. Nationals 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 spe-

cialists of their choice. Moreover, such nationals and

companies shall be permitted to engage accountants

and other technical experts regardless of the extent

to which they may have qualified for the practice of

a profession within the territories of such other Party,

for the particular purpose of making examinations,

audits and technical investigations exclusively for,

and rendering reports to, such nationals and com-

panies in connection with the planning and operation

of their enterprises, and enterprises in which they

have a financial interest, within such territories.

* * *

ARTICLE XXII

* * *

3. As used in the present Treaty, the term “com-

panies” means corporations. partnerships, companies

and other associations. whether or not with limited

liability and whether or not for pecuniary profit.

Companies constituted under the applicable laws and

H-3

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.

* * *

42 U.S.C. § 1981 provides:

All persons within 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 evi-

dence, 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 exac-

tions of every kind, and to no other.

7. * *

Title VII of the Civil Rights Act of 1964, 42 U.S.C.

§ 2000e-2, provides in pertinent part:

(a) It shall be an unlawful employment practice for

an employer—

(1) to fail or refuse to hire or to discharge

any individual, or otherwise to discriminate

against any individual with respect his compensa-

tion, terms, conditions, or privileges of employ-

ment, because of such individual’s race, color,

religion, sex, or national origin; or

(2) to limit, segregate, or classify his employ-

ees or applicants for employment in any way

which would deprive or tend to deprive any indi-

vidual of employment opportunities or otherwise

H-4

adversely affect his status as an employee, be-

cause of such individual’s race, color, religion,

sex, Or national origin.

* * «

The Immigration and Nationality Act of 1952, 8 U.S.C.

§ 1101(a)(15) provides in pertinent part:

* * *

(15) The term “immigrant” means every alien except

an alien who is within one of the following classes of non-

immigrant aliens—

(E) an alien entitled to enter the United States

under and in pursuance of the provisions of a treaty

of commerce and navigation between the United

States and the foreign state of which he is a national,

and the spouse and children of any such alien if

accompanying or following to join him: (i) solely

to carry on substantial trade, principally between

the United States and the foreign state of which he

is a national; or (ii) solely to develop and direct

the operations of an enterprise in which he has in-

vested, or of an enterprise in which he is actively in

the process of investing, a substantial amount of

capital.