MITSUBISHI MOTORS CORPORATION, PETITIONER V. SOLER CHRYSLER-PLYMOUTH, INC. SOLER CHRYSLER-PLYMOUTH, INC., CROSS-PETITIONER V. MITSUBISHI MOTORS CORPORATION No. 83-1569 and No. 83-1733 In the Supreme Court of the United States October Term, 1984 On Petition and Cross-Petition for a Writ of Certiorari to the United States Court of Appeals for the First Circuit Brief for the United States as Amicus Curiae TABLE OF CONTENTS Statement Discussion Conclusion QUESTION PRESENTED Whether the district court was required to refer to arbitration a federal antitrust claim arising out of a contract between Puerto Rican and Japanese firms for the sale of motor vehicles in Puerto Rico that includes an agreement to arbitrate disputes in Japan. This brief is submitted in response to the Court's invitation to the Solicitor General to express the views of the United States. STATEMENT Soler Chrysler-Plymouth, Inc. (Soler) is a Puerto Rican corporation headquartered in Puerto Rico. In 1979 Soler agreed with Chrysler International, S.A. (CISA), a Swiss subsidiary of Chrysler Corporation, that Soler would act as a dealer of cars and trucks manufactured for Chrysler by Mitsubishi Motors Corporation (Mitsubishi), a Japanese company. At the same time Soler signed a Sales Procedure Agreement with Mitsubishi and CISA. The latter agreement provided that disputes arising out of certain of its provisions "shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association" (Pet. App. A6). /1/ In March 1982, after Soler allegedly had breached the Sales Procedure Agreement in various respects, Mitsubishi brought suit against Soler in the United States District Court for the District of Puerto Rico to compel arbitration in Japan. Soler denied all liability and counterclaimed, alleging, inter alia, that Mitsubishi and CISA had violated the Sherman Act by attempting to replace Soler with a Mitsubishi subsidiary and by allocating territories in a way that unreasonably restricted the areas in which Soler could sell vehicles. /2/ Mitsubishi then asked the district court to compel arbitration of Soler's counterclaims. Pet. App. A6-A7. The district court ordered arbitration of a number of Soler's counterclaims, including its federal antitrust counterclaim (Pet. App. B9-B10). The court recognized that "(a)s a general rule, claims under the antitrust laws are 'of a character inappropriate for enforcement by arbitration.' American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 825-27 (2nd Cir. 1968)" (Pet. App. B9). It held, however, that American Safety does not govern antitrust claims arising from international transactions (Pet. App. B10). In support of that conclusion, the district court cited Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), a case involving arbitrability of a claim under the federal securities laws arising in connection with international securities transactions. The court of appeals affirmed in part and reversed in part (Pet. App. A1-A29). It held, inter alia, that as a matter of federal law Soler's anitrust counterclaim was not arbitrable. /3/ The court agreed with all other federal courts of appeals that had considered the issue that the Federal Arbitration Act, 9 U.S.C. 1 et seq., does not mandate arbitration of antitrust claims arising in domestic disputes because arbitration could pose unacceptable dangers to private enforcement of the antitrust laws (Pet. App. A15-A16). The court held that the same reasoning precludes arbitration of antitrust claims arising in international disputes, at least when an international agreement involves the dale and distribution of products in the United States (id. at A17-A18). The court concluded (id. at A18-A23) that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517 (1970), does not foreclose such a holding because the Convention by its own terms does not require arbitration of issues involving "deeply felt national policies" (Pet. App. A18). The court ruled finally that, in view of differences between the securities and antitrust laws, this Court's decision in Scherk v. Alberto-Culver Co., supra, does not mandate the conclusion that Soler's antitrust counterclaim is arbitrable. /4/ DISCUSSION The holding of the court of appeals that Soler's antitrust counterclaim is not arbitrable is correct and does not conflict with any decisions of this Court or any other court of appeals. Indeed, five courts of appeals are in agreement with the court below on the first question raised by the Petition in No. 83-1569. The second question raised by that petition involves an issue of first impression. See Pet. App. A14. Accordingly, review by this Court of the questions presented by the Petition in No. 83-1569 is not warranted. /5/ 1. Mitsubishi contends first (Pet. 7-13) that the doctrine of American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968), "raises significant and recurring problems concerning the scope of the Federal Arbitration Act (9 U.S.C. 1 et seq.)" (Pet. 7). In American Safety the Second Circuit held in the context of a domestic dispute that a predispute agreement to arbitrate was void with respect to antitrust claims. In support of its holding the Second Circuit noted in particular the importance of the antitrust laws in assuring a competitive marketplace, the complexity of the issues and evidence involved in many antitrust cases, and the fact that arbitrators are normally chosen from the business community the antitrust laws are intended to regulate. 391 F.2d at 826-827. Mitsubishi acknowledges (Pet. 9) that at least four other courts of appeals, /6/ as well as the court below in this case, have followed Ameircan Safety, but contends that that decision nevertheless is inconsistent with the Federal Arbitration Act. We note initially that Mitsubishi did not raise this contention in the court of appeals. /7/ Absent exceptional circumstances that do not appear to be present in this case, this Court will not review an argument that was not raised in the courts below. See United States v. Lovasco, 431 U.S. 783, 788 n.7 (1977); Adickes v. S.H. Kress & Co., 398 U.S. 144, 147 n.2 (1970); Lawn v. United States, 355 U.S. 339, 362-363 n.16 (1958). In any event, Mitsubishi's contention is without merit. The holding of the Second Circuit in American Safety rests on well-established principles. The antitrust laws are not designed for the protection of individual competitors; rather, their function is to preserve competition and ensure the proper operation of the free enterprise system. See United States v. Topco Associates, Inc., 405 U.S. 596, 610 (1972); Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962); Northern Pac. Ry. v. United States, 356 U.S. 1, 4 (1958). Antitrust violations can result in injury to millions of consumers. See American Safety Equipment Corp., 391 F.2d at 826-827. As this Court has noted, plaintiffs who enforce the antitrust laws through treble damages actions act as "private attorneys general," serving not only their own intersts but also the interests of the public. Hawaii v. Standard Oil Co., 405 U.S. 251, 262 (1972). In providing for private antitrust actions under the original Sherman Act (see 15 U.S.C. 15), Congress recognized that the resources of government enforcement agencies are limited and that private suits could constitute a significant enforcement tool. Of course, it is true that the Federal Arbitration Act reflects "a national policy favoring arbitration." Southland Corp. v. Keating, No. 82-500 (Jan. 23, 1984), slip op. 7. /8/ But in view of the highly important role private actions play in the scheme of federal antitrust enforcement, it is most unlikely that Congress would have intended to allow parties to a private contract to preclude such actions by means of general arbitration clauses. See American Safety Equipment Corp., 391 F.2d at 827; cf. Paramount Famous Lasky Corp. v. United States, 282 U.S. 30 (1930). /9/ 2. Mitsubishi also contends (Pet. 13-17) that in concluding that Soler's antitrust counterclaim is nonarbitrable, the court of appeals failed to enforce the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517 (1970) (hereinafter cited as Convention). /10/ That contention is unpersuasive. We agree that courts generally should be hospitable to international arbitration agreements and should avoid restrictive interpretations that would undermine the purposes of the Convention and the United States' accession to it. However, the Convention itself provides that signatories need not recognize and enforce all arbitration agreements. Article II(3) of the Convention states that a court "shall" refer a matter to arbitration unless it finds that the arbitration agreement is "null and void, inoperative or incapable of being performed." The court of appeals expressly acknowledged this provision and, in keeping with its own precedent, noted that the provision is to be construed hospitably to arbitration (Pet. App. A20). The court recognized, however, that Article II(3) must be read in a broader context. By its own terms, Article II(3) applies to agreements "within the meaning of this article." Article II(1) requires recognition only of those agreements that concern "a subject matter capable of settlement by arbitration." Article V(2)(a) provides that a country that is a party to the Convention may decline to enforce an arbitral award if the "subject matter of the difference is not capable of settlement by arbitration under the law of that country." /11/ Thus, the plain sense of the text of the Convention is that neither an arbitration agreement nor an arbitral award is entitled to recognition and enforcement under the Convention unless the subject matter of the dispute is capable of settlement by arbitration under the law of the country where recognition or enforcement is sought. The legislative history of the United States' accession to the Convention confirms this understanding of the text. When the President presented the Convention to the Senate, it was accompanied by an explanatory memorandum from the State Department. /12/ The memorandum assured that accession to the Convention would still permit the United States to avoid referral to arbitration of those matters it viewed as nonarbitrable. The memorandum stated expressly that the limitation of referral to matters capable of settlement by arbitration under Article II(1) was "necessary in order to take proper account of laws in force in many countries which prohibit the submission of certain questions to arbitration." S. Exec. Doc. E, 90th Cong., 2d Sess. 19 (1968). As an example, the memorandum noted (ibid.) that in some states of the United States disputes concerning title to real property are nonarbitrable. As the court of appeals pointed out (Pet. App. A21 n.10), courts of other countries have interpreted the Convention not to require arbitration of matters that are nonarbitrable under the law of that country. Commentators, too, have concluded that Article II(1) of the Convention permits a court to decline to enforce arbitration agreements or awards if arbitration would be inconsistent with the law of the country in which the court is located. /13/ There can be little doubt that antitrust is one of that limited class of subjects that are not "capable of settlement by arbitration" within the meaning of Article II(1). As the court of appeals observed (Pet. App. A20), it has been the uniform law in the United States for more than a decade and a half that domestic antitrust claims are not arbitrable. /14/ That rule rests largely on fundamental policy judgments about the broad public importance of the antitrust laws and the significance of private treble damages actions for the enforcement of those laws. See pages 5-6, supra. Those policy judgments "lose no pertinence or weight in an international context" (Pet. App. A20). Contrary to Mitsubishi's characterization (Pet. 17), antitrust principles do not constitute some mere "parochial" doctrine. The strength of the United States' adherence to its antitrust laws is known on a worldwide basis, and antitrust principles are highly valued by some of our most important trading partners. See Pet. App. A17. /15/ 3. Mitsubishi errs in contending (Pet. 16-17) that the decision below conflicts with this Court's decision in Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974). In Scherk the Court held that an arbitration clause in a contract between a United States company and a German citizen for the sale of European trademarks was enforceable under the Federal Arbitration Act and that the lower courts had erred in refusing to dismiss or stay the United States company's district court action for damages for violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b). The Court declined to extend the holding of Wilko v. Swan, 346 U.S. 427 (1953) (see page 7 note 9, supra) to this international dispute for three reasons. First, the provision for arbitration in Scherk contained a choice of law clause that solved a problem, especially vexatious in the context of international contracts, of what substantive law should apply to the dispute. Second, a "parochial" refusal by courts of one country to grant arbitration would "invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages." Finally, whatever advantage in choice of courts and venue the securities laws might give a plaintiff in a domestic dispute could well be "chimerical," since a foreign party might obtain a foreign court order nullifying the advantage. 417 U.S. at 516-518. Scherk did not involve the antitrust laws; and the concerns that motivated the Court in Scherk lack force in the context of this case. First, since the parties' agreement in this case dealt with the sale of vehicles shipped into Puerto Rico, it should have been clear that the Sherman Act would apply to alleged anticompetitive restraints on the sale of those vehicles. See United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 558 (1944) (Congress intended the antitrust laws to extend to the utmost extent of its power to regulate interstate and foreign commerce). /16/ Second, the concern of the United States with the fundamental principles embodied in the antitrust laws is not the sort of parochialism the Court disapproved in Scherk. Here the Convention itself (which the Court did not purport to apply in Scherk, cf. 417 U.S. at 520-521 n.15) recognizes that certain issues are so important to national interests that contracting states will declare them nonarbitrable and will insist that they continue to be resolved by the courts. The antitrust laws of the United States reflect just such a fundamental national policy. /17/ Finally, because the many nations that have adopted the Convention have done so in the knowledge that there are certain issues other contracting states may consider nonarbitrable, the United States' insistence on the nonarbitrability of antitrust claims seems unlikely to result in either surprise or recrimination on the part of other parties to the Convention. CONCLUSION The petition for a writ of certiorari in No. 83-1569 should be denied. /18/ Respectfully submitted. REX E. LEE Solicitor General J. PAUL MCGRATH Assistant Attorney General ROBERT B. NICHOLSON Attorney HAROLD G. MAIER Counselor on International Law ROBERT K. GERMAN Attorney Office of the Legal Adviser Department of State JULY 1984 /1/ "Pet." and "Pet. App." refer to the Petition in No. 83-1569. /2/ Soler also filed counterclaims alleging violations of the Automobile Dealer's Day in Court Act, the Puerto Rico Dealer's Act, and the Puerto Rican antitrust laws. In addition, Soler contended that Mitsubishi was liable under common law tort principles. /3/ Following oral argument, the court of appeals invited the United States to submit a brief amicus curiae addressing the arbitrability of Soler's antitrust counterclaim. The brief filed by the United States in response to that request took the position that the antitrust counterclaim is not arbitrable. /4/ The court of appeals affirmed the judgment of the district court in other respects. Pet. App. A7-A14. /5/ The United States presented its position on arbitrability of Soler's federal antitrust counterclaim at substantial length in its amicus brief filed in the court of appeals (C.A. No. 82-1913). For the Court's convenience, we are lodging a copy of that brief with the Clerk of the Court. In the court of appeals the United States expressed no views on the issues presented by Soler's Cross-Petition (No. 83-1733) or on the merits of the underlying substantive claims in this litigation. This brief likewise does not address those matters. We note, however, that the question presented by the Cross-Petition appears in large part to involve the court of appeals' interpretation of the scope of the arbitration clause in the Sales Procedure Agreement and the court's reading of Soler's counterclaims. These issues are specific to this case and do not constitute matters of sufficient general significance to warrant review in the absence of a conflict among the circuits. The Cross-Petition (at 7) alleges a conflict with a "standard" adopted by the Ninth Circuit in Leyva v. Certified Grocers of California, Ltd., 593 F.2d 857, cert. denied, 444 U.S. 827 (1979). The decision in Leyva, however, rested primarily on interpretation of an arbitration clause of a collective bargaining agreement, worded differently from the clause at issue here; moreover, the statutory claim in Leyva was based on the Fair Labor Standards Act, not on the federal Dealers' Day in Court Act or the other (Puerto Rican) statutes on which Soler relies. In sum, the Cross-Petition does not appear to satisfy any of the criteria for review set forth in Sup. Ct. R. 17. /6/ See 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.), cert. denied, 404 U.S. 872 (1971); Power Replacements, Inc. v. Air Preheater Co., 426 F.2d 980, 983-984 (9th Cir. 1970). /7/ In the court of appeals Mitsubishi did not contest the correctness of American Safety and its progeny in the context of a domestic dispute. It contended only that the holding of American Safety should not be applied to an international business transaction. Mitsubishi C.A. Br. 30, 32, 34. /8/ Mitsubishi quotes from this Court's opinion in Southland Corp. v. Keating at several points. See Pet. 8, 11-12. Southland Corp. does not concern the arbitrability of federal antitrust claims; rather, it holds that the Federal Arbitration Act preempts contrary state law. The Court expressly distinguished the latter question from the question whether Congress itself had created an exception to the federal arbitration statute. See slip op. 13 n.11. /9/ As the Second Circuit noted in American Safety, since antitrust claims often involve firms that singly or by agreement possess monopoly power, "contracts of adhesion between alleged monopolists and their customers should (not) determine the forum for trying antitrust violations." 391 F.2d at 827. The other factors noted by the court in American Safety -- complexity of the issues and evidence in antitrust cases and the fact that arbitrators normally are drawn from the business community -- reinforce the conclusion that Congress did not intend antitrust claims to be arbitrable. Petitioner suggests (Pet. 9-10) that the only exceptions to the coverage of the Federal Arbitration Act are those expressly mentioned in the text of the Act or in other statutes. That suggestion disregards Wilko v. Swan, 346 U.S. 427 (1953), in which this Court held that the federal arbitration statute must yield to the provisions for district court enforcement in the Securities Act of 1933, 15 U.S.C. 77a et seq., despite the fact that the latter statute does not mention arbitration or the arbitration statute. Mitsubishi cites various decisions involving the relationship between the Federal Arbitration Act, on the one hand, and the Commodity Exchange Act, 7 U.S.C. 1 et seq., or the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq., on the other (Pet. 10-11). Those decisions, which do not concern claims under the antitrust laws, do not illuminate the issue in this case. /10/ The text of the Convention is reprinted at Pet. App. F1-F7. /11/ In addition, under Article V(2)(b), a court may refuse enforcement of an arbitral award if the "recognition or enforcement of the award would be contrary to the public policy" of the country where enforcement is sought. /12/ Such memoranda are entitled to great weight in the interpretation of treaties. See Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 184-185 (1982). /13/ In addition to the sources mentioned in the court of appeals' opinion (Pet. App. A21-A22), we note the following comment: The non-arbitrability of a subject matter reflects a special national interest in judicial, rather than arbitrable (sic), resolution of dispute. Classic examples of non-arbitrable subject matters are anti-trust, the validity of intellectual property rights (patents, trademarks, etc.), family law and the protection of certain weaker parties. The various subject matters differ, however, from country to country. A. van den Berg, The New York Arbitration Convention of 1958, at 369 (1981) (footnotes omitted). /14/ The rule that antitrust claims are "inappropriate for arbitration" was articulated two years before the United States' accession to the Convention in 1970. American Safety Equipment Corp., 391 F.2d at 828; A. & E. Plastik Pak Co. v. Monsanto Co., 396 F.2d 710, 715-716 (9th Cir. 1968). See also Aimcee Wholesale Corp. v. Tomar Products, Inc., 21 N.Y.2d 621, 289 N.Y.S.2d 968, 237 N.E.2d 223 (1968) (antitrust claims under New York law are not arbitrable). /15/ Cf. Parsons & Whittemore Overseas Co. v. Societe Generale de l'Industrie du papier (RAKTA), 508 F.2d 969, 974 (2d Cir. 1974) (suggesting that under Article V(2)(a) of the Convention, a court sitting in the United States might be expected to decline to enforce an award involving arbitration of an antitrust claim); Societe Nationale pour la Recherche v. General Tire & Rubber Co., 430 F. Supp. 1332, 1334 (S.D.N.Y. 1977). /16/ For purposes of the Sherman Act, Puerto Rico is treated as a state of the United States, not a territory. See Cordova & Simonpietri Insurance Agency, Inc. v. Chase Manhattan Bank, 649 F.2d 36, 38-44 (1st Cir. 1981). In contrast to the agreement involved here, the contract in Scherk had only a minimal relationship to the United States. See Scherk, 417 U.S. at 515 ("the subject matter of the contract concerned the sale of business enterprises * * * primarily situated in European countries, whose activities were largely, if not entirely, directed to European markets"). /17/ Of course, the securities laws at issue in Scherk are of substantial importance. As the court of appeals noted (Pet. App. A26), however, there is a significant difference between the securities laws and the antitrust laws. The securities laws were enacted in large part to protect investors. See United States v. Naftalin, 441 U.S. 768, 774-777 (1979). By contrast, the antitrust laws exist to protect competition itself, which is the very mainspring of the United States economy. See page 5, supra. This difference is reflected in the fact that Congress has provided that antitrust plaintiffs may recover treble damages, but has provided only for recovery of actual damages by securities plaintiffs. /18/ As we have stated (note 5, supra), the Cross-Petition (No. 83-1733) does not appear to present any question warranting this Court's review.