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

Heading: Does Scherk v. Alberto-Culver Co. Compel Arbitration?

Text: 55 Scherk poses a considerable roadblock to the above analysis, if its holding is extrapolated to fit a situation of demonstrably greater impact on the United States and a public policy of incommensurably greater depth. We note at the outset what would be the impact of such an extension: if even antitrust claims arising from international contracts are found to be arbitrable, the Convention's language not capable of settlement by arbitration would have little or no meaning. 56 In Scherk an American company selling toiletries in the United States and abroad acquired three European manufacturing companies from German defendant Fritz Scherk. The negotiations, the signing of the sales contract (which included a clause providing for arbitration of any controversy or claim ... [arising] out of this agreement or the breach thereof), and the closing had been accomplished largely in European countries. The plaintiff company discovered that the critical trademarks, which defendant had warranted to be unencumbered, were indeed substantially encumbered, and brought suit in federal court, alleging that the defendant had misrepresented the status of the trademarks in violation of Sec. 10(b) of the Securities Exchange Act of 1934. 57 Defendant moved that the action in federal court be dismissed or that it be stayed pending arbitration pursuant to the contract clause. Plaintiff, relying on Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), argued that the arbitration clause was inapplicable to its securities claim. In Wilko, the Court had held that an arbitration clause in a domestic contract could not deprive a securities buyer of his right to the judicial remedy provided in the Securities Act of 1933, since Sec. 14 of the 1933 Act specifically prohibited any condition, stipulation, or provision waiving the Act's protection. 58 A 5-4 majority of the Court declined to apply the Wilko holding to the contract in Scherk. While Wilko had addressed the validity of an arbitration clause in a domestic contract, the Court noted that the agreement in Scherk was truly international, involving 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. 417 U.S. at 515, 94 S.Ct. at 2455. The Court had held two terms earlier that a forum-selection clause in an international contract would be respected by the United States courts unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972). In Scherk, the Court observed that [a]n agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause. 417 U.S. at 517, 94 S.Ct. at 2456. The Court had already decided that arbitration of the Scherk contract was not unreasonable. 59 In reaching this decision, the Court held that a parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate the orderly and predictable resolutions that the parties had intended to achieve with their forum-selection clause, but would also invite mutually destructive jockeying for advantage. Id. at 516-17, 94 S.Ct. at 2455-56. The supposed counterweight to these harmful results--the benefit of having securities claims heard in American courts--was without substance; for if one party resorted to American courts to have arbitration enjoined, an opposing party [might] by speedy resort to a foreign court block or hinder access to the American court of the purchaser's choice. Id. at 518, 94 S.Ct. at 2456. 60 We have several reasons for finding that Scherk does not control the case now before us. We begin by noting that the Court did not rely on the Convention for its decision in Scherk. Although it noted the Convention as a factor that confirmed the decision, id. at 520 n. 15, 94 S.Ct. at 2457 n. 15, it offered no analysis of the capable of settlement language of Article II(1). 11 The Court did allude in Scherk to the possibility that an award in favor of the defendant might be challenged under Article V(2)(b) of the Convention as contrary to public policy, id. at 519 n. 14, 94 S.Ct. at 2457 n. 14, and to that extent it affirmed the existence and importance of a public policy exception under the Convention; but the opinion offered no guidance on the scope of the public policy exception in Article II limiting the recognition of certain agreements as arbitrable and the reference of those agreements to arbitration. For this reason, a large portion of the statutory analysis that we have found persuasive in establishing an antitrust exception to arbitration of international contract disputes is unaffected by the Court's decision in Scherk. 61 We do not attempt to make much of the fact that the agreement in Scherk was much more international than the agreement before us--involving, as it did, the European sale of European trademarks whose validity could only be determined by reference to foreign law. Id. at 516 n. 10, 94 S.Ct. at 2456 n. 10. The important point is that the parties here could not be blind to the obvious fact that American law would normally apply to any claim of monopolization or restraint of trade. See, e.g., United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir.1945) (in which a special panel of the Second Circuit, sitting as a court of last resort, held that the Sherman Act applies to conduct of foreign corporations that has a direct effect on United States commerce); Foreign Trade Antitrust Improvements Act of 1982, Pub.L. No. 97-290, Secs. 401-03, 96 Stat. 1233, 1246 (1982) (affirming that both the Sherman Act and the Clayton Act apply to conduct of foreign nationals affecting import trade); Restatement of Foreign Relations Law Sec. 415(1) (Tentative Draft No. 2, 1981) (providing that an agreement in restraint of trade made or predominantly carried out in the United States is subject to U.S. antitrust laws regardless of the nationality or place of business of the participants). Even more apparent is the fact that antitrust law is not a parochial consideration. We have already noted that the importance the United States accords its antitrust laws is well known, and that our insistence on a judicial forum for antitrust claims in international agreements has a precedent in the laws of Germany. See supra at note 8 and accompanying text. In view of these considerations, we cannot imagine that our invoking the public policy exception of the Convention to preserve antitrust claims from arbitration will promote jockeying for forums or invite retribution from foreign courts. 62 Perhaps the major difference between Scherk and the case at hand lies in the different policies at issue. In Wilko, the Court observed that the securities laws were [d]esigned to protect investors, 346 U.S. at 431, 74 S.Ct. at 184, and that arbitration clauses impermissibly deprive investors of this protection by restricting the wider choice of courts and venue provided by the securities laws. Id. at 435, 74 S.Ct. at 186. The Court declined in Scherk to extend this reasoning to international contracts: first, because it found that the private investor's ability to choose an American judicial forum at the time the dispute arose was illusory, since the other party could block the forum choice in a foreign court; and second, because it found that the private investor's interest in choosing his forum ahead of time was greater in an international contract, where the forum and substantive law that would govern any specific dispute absent an arbitration clause were so uncertain. 471 U.S. at 516-18, 94 S.Ct. at 2455-56. In short, the Court engaged in a balancing test, weighing the policy considerations of giving the investor the full protection of the securities laws against the policy considerations of giving the investor the certainty of an arbitration clause; and it decided that the individual investor would be better served by enforcement of the arbitration clause. 63 The policy underlying the antitrust laws, however, is not to protect individual companies, but to protect competition. In American Safety Equipment, the Second Circuit observed: 64 A claim under the antitrust laws is not merely a private matter. The Sherman Act is designed to promote the national interest in a competitive economy; thus, the plaintiff asserting his rights under the Act has been likened to a private attorney-general who protects the public's interest [citations omitted]. Antitrust violations can affect hundreds of thousands--perhaps millions--of people and inflict staggering economic damage .... We do not believe that Congress intended such claims to be resolved elsewhere than in the courts. 391 F.2d at 826-27. 65 Although it is true that an investor like Scherk who brings an action under the securities laws serves the public interest by policing the securities market, the securities laws are designed primarily to protect a fairly small special interest group: those investors in a particular security who read and are influenced by information in the company's prospectuses or financial reports. Antitrust laws, on the other hand, protect the general public by preserving a competitive atmosphere that keeps prices down in an entire industry or in a group of related industries. The strength of the public interest in private enforcement of antitrust laws is illustrated by the fact that successful antitrust plaintiffs are allowed to recover treble damages, while securities plaintiffs may only recover their actual damages. If we engage in a Scherk -type balancing exercise, therefore, we must weigh the private party's interest in the arbitration of international contract disputes against the public's interest in the preservation of economic order in the United States. Such a balancing exercise can have only one result: to enforce the private arbitration clause at the expense of public policy would be unreasonable. 12 Cf. Zapata, 407 U.S. at 10, 92 S.Ct. at 1913.