Opinion ID: 428533
Heading Depth: 2
Heading Rank: 1

Heading: The Convention and the Antitrust Exception

Text: 34 We begin by noting a rarity in our jurisprudence, the overriding of a strong policy in favor of arbitration as evidenced by the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq., by a judicially created rule excepting antitrust claims. This ruling, the reasons marshalled for it, and the unanimity of its acceptance in the field of domestic contracts are solid evidence of the strength of the policy on nonarbitrability. The most complete exegesis is found in the decision establishing the exception, American Safety Equipment, supra. The reasoning is fourfold: (1) governance of the realm of antitrust law, so vital to the successful functioning of a free economy, is delegated by statute to both government and private parties, the latter being given special incentive to supplement efforts of the former, the work of both being equally the grist of judicial decisions, 391 F.2d at 826; (2) the strong possibility that contracts which generate antitrust disputes may be contracts of adhesion militates against automatic forum determination by contract, id. at 827; (3) antitrust issues are--an understatement--prone to be complicated, and the evidence extensive and diverse, id., and, we may add, the economic data subject to rigorous analysis dictated by a growing and increasingly sophisticated jurisprudence, with the subject correspondingly ill-adapted to strengths of the arbitral process, i.e., expedition, minimal requirements of written rationale, simplicity, resort to basic concepts of common sense and simple equity; and (4) the notion, suggestive of the proposition that issues of war and peace are too important to be vested in the generals, that decisions as to antitrust regulation of business are too important to be lodged in arbitrators chosen from the business community--particularly those from a foreign community that has had no experience with or exposure to our law and values. Id. 35 So far as we have ascertained, all other circuits that have had occasion to consider the doctrine of American Safety Equipment have embraced it. Applied Digital Technology, Inc. v. Continental Casualty Co., 576 F.2d 116, 117 (7th Cir.1978); Cobb v. Lewis, 488 F.2d 41, 47 (5th Cir.1974); Helfenbein v. International Industries, Inc., 438 F.2d 1068, 1070 (8th Cir.1971); Power Replacements, Inc. v. Air Preheater Co., 426 F.2d 980, 983-84 (9th Cir.1970). We conclude, therefore, that the nonarbitrability of antitrust issues in domestic contract disputes is established as solid and sound doctrine. 36 Before endeavoring to parse the Convention, we pause to examine whether there are factors which suggest that the exception be confined to disputes between United States citizens. We begin by noting that the antitrust laws apply to restraints not merely of interstate but also of foreign commerce. 15 U.S.C. Sec. 1. Although the presence of foreign parties is a factor that should be considered in deciding to take jurisdiction of a case involving foreign conduct, it is not dispositive. Timberlane Lumber Co. v. Bank of America, 549 F.2d 597 (9th Cir.1976); Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287 (3d Cir.1979). 37 More importantly, we consider two questions. The first is: is the American antitrust ethic and system of law so parochial that insistence on the application of the nonarbitrability of antitrust issues to international agreements would be anathema to other countries and would incite retaliation? We have in mind the admonition in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9, 92 S.Ct. 1907, 1912, 32 L.Ed.2d 513 (1972), to abjure parochial considerations. 38 We doubt that other nations are ignorant of the primacy we accord to antitrust law. A typical reference to our ideological topography is the Court's statement in United States v. Topco Associates, Inc., 405 U.S. 596, 610, 92 S.Ct. 1126, 1135, 31 L.Ed.2d 515 (1972): 39 Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. 40 We are advised by the United States that the Federal Republic of Germany also accords high status to its antitrust rule and prohibits agreements entrusting future such disputes solely to arbitration. 8 We also note the policy of the European Economic Community, as embodied in the Treaty of Rome, in Articles 85-90, to forbid practices restricting or distorting competition. In any event, whether or not other nations agree with United States law and attitudes relating to competition, it is extremely doubtful that they would describe them as parochial in the sense of being petty provincialisms. 41 The obverse question, whether any policy reason supports the application of the rule against arbitration of antitrust issues to agreements involving American companies and foreign suppliers and sellers, is also easily answered. In an increasingly interdependent and interrelated commercial world, where the multinational corporation with ties to several countries is becoming more prevalent, see Scherk v. Alberto-Culver Co., 417 U.S. 506, 533, 94 S.Ct. 2449, 2463, 41 L.Ed.2d 270 (1974) (Douglas, J., dissenting), the insulation of agreements with some international coloration from the antitrust exception would go far to limit it to the most minor and insignificant of business dealings. Indeed, suppliers and sellers could achieve immunity from antitrust law threats and sanctions by the simple expedient of co-opting some foreign or international entity into the arrangement. Specifically, the sovereign sway of antitrust law and policy in the United States economy would be hopelessly fragmented if, say, all domestic manufacturers with overseas partners, suppliers, or financers could force all their dealers and distributors to arbitrate their antitrust claims. 42 We conclude that the nonarbitrability of antitrust issues is an American doctrine that is alive, well, justified both in its conception and in its application to at least the kind of international agreement we confront in this case--an agreement governing the sales and distribution of vehicles in the United States. What remains for us to do is to see how such law and policy fit, if at all, with the Convention. 43 The Convention, insofar as it concerns the problem we are dealing with, was preceded by very little helpful history, and followed by very little illuminating history or adjudication. We work with a scattering of crumbs--and, hopefully, a sound sense of the balance struck by the Convention between deeply felt national policies and the desire to facilitate international arbitration. The Convention has three relevant categories of decision making. The first is simply the definition of an arbitration agreement for recognition purposes. To be recognized, an agreement must involve subject matter capable of settlement by arbitration. Article II(1). A second category, narrower than the first, defines those recognized arbitration agreements that must be referred to arbitration; they include only those recognized, arbitrable agreements that are not null and void, inoperative or incapable of being performed. Article II(3). A third category deals not with recognition or reference to arbitration but with the enforcement of arbitral awards. One provision is symmetrical with the earlier provision regarding reference and simply says that an award will not be recognized or enforced if [t]he subject matter of the difference is not capable of settlement by arbitration under the law of that country [where recognition and enforcement are sought]. Article V(2)(a). Another, however, introduces a new concept in saying that an award may not be enforced if recognition or enforcement of the award would be contrary to the public policy of the affected country. Article V(2)(b). Thus, theoretically, there could be a duty to refer a matter to arbitration under Article II(3), even though it was so offensive to a nation's public policy that it could not be enforced under Article V. Our own approach make it unnecessary to try to fill this hiatus, although there is respectable authority for such an effort. 9 44 Our analysis begins by excluding that part of Article II(3) which would bar from reference to arbitration any provision that is null and void, inoperative or incapable of being performed. In Ledee v. Ceramiche Ragno, 684 F.2d 184, 187 (1st Cir.1982), we declared that this clause must be interpreted to encompass only those situations--such as fraud, mistake, duress, and waiver--that can be applied neutrally on an international scale. We see no reason to withdraw this statement, which is consistent with the proposition that the public policy exception in Article II(3) is to be narrowly construed. This clause seems to us to be of a different order from the words in Article II(1), not addressed in Ledee, requiring as a prerequisite for recognition subject matter capable of settlement by arbitration. 45 The precise question we ask is whether a matter that has been barred by unanimous judicial precedent for a decade and a half from resolution by arbitration, because of a multiplicity of solid reasons that lose no pertinence or weight in an international context, is a matter capable of settlement by arbitration. It seems to us that capable means legally capable--for any matter can theoretically be arbitrated or compromised, even if the decision be to divide an infant. 1 Kings 3:16-28. And if, absent fraud, mistake, duress, and waiver and absent something shocking to the sensibilities of a nation's public policy, there is no other basis for refusing arbitration, then the Convention's words capable of settlement by arbitration have no meaning at all. 46 We are aided in reading some meaning into this clause by statements made in a memorandum from the Department of State when the Convention was submitted to the Senate. Apropos of the clause we are interpreting, the memorandum explained: 47 [T]he requirement that the agreement apply to a matter capable of settlement by arbitration is necessary in order to take proper account of laws in force in many countries which prohibit the submission of certain questions to arbitration. S.Doc.Exec. E, 90th Cong., 2d Sess. (1968), at 19. 48 As a specific example, it noted laws in some states of the United States precluding the arbitration of real estate title disputes. This seems to us suggestive of the kind of subject matter oriented, deep seated rejection of the arbitral process even more convincingly demonstrated in the American Safety Equipment exception. The same State Department memorandum also commented on the hiatus between Article II reference and Article V enforcement mentioned in footnote 9, supra. It expressed the view that the exceptions in V(2) would also be read into II(3)'s requirements for enforcing agreements to arbitrate. S.Doc.Exec.E., supra, at 19. 10 49 This interpretation is emphatically reinforced by the scholarly commentary. Beginning in 1961, Leonard V. Quigley, commenting on the language of Article II(1), capable of settlement by arbitration, remarked on the [c]onsiderable latitude ... thus afforded the tribunal deciding the issue of arbitrability and speculated that predictability of result under the Convention is weakened by this latitude. Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1064 (1961). He noted the fact that Article V(2)(a), dealing with enforcement of awards, relegated the issue of arbitrability in that context to the laws of the country where enforcement is sought, and prophesied, It can be expected that the courts of the State where recognition of the agreement is sought will adopt a similar standard of judging the arbitrability of the dispute under the law of the forum. Id. at n. 70. 50 Professor Gerald Aksen predicted that the capable of settlement provision of Article II(1) could be one of the most troublesome. American Arbitration Accession Arrives in the Age of Aquarius: United States Implements United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 3 Southwestern University Law Review 1, 8 (1971). Although personally hoping that arbitrability would be decided by the arbitrator, he concluded, Another provision in the Convention, however, in Article V para. 2(a) makes such a desirable result unlikely. Id. at 9 (footnote omitted). He thought this unfortunate because applying domestic standards of arbitrability poses unduly complicated legal questions and because the public policy language of Article V(2)(b) could be utilized to refuse enforcement of an award involving, for example, a question of antitrust law. Id. at 13. A similar regret about the significant inadequacy of Article II(1) was voiced by John P. McMahon, Implementation of the United Nations Convention on Foreign Arbitral Awards in the United States, 2 J.Mar.L. & Com. 735, 753 n. 83 (1971), with the recognition that Article V(2)(a) would permit the court to refuse to recognize the agreement if its subject matter is incapable of settlement by arbitration under federal law. Id. at 757. See also Robert A.J. Barry, Application of the Public Policy Exception to the Enforcement of Foreign Arbitral Awards Under the New York Convention: A Modest Proposal, 51 Temp.L.Q. 832, 835 n. 14 (1978). 51 Finally, International Commercial Arbitration New York Convention, Booklet 1, September 1980 (G. Gaja ed.), at I.B. 2 states: 52 The similarity in the texts of Article II(1) and Article V(2)(a) and the fact that Article II was introduced in the Convention only at the late stage of the drafting indicate that also according to Article II the arbitrability of the dispute must be tested under the lex fori --the law of the State where the effects of the arbitral agreement are sought. (Footnote omitted). 53 We therefore conclude that an agreement to arbitrate antitrust issues is not an agreement within the meaning of Article II(3) of the Convention because such an agreement does not concern a subject matter capable of settlement by arbitration, as required by Article II(1). Not being such, any award, were such to be issued, could not be enforced, by the specific terms of Article V(2)(a). 54