1 United States Court of Appeals,

Fifth Circuit.

No. 94-10113.

Theodore S. PAPAILA, Plaintiff-Appellant,

v.

UNIDEN AMERICA CORP., Defendant-Appellee.

April 28, 1995.

Appeal from the United States District Court for the Northern

District of Texas.

Before JONES, DUHÉ and STEWART, Circuit Judges.

DUHÉ, Circuit Judge:

Theodore Papaila sued Uniden A merica Corp. (UAC) alleging

employment grievances including discrimination based on race and

national origin. On UAC's motion for summary judgment, the

district court held that the race and national origin

disc rimination claims were precluded by the United States-Japan

Treaty of Friendship, Commerce and Navigation, Apr. 2, 1953, U.S.-

Japan, art. VIII(1), 4 U.S.T. 2063, 2070. Plaintiff voluntarily

dismissed his other claims and appeals the summary judgment. We

affirm.

I. Background

UAC is an Indiana Corporation and a wholly owned subsidiary of

Uniden Corporation, a Japanese entity based in Tokyo. Plaintiff,

a caucasian of American nationa l origin, alleges that Japanese

citizen s who are employees of UAC receive favorable treatment:

they receive higher base salaries, fringe benefits (e.g., housing

and tuition allowances), and job protection (transfer rather than2

discharge in case of poor job performance) that Plaintiff did not

receive. Plaintiff was demoted then terminated by UAC.

The summary judgment evidence established that, o f UAC's

approximate 400 employees, only sixteen are Japanese citizens who

were treated differently than other employees. Each of those

sixteen employees, called by the parties "expatriates," was sent on

a temporary work assignment by the Japanese parent to protect its

interests in the subsidiary. The remainder of UAC's employees,

including six of Japanese race and national origin (but not

citizenship), were directly controlled by UAC and did not receive

the same preferential treatment as the expatriates.

II. Treaty Provision

Under the Treaty a Japanese corporation may incorporate a

subsidiary under the laws of the United States. Treaty, art. VII,

4 U.S.T. at 2068. Once it does so, the subsidiary is an American

corporati on, subject to American laws, including Title VII.

A rticle VIII(1) of the Treaty provides, "[C]ompanies of either

Party shall be permitted to engage, within the territories of the

other Party, accountants and other tech nical experts, executive

personnel, attorneys, agents and other specialists of their

c hoice." 4 U.S.T. at 2070. The Treaty allows a foreign

corporation such as Uniden Japan to discriminate in favor of

citizens from its own country in filling the specified high-level

positions within the United States. S ee Wickes v. Olympic Airways,

745 F.2d 363, 367 (6th Cir.1984) (interpreting similar provision in

United States-Greek Treaty of Friendship, Commerce & Navigation);3

see also MacNamara v. Korean Air Lines, 863 F.2d 1135, 11 45 (3rd

Cir.1988) ("[T]he provision was necessary for the limited purpose

of securing to foreign investors the freedom to place their own

citizens in key management positions.") (interpreting similar

provision in United States-Korean Treaty), cert. denied, 493 U.S.

944, 110 S.Ct. 349, 107 L.Ed.2d 337 (1989).

Thus, Article VIII to a limited extent permits Japanese

companies to discriminate in favor of their fellow citizens because

of their citizenship.

III. Standing to Assert Rights of Parent

As a domestic corporation, UAC has no rights under Article

VIII(1), because Article VIII(1) applies only to "companies of

[Japan]." S umitomo Shoji Am., Inc. v. Avagliano, 457 U.S. 176,

189, 102 S.Ct. 2374, 2381, 72 L.Ed.2d 765 (1982) (holding that

American subsidiary of a Japanese parent had no Treaty defense

because the subsidiary was not a "company of Japan"). S umitomo

limited its ruling to the subsidiary's assertion of rights on its

own behalf and "express[ed] no view as to whether [the subsidiary]

may assert any Article VIII(1) rights of its parent." Id. at 189

n. 19, 102 S.Ct. at 2382 n. 19. UAC contends that it has standing

to assert the Treaty defense of its parent.

We agree, following the lead of our sister circuit that has

held that a subsidiary may assert the Treaty rights of the parent,

"at least to the extent necessary to prevent the treaty from being

set at naught." F ortino v. Quasar Co., 950 F.2d 389, 393 (7th

Cir.1991). As in F ortino, Uniden Japan rather than UAC made all1 The expatriates were hired in Japan by the parent and were

assigned by the parent to UAC. They all hold managerial

positions, and their mission is to manage Uniden Japan's

shareholder interests. They are subject to transfer at the

request of Uniden Japan. Their salaries are set in Japan and

Uniden Japan directs that UAC maintain a separate UAC payroll

account for the expatriates; the parent sets their salaries,

wages, benefits, hours and evaluates their job performance. 2 R.

298-302.

2 Additionally, we note that all of the alleged favoritism

was based on citizenship. Fortino recognized a difference

between distinctions based on citizenship, which are permitted by

the Treaty, and distinctions based on national origin, which

Title VII prohibits. Fortino, 950 F.2d at 391-92. Like the

subsidiary in Fortino, UAC employees of Japanese race and

national origin who were not Japanese citizens were not shown

favoritism. Id. at 393. Arguably, Title VII is not implicated.

See 42 U.S.C.A. § 2000e-2(a)(1) (West 1994) (prohibiting

employment discrimination based on race or national origin); see

also Fortino, 950 F.2d at 393 (noting that favoring JapaneseAmerican employees would have been "true national-origin

discrimination since they are not citizens of Japan").

4 the allegedly discriminatory decisions in the employment

r elationship with the expatriates. 1 The rationale of F ortino

applies to this case:

A judgment that forbids [UAC] to give preferential treatment

to the expatriate executives that its parent sends would have

the same effect on the parent as it would have if it ran directly against the parent: it would prevent [Uniden Japan]

from sending its own executives to manage [UAC] in preference

to employing American citizens in these posts.

Fortino, 950 F.2d at 393.

Since UAC did not itself cause any of t he discriminatory

conduct, we hold that UAC may invoke its parent's Treaty rights, at

least with respect to those employment decision s dictated by the

parent. C f. id. (distinguishing Sumitomo for the very reason that

"there was no contention [in Sumitomo ] that the parent had

dictated the subsidiary's discriminatory conduct"). 25 IV. Conclusion

The domestic subsidiary may assert the Article VIII(1) Treaty

rights on behalf of its Japanese parent corporation. This Treaty

right includes the right to favor Japanese citizens in placing

executives to manage its shareholder interest. Plaintiff fails to

demonstrate a genuine issue of material fact that would preclude a

summary judgment in favor of UAC on Plaintiff's claims of Title VII

discrimination. Plaintiff's request that this Court render a

judgment for him is denied.

AFFIRMED.