recognition and enforcement

Mitsubishi Motors Corporation is a Japanese corporation which manufactures automobiles and has its principal place of business in Tokyo, Japan. Mitsubishi is the product of a joint venture between Chrysler International, S. A. (CISA), a Swiss corporation registered in Geneva and wholly owned by Chrysler Corporation, and Mitsubishi Heavy Industries, Inc., a Japanese corporation. The aim of the joint venture was the distribution through Chrysler dealers outside the continental United States of vehicles manufactured by Mitsubishi and bearing Chrysler and Mitsubishi trademarks. Respondent-cross-petitioner Soler Chrysler-Plymouth, Inc. (Soler), is a Puerto Rico corporation with its principal place of business in Pueblo Viejo, Guaynabo, Puerto Rico. On October 31, 1979, Soler entered into a Distributor Agreement with CISA which provided for the sale by Soler of Mitsubishi-manufactured vehicles within a designated area, including metropolitan San Juan. On the same date, CISA, Soler, and Mitsubishi entered into a Sales Procedure Agreement which, referring to the Distributor Agreement, provided for the direct sale of Mitsubishi products to Soler and governed the terms and conditions of such sales. Paragraph VI of the Sales Agreement, labeled "Arbitration of Certain Matters," provides that all disputes, controversies or differences which may arise between Mitsubishi and Soler out of or in relation to Articles I-B through V of this Agreement or for the breach thereof, shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association. Initially, Soler did a brisk business in Mitsubishi-manufactured vehicles. As a result of its strong performance, its minimum sales volume, specified by Mitsubishi and CISA, and agreed to by Soler, for the 1981 model year was substantially increased. In early 1981, however, the new-car market slackened. Soler ran into serious difficulties in meeting the expected sales volume, and by the spring of 1981 it felt itself compelled to request that Mitsubishi delay or cancel shipment of several orders. About the same time, Soler attempted to arrange for the transshipment of a quantity of its vehicles for sale in the continental United States and Latin America. Mitsubishi and CISA, however, refused permission for any such diversion, citing concerns that such diversion would interfere with Japanese trade policy and other reasons, and no vehicles were transshipped. Mitsubishi eventually withheld shipment of 966 vehicles, apparently representing orders placed for May, June, and July 1981 production, responsibility for which Soler disclaimed in February 1982. The following month, Mitsubishi brought an action against Soler in the United States District Court for the District of Puerto Rico under the Federal Arbitration Act and the Convention. Mitsubishi sought an order, pursuant to 9 U. S. C. §§ 4 and 201, to compel arbitration in accord with Paragraph VI of the Sales Agreement. Shortly after filing the complaint, Mitsubishi filed a request for arbitration before the Japan Commercial Arbitration Association. Soler denied the allegations and counterclaimed against both Mitsubishi and CISA. It alleged numerous breaches by Mitsubishi of the Sales Agreement, raised a pair of defamation claims, and asserted causes of action under the Sherman Act, 15 U. S. C. § 1 et seq.; the federal Automobile Dealers' Day in Court Act, 70 Stat. 1125, 15 U. S. C. § 1221 et seq.; the Puerto Rico competition statute, P. R. Laws Ann., Tit. 10, § 257 et seq. (1976); and the Puerto Rico Dealers' Contracts Act, P. R. Laws Ann., Tit. 10, § 278 et seq. (1976 and Supp. 1983). In the counterclaim premised on the Sherman Act, Soler alleged that Mitsubishi and CISA had conspired to divide markets in restraint of trade. After a hearing, the District Court ordered Mitsubishi and Soler to arbitrate each of the issues raised in the complaint and in all the counterclaims save two and a portion of a third. With regard to the federal antitrust issues, it recognized that the Courts of Appeals, following American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F. 2d 821 (CA2 1968), uniformly had held that the rights conferred by the antitrust laws were " of a character inappropriate for enforcement by arbitration.' " The District Court held, however, that the international character of the Mitsubishi-Soler undertaking required enforcement of the agreement to arbitrate even as to the antitrust claims. The United States Court of Appeals for the First Circuit affirmed in part and reversed in part. Assessing arbitrability "on an allegation-by-allegation basis," the court then read the arbitration clause to encompass virtually all the claims arising under the various statutes, including all those arising under the Sherman Act. Finally, after endorsing the doctrine of American Safety, precluding arbitration of antitrust claims, the Court of Appeals concluded that neither this Court's decision in Scherk nor the Convention required abandonment of that doctrine in the face of an international transaction. The Supreme Court granted certiorari primarily to consider whether an American court should enforce an agreement to resolve antitrust claims by arbitration when that agreement arises from an international transaction.

Alberto-Culver Co., an American company incorporated in Delaware with its principal office in Illinois, manufactures and distributes toiletries and hair products. During the 1960s Alberto-Culver decided to expand its overseas operations and approached Fritz Scherk, a German citizen residing in Switzerland, who owned three interrelated business entities organized under the laws of Germany and Liechtenstein that manufactured toiletries and licensed trademarks. An initial contact with Scherk was made by a representative of Alberto-Culver in Germany in June 1967, and negotiations followed at further meetings in both Europe and the United States during 1967 and 1968. In February 1969 a contract was signed in Vienna, Austria, which provided for the transfer of the ownership of Scherk's enterprises to Alberto-Culver along with all rights held by these enterprises to trademarks in cosmetic goods, contained express warranties whereby Scherk guaranteed the sole and unencumbered ownership of these trademarks, and included an arbitration clause providing that any controversy or claim arising out of the agreement would be referred to arbitration before the International Chamber of Commerce in Paris, France, with the laws of the State of Illinois to govern. 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. These encumbrances 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 section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In response Scherk filed a motion to dismiss the action or, alternatively, to stay the action pending arbitration in Paris pursuant to the agreement of the parties. On December 2, 1971, the District Court denied Scherk's motion to dismiss and on January 14, 1972, granted a preliminary order enjoining Scherk from proceeding with arbitration, relying on Wilko v. Swan. The Court of Appeals for the Seventh Circuit affirmed, and the Supreme Court granted Scherk's petition for a writ of certiorari.