Source: https://supreme.justia.com/cases/federal/us/417/506/
Timestamp: 2019-04-23 09:55:44+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 417 › Scherk v. Alberto-Culver Co.
Respondent, an American manufacturer based in Illinois, in order to expand its overseas operations, purchased from petitioner a German citizen, three enterprises owned by him and organized under the laws of Germany and Liechtenstein, together with all trademark rights of these enterprises. The sales contract, which was negotiated in the United States, England, and Germany, signed in Austria, and closed in Switzerland, contained express warranties by petitioner that the trademarks were unencumbered and a clause providing that "any controversy or claim [that] shall arise out of this agreement or the breach thereof" would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that Illinois laws would govern the agreement and its interpretation and performance. Subsequently, after allegedly discovering that the trademarks were subject to substantial encumbrances, respondent offered to rescind the contract, but when petitioner refused, respondent brought suit in District Court for damages and other relief, contending that petitioner's fraudulent representations concerning the trademark rights violated § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Petitioner moved to dismiss the action or alternatively to stay the action pending arbitration, but the District Court denied the motion to dismiss and, as sought by respondent, preliminarily enjoined petitioner from proceeding with arbitration, holding, in reliance on Wilko v. Swan, 346 U. S. 427, that the arbitration clause was unenforceable. The Court of Appeals affirmed.
Held: The arbitration clause is to be respected and enforced by federal courts in accord with the explicit provisions of the United States Arbitration Act that an arbitration agreement, such as is here involved, "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. §§ 1, 2. Wilko v. Swan, supra, distinguished. Pp. 417 U. S. 510-520.
contacts in two or more countries, each with its own substantive laws and conflict of laws rules, a contractual provision specifying in advance the forum for litigating disputes and the law to be applied is an almost indispensable precondition to achieving the orderliness and predictability essential to any international business transaction. Such a provision obviates the danger that a contract dispute might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved. Pp. 417 U. S. 515-517.
(b) In the context of an international contract, the advantages that a security buyer might possess in having a wide choice of American courts and venue in which to litigate his claims of violations of the securities laws, become chimerical, since an opposing party may by speedy resort to foreign court block or hinder access to the American court of the buyer's choice. Pp. 417 U. S. 517-518.
(c) An agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum selection clause that posits not only the situs of suit, but also the procedure to be used in resolving the dispute, and the invalidation of the arbitration clause in this case would not only allow respondent to repudiate its solemn promise but would, as well, reflect a "parochial concept that all disputes must be resolved under our laws and in our courts." The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 407 U. S. 9. P. 417 U. S. 519.
484 F.2d 611, reversed and remanded.
STEWART, J., delivered the opinion of the Court, in which BURGER, C.J., and BLACKMUN, POWELL, and REHNQUIST, JJ., joined. DOUGLAS, J., filed a dissenting opinion, in which BRENNAN, WHITE, and MARSHALL, JJ., joined, post, p. 417 U. S. 521.
The closing of the transaction took place in Geneva, Switzerland, in June, 1969. Nearly one year later, Alberto-Culver allegedly discovered that the trademark rights purchased under the contract were subject to substantial encumbrances that threatened to give others superior rights to the trademarks and to restrict or preclude Alberto-Culver's use of them. Alberto-Culver thereupon tendered back to Scherk the property that had been transferred to it and offered to rescind the contract. Upon Scherk's refusal, Alberto-Culver commenced this action for damages and other relief in a Federal District Court in Illinois, contending that Scherk's fraudulent representations concerning the status of the trademark rights constituted violations of § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 CFR § 240.10b-5.
[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter. . . .
48 Stat. 84, 15 U.S.C. § 7n. [Footnote 3] The Court of Appeals for the Seventh Circuit, with one judge dissenting, affirmed upon what it considered the controlling authority of the Wilko decision. 484 F.2d 611. Because of the importance of the question presented, we granted Scherk's petition for a writ of certiorari. 414 U.S. 1156.
"the costliness and delays of litigation," and to place arbitration agreements "upon the same footing as other contracts. . . ." H.R.Rep. No. 96, 68th Cong., 1st Sess., 1, 2 (1924); see also S.Rep. No. 536, 68th Cong., 1st Sess. (1924). Accordingly, the Act provides that an arbitration agreement such as is here involved "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. [Footnote 5] The Act also provides in § 3 for a stay of proceedings in a case where a court is satisfied that the issue before it is arbitrable under the agreement, and § 4 of the Act directs a federal court to order parties to proceed to arbitration if there has been a "failure, neglect, or refusal" of any party to honor an agreement to arbitrate.
on the part of the defendant concerning the value of the shares, and he brought suit for damages under § 12(2) of the Securities Act of 1933, 15 U.S.C. § 771. The defendant responded that Wilko had agreed to submit all controversies arising out of the purchase to arbitration, and that this agreement, contained in a written margin contract between the parties, should be given full effect under the Arbitration Act.
"issuers, underwriters, and dealers to make full and fair disclosure of the character of securities sold in interstate and foreign commerce and to prevent fraud in their sale,"
"Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void."
The Court ruled that an agreement to arbitrate "is a stipulation,' and [that] the right to select the judicial forum is the kind of `provision' that cannot be waived under § 14 of the Securities Act." [Footnote 6] 346 U.S. at 346 U. S. 434-435.
Thus, Wilko's advance agreement to arbitrate any disputes subsequently arising out of his contract to purchase the securities was unenforceable under the terms of § 14 of the Securities Act of 1933.
Alberto-Culver, relying on this precedent, contends that the District Court and Court of Appeals were correct in holding that its agreement to arbitrate disputes arising under the contract with Scherk is similarly unenforceable in view of its contentions that Scherk's conduct constituted violations of the Securities Exchange Act of 1934 and rules promulgated thereunder. For the reasons that follow, we reject this contention, and hold that the provisions of the Arbitration Act cannot be ignored in this case.
Accepting the premise, however, that the operative portions of the language of the 1933 Act relied upon in Wilko are contained in the Securities Exchange Act of 1934, the respondent's reliance on Wilko in this case ignores the significant and, we find, crucial differences between the agreement involved in Wilko and the one signed by the parties here. Alberto-Culver's contract to purchase the business entities belonging to Scherk was a truly international agreement. Alberto-Culver is an American corporation with its principal place of business and the vast bulk of its activity in this country, while Scherk is a citizen of Germany whose companies were organized under the laws of Germany and Liechtenstein. The negotiations leading to the signing of the contract in Austria and to the closing in Switzerland took place in the United States, England, and Germany, and involved consultations with legal and trademark experts from each of those countries and from Liechtenstein. Finally, and most significantly, the subject matter of the contract concerned the sale of business enterprises organized under the laws of and primarily situated in European countries, whose activities were largely, if not entirely, directed to European markets.
"[w]hen the security buyer, prior to any violation of the Securities Act, waives his right to sue in courts, he gives up more than would a participant in other business transactions. The security buyer has a wider choice of courts and venue. He thus surrenders one of the advantages the Act gives him. . . ."
"much uncertainty and possibly great inconvenience to both parties could arise if a suit could be maintained in any jurisdiction in which an accident might occur or if jurisdiction were left to any place [where personal or in rem jurisdiction might be established]. The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce, and contracting."
Id. at 407 U. S. 13-14.
"parochial concept that all disputes must be resolved under our laws and in our courts. . . . We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts."
reversed and the case is remanded to that court with directions to remand to the District Court for further proceedings consistent with this opinion.
"The parties agree that, if any controversy or claim shall arise out of this agreement or the breach thereof and either party shall request that the matter shall be settled by arbitration, the matter shall be settled exclusively by arbitration in accordance with the rules then obtaining of the International Chamber of Commerce, Paris, France, by a single arbitrator, if the parties shall agree upon one, or by one arbitrator appointed by each party and a third arbitrator appointed by the other arbitrators. In case of any failure of a party to make an appointment referred to above within four weeks after notice of the controversy, such appointment shall be made by said Chamber. All arbitration proceedings shall be held in Paris, France, and each party agrees to comply in all respects with any award made in any such proceeding and to the entry of a judgment in any jurisdiction upon any award rendered in such proceeding. The laws of the State of Illinois, U.S.A. shall apply to and govern this agreement, its interpretation and performance."
Scherk had taken steps to initiate arbitration in Paris in early 1971. He did not, however, file a formal request for arbitration with the International Chamber of Commerce until November 9, 1971, almost five months after the filing of Alberto-Culver's complaint in the Illinois federal court.
The memorandum opinion of the District Court is unreported.
English courts traditionally considered irrevocable arbitration agreements as "ousting" the courts of jurisdiction, and refused to enforce such agreements for this reason. This view was adopted by American courts as part of the common law up to the time of the adoption of the Arbitration Act. See H.R.Rep. No. 96, 68th Cong., 1st Sess., 1, 2 (1924); Sturges & Murphy, Some Confusing Matters Relating to Arbitration under the United States Arbitration Act, 17 Law & Contemp.Prob. 580.
Section 2 of the Arbitration Act renders "valid, irrevocable, and enforceable" written arbitration provisions "in any maritime transaction or a contract evidencing a transaction involving commerce . . . ," as those terms are defined in § 1. In Bernhardt v. Polygraphic Co., 350 U. S. 198, this Court held that the stay provisions of § 3 apply only to the two kinds of contracts specified in §§ 1 and 2. Since the transaction in this case constituted "commerce . . . with foreign nations," 9 U.S.C. § 1, the Act clearly covers this agreement.
The arbitration agreement involved in Wilko was contained in a standard form margin contract. But see the dissenting opinion of Mr. Justice Frankfurter, 346 U. S. 346 U.S. 427, 346 U. S. 439, 346 U. S. 440, concluding that the record did not show that "the plaintiff [Wilko] in opening an account had no choice but to accept the arbitration stipulation. . . ." The petitioner here would limit the decision in Wilko to situations where the parties exhibit a disparity of bargaining power, and contends that, since the negotiations leading to the present contract took place over a number of years and involved the participation on both sides of knowledgeable and sophisticated business and legal experts, the Wilko decision should not apply. See also the dissenting opinion of Judge Stevens of the Court of Appeals in this case, 484 F.2d 611, 615. Because of our disposition of this case on other grounds, we need not consider this contention.
"Any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void."
While the two sections are not identical, the variations in their wording seem irrelevant to the issue presented in this case.
We do not reach, or imply any opinion as to, the question whether the acquisition of Scherk's businesses was a security transaction within the meaning of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Although this important question was considered by the District Court and the Court of Appeals, and although the dissenting opinion, post, p. 417 U. S. 521, seems to consider it controlling, the petitioner did not assign the adverse ruling on the question as error, and it was not briefed or argued in this Court.
Together with his motion for a stay pending arbitration, Scherk moved that the complaint be dismissed because the federal securities laws do not apply to this international transaction, cf. Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326 (CA2 1972). Since only the order granting the injunction was appealed, this contention was not considered by the Court of Appeals, and is not before this Court.
See Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1051 (1961). For example, while the arbitration agreement involved here provided that the controversies arising out of the agreement be resolved under "[t]he laws of the State of Illinois," supra, n 1, a determination of the existence and extent of fraud concerning the trademarks would necessarily involve an understanding of foreign law on that subject.
The dissenting opinion argues that our conclusion that Wilko is inapplicable to the situation presented in this case will vitiate the force of that decision because parties to transactions with many more direct contacts with this country than in the present case will nonetheless be able to invoke the "talisman" of having an "international contract." Post at 417 U. S. 529. Concededly, situations may arise where the contacts with foreign countries are so insignificant or attenuated that the holding in Wilko would meaningfully apply. Judicial response to such situations can and should await future litigation in concrete cases. This case, however, provides no basis for a judgment that only United States laws and United States courts should determine this controversy in the face of a solemn agreement between the parties that such controversies be resolved elsewhere. The only contact between the United States and the transaction involved here is the fact that Alberto-Culver is an American corporation and the occurrence of some -- but by no means the greater part -- of the pre-contract negotiations in this country. To determine that "American standards of fairness," post at 417 U. S. 528, must nonetheless govern the controversy demeans the standards of justice elsewhere in the world, and unnecessarily exalts the primacy of United States law over the laws of other countries.
The dissenting opinion raises the specter that our holding today will leave American investors at the mercy of multinational corporations with "vast operations around the world. . . ." Post at 417 U. S. 533. Our decision, of course, has no bearing on the scope of the substantive provisions of the federal securities laws, for the simple reason that the question is not presented in this case. See n 8, supra.
Under some circumstances, the designation of arbitration in a certain place might also be viewed as implicitly selecting the law of that place to apply to that transaction. In this case, however, "[t]he laws of the State of Illinois" were explicitly made applicable by the arbitration agreement. See n 1, supra.
In The Bremen, we noted that forum selection clauses "should be given full effect" when "a freely negotiated private international agreement [is] unaffected by fraud. . . ." 407 U.S. at 407 U. S. 13, 407 U. S. 12. This qualification does not mean that, any time a dispute arising out of a transaction is based upon an allegation of fraud, as in this case, the clause is unenforceable. Rather, it means that an arbitration or forum selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion. Cf. Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U. S. 395.
Although we do not decide the question, presumably the type of fraud alleged here could be raised, under Art. V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, see n 15, infra, in challenging the enforcement of whatever arbitral award is produced through arbitration. Article V(2)(b) of the Convention provides that a country may refuse recognition and enforcement of an award if "recognition or enforcement of the award would be contrary to the public policy of that country."
Our conclusion today is confirmed by international developments and domestic legislation in the area of commercial arbitration subsequent to the Wilko decision. On June 10, 1958, a special conference of the United Nations Economic and Social Council adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In 1970, the United States acceded to the treaty,  3 U.S.T. 2517, T.I.A.S. No. 6997, and Congress passed Chapter 2 of the United States Arbitration Act, 9 U.S.C. § 201 et seq., in order to implement the Convention. Section 1 of the new chapter, 9 U.S.C. § 201, provides unequivocally that the Convention "shall be enforced in United States court in accordance with this chapter."
In their discussion of this Article, the delegates to the Convention voiced frequent concern that courts of signatory countries in which an agreement to arbitrate is sought to be enforced should not be permitted to decline enforcement of such agreements on the basis of parochial views of their desirability or in a manner that would diminish the mutually binding nature of the agreements. See G. Haight, Convention on the Recognition and Enforcement of Foreign Arbitral Awards: Summary Analysis of Record of United Nations Conference, May/June 1958, pp. 228 (1958).
Without reaching the issue of whether the Convention, apart from the considerations expressed in this opinion, would require of its own force that the agreement to arbitrate be enforced in the present case, we think that this country's adoption and ratification of the Convention and the passage of Chapter 2 of the United States Arbitration Act provide strongly persuasive evidence of congressional policy consistent with the decision we reach today.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BRENNAN, MR. JUSTICE WHITE, and MR. JUSTICE MARSHALL concur, dissenting.
Respondent (Alberto-Culver) is a publicly held corporation whose stock is traded on the New York Stock Exchange and is a Delaware corporation with its principal place of business in Illinois. Petitioner (Scherk) owned a business in Germany, Firma Ludwig Scherk, dealing with cosmetics and toiletries. Scherk owned various trademarks and all outstanding securities of a Liechtenstein corporation (SEV) and of a German corporation, Lodeva. Scherk also owned various trademarks which were licensed to manufacturers and distributors in Europe and in this country. SEV collected the royalties on those licenses.
Alberto-Culver undertook to purchase from Scherk the entire establishment -- the trademarks and the stock of the two corporations; and later, alleging it had been defrauded, brought this suit in the United States District Court in Illinois to rescind the agreement and to obtain damages.
The only defense material at this stage of the proceeding is a provision of the contract providing that, if any controversy or claim arises under the agreement the parties agree it will be settled "exclusively" by arbitration under the rules of the International Chamber of Commerce, Paris, France.
The basic dispute between the parties concerned allegations that the trademarks which were basic assets in the transaction were encumbered and that their purchase was induced through serious instances of fraudulent representations and omissions by Scherk and his agents within the jurisdiction of the United States. If a question of trademarks were the only one involved, the principle of The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, would be controlling.
Section 10(b) of the 1934 Act makes it unlawful for any person by use of agencies of interstate commerce or the mails "[t]o use or employ, in connection with the purchase or sale of any security," whether or not registered on a national securities exchange, "any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe." 15 U.S.C. § 78j(b).
And § 29(b) adds that "[e]very contract" made in violation of the Act "shall be void." [Footnote 2/1] No exception is made for contracts which have an international character.
"As the protective provisions of the Securities Act require the exercise of judicial direction to fairly assure their effectiveness, it seems to us that Congress must have intended § 14 . . . to apply to waiver of judicial trial and review."
and Alberto-Culver, an American business surrounded and protected by lawyers and experts. But that would miss the point of the problem. The Act does not speak in terms of "sophisticated" as opposed to "unsophisticated" people dealing in securities. The rules when the giants play are the same as when the pygmies enter the market.
If there are victims here, they are not Alberto-Culver the corporation, but the thousands of investors who are the security holders in Alberto-Culver. If there is fraud and the promissory notes are excessive, the impact is on the equity in Alberto-Culver.
Moreover, the securities market these days is not made up of a host of small people scrambling to get in and out of stocks or other securities. The markets are overshadowed by huge institutional traders. [Footnote 2/2] The so-called "off-shore funds," of which Scherk is a member, present perplexing problems under both the 1933 and 1934 Acts. [Footnote 2/3] The tendency of American investors to invest indirectly as through mutual funds [Footnote 2/4] may change the character of the regulation, but not its need.
"The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. [Footnote 2/5]"
 3 U.S.T. 2517, 2519, T.I.A.S. No. 6997.
awards adopts the standards which Congress has passed to protect the investors under the 1934 Act. It is peculiarly appropriate that we adhere to Wilko -- more so even than when Wilko was decided. Huge foreign investments are being made in our companies. It is important that American standards of fairness in security dealings govern the destinies of American investors until Congress changes these standards.
specify an arbitral forum for resolution of differences in "any contract touching two or more countries."
foreign corporation undertakes fraudulent action which subjects it to the jurisdiction of our federal securities laws, nothing justifies the conclusion that only a diluted version of those laws protects American investors.
Section 29(a) of the 1934 Act provides that a stipulation binding one to waive compliance with "any provision" of the Act shall be void, and the Act expressly provides that the federal district courts shall have "exclusive jurisdiction" over suits brought under the Act. 15 U.S.C.
When a defendant, as alleged here, has, through proscribed acts within our territory, brought itself within the ken of federal securities regulation, a fact not disputed here, those laws -- including the controlling principles of Wilko -- apply whether the defendant is foreign or American, and whether or not there are transnational elements in the dealings. Those laws are rendered a chimera when foreign corporations or fund -- unlike domestic defendants -- can nullify them by virtue of arbitration clauses which send defrauded American investors to the uncertainty of arbitration on foreign soil, or, if those investors cannot afford to arbitrate their claims in a far-off forum, to no remedy at all.
Moreover, the international aura which the Court gives this case is ominous. We now have many multinational corporations in vast operations around the world -- Europe, Latin America, the Middle East, and Asia. [Footnote 2/12] The investments of many American investors turn on dealings by these companies. Up to this day, it has been assumed by reason of Wilko that they were all protected by our various federal securities Acts. If these guarantees are to be removed, it should take a legislative enactment. I would enforce our laws as they stand, unless Congress makes an exception.
The virtue of certainty in international agreements may be important, but Congress has dictated that, when there are sufficient contacts for our securities laws to apply, the policies expressed in those laws take precedence. Section 29 of the 1934 Act, which renders arbitration clauses void and inoperative, recognizes no exception for fraudulent dealings which incidentally have some international factors. The Convention makes provision for such national public policy in Art. II(3). Federal jurisdiction under the 1934 Act will attach only to some international transactions, but when it does, the protections afforded investors such as Alberto-Culver can only be full-fledged.
"Every contract made in violation of any provision of this chapter or of any rule or regulation thereunder, and every contract (including any contract for listing a security on an exchange) heretofore or hereafter made, the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this chapter or any rule or regulation thereunder, shall be void (1) as regards the rights of any person who, in violation of any such provision, rule, or regulation, shall have made or engaged in the performance of any such contract, and (2) as regards the rights of any person who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in violation of any such provision, rule, or regulation. . . ."
See Institutional Investor Study Report of the SEC, H.R.Doc. No. 924 (1971), particularly Vol. 4.
Id., Vol. 1, p. XVI; Vol. 3, p. 879 et seq.
Id., Vol. 1, p. XIX; Vol. 2, p. 215 et seq.
The Convention also permits that arbitral awards not be recognized and enforced when a court in the country where enforcement is sought finds that "[t]he recognition or enforcement of the award would be contrary to the public policy of that country." Art. V(2)(b);  3 U.S.T. 2517, 2520, T.I.A.S. No. 6997. It also provides that recognition of an award may be refused when the arbitration agreement "is not valid under the law to which the parties have subjected it," in this case the laws of Illinois. Art. V(1)(a). See n. 10, infra.
Requirements promulgated under the 1934 Act require disclosure to security holders of corporate action which may affect them. Extensive annual reports must be filed with the SEC, including, inter alia, financial figures, changes in the conduct of business, the acquisition or disposition of assets, increases or decreases in outstanding securities, and even the importance to the business of trademarks held. See 17 CFR §§ 240.13a-1, 249.310; 3 CCH Fed.Sec.L.Rep. ¦ 31,101 et seq. (Form 10-K). The Commission has proposed that corporations furnish a copy of annual reports filed with it to any security holder who is solicited for a proxy and requests the report. 39 Fed.Reg. 3836. Current reports must be filed with the SEC by an issuer of securities when substantial events occur, as when the rights evidenced by any class of securities are materially altered by the issuance of another class of securities or when an issuer has acquired a significant amount of assets other than in the ordinary course of business. See 17 CFR §§ 240.13a-11, 249.308; 3 CCH Fed.Sec.L.Rep. ¦ 31,001 et seq. (Form 8-K).
The Commission, recognizing that the Form 10-K reports filed annually with it might be excessively abstruse for security holders, see 39 Fed.Reg. 3835, has proposed that the annual reports distributed to security holders in connection with annual meetings and solicitation of proxies provide substantially greater amounts of meaningful information than required presently. These annual reports would include a description of the business of the issuer, a summary of operations, explanation of changes in revenues and expenses, information on the liquidity position and the working capital requirements of the issuer, and identification of management and performance on the market of the issuer's securities. See id. at 3834-3838.
"[a] contractual provision specifying in advance the forum in which disputes shall be litigated . . . is . . . an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction."
Uncertainty and a "dicey atmosphere," supposedly destructive of international contracts, may persist for many contracts. The parties to an international contract may not, in fact, be bound by a "solemn agreement" to arbitrate, for an American court could find, at a much later date, sufficient contacts with this country to require the application of Wilko.
The District Court for the Northern District of Illinois noted allegations that Scherk had failed to state a material fact, the omission of which would have been misleading, see 17 CFR § 240.10b-5(b), during crucial negotiations in Melrose Park, Illinois, and that communications between Alberto-Culver and Scherk's attorney concerning the validity and value of the trademarks occurred within the territorial jurisdiction of the United States. Finally, the District Court noted that the full economic impact of the alleged fraud occurred within the United States.
See, e.g., Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1334-1339 (CA2 1972); Travis v. Anthes Imperial Ltd., 473 F.2d 515, 523-528 (CA8 1973); SEC v. United Financial Group, Inc., 474 F.2d 354 (CA9 1973); Schoenbaum v. Firstbrook, 405 F.2d 200 (CA2 1968); Roth v. Fund of Funds, 279 F.Supp. 935 (SDNY), aff'd, 405 F.2d 421 (CA2 1968).
A summary of the conference proceedings which led to the adoption of the United Nations Convention was prepared by G. W. Haight, who served as a member of the International Chamber of Commerce delegation to the conference. Haight, Convention on the Recognition and Enforcement of Foreign Arbitral Awards: Summary Analysis of Record of United Nations Conference, May/June 1958 (1958).
When Art. II(3) was being discussed, the Israeli delegate pointed out that, while a court could, under the draft Convention as it then stood, refuse enforcement of an award which was incompatible with public policy, "the court had to refer parties to arbitration whether or not such reference was lawful or incompatible with public policy.'" Id. at 27. The German delegate observed that this difficulty arose from the omission in Art. II(3) "`of any words which would relate the arbitral agreement to an arbitral award capable of enforcement under the convention.'" Ibid.
"When the German proposal was put to a vote, it failed to obtain a two-thirds majority (13 to 9) and the Article was thus adopted without any words linking agreements to the awards enforceable under the Convention. Nor was this omission corrected in the Report of the Drafting Committee (L.61), although the obligation to refer parties to arbitration was (and still is) qualified by the clause 'unless it finds that the agreement is null and void, inoperative or incapable of being performed.'"
"As the applicable law is not indicated, courts may under this wording be allowed some latitude; they may find an agreement incapable of performance if it offends the law or the public policy of the forum. Apart from this limited opening, the Conference appeared unwilling to qualify the broad undertaking not only to recognize, but also to give effect to, arbitral agreements."
Id. at 28 (emphasis added). Whatever "concern" the delegates had that signatories to the Convention "not be permitted to decline enforcement of such agreements on the basis of parochial views of their desirability," ante at 417 U. S. 520 n. 15, it would seem that they contemplated that a court may decline to enforce an agreement which offends its law or public policy.
"A contractual choice of forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision."
Id. at 407 U. S. 15. That is inescapably the case here, as § 29 of the Securities Exchange Act and Wilko v. Swan make clear. Neither § 29, nor the Convention on international arbitration, nor The Bremen justifies abandonment of a national public policy that securities claims be heard by a judicial forum simply because some international elements are involved in a contract.
The agreements in this case provided that the "laws of the State of Illinois" are applicable. Even if the arbitration court should read this clause to require application of Rule 10-b's standards, Alberto-Culver's victory would be Pyrrhic. The arbitral court may improperly interpret the substantive protections of the Rule, and if it does, its error will not be reviewable, as would the error of a federal court. And the ability of Alberto-Culver to prosecute its claim would be eviscerated by lack of discovery. These are the policy considerations which underlay Wilko and which apply to the instant case as well.
See Knickerbocker, Oligopolistic Reaction and Multinational Enterprise (Haw.Univ.1973); J. Vaupel & J. Curhan, The World's Multinational Enterprises (Harvard Univ.1973). See generally Senate Committee on Finance, 93d Cong., 1st Sess., Implications of Multinational Firms for World Trade and Investment and for U.S. Trade and Labor (Comm.Print 1973); Morgan, Controlling the Multinationals, Washington Post, Nov. 17, 1973, p. A15; Diebold, Precarious Path of the Multinationals, Wall Street Journal, Aug. 17, 1973, p. 6, col. 4.

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