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AVIGLIANO v. SUMITOMO SHOJI AMERICA

June 5, 1979

Lisa M. AVIGLIANO et al., Plaintiffs,
v.
SUMITOMO SHOJI AMERICA, INC., Defendant



The opinion of the court was delivered by: TENNEY

In this civil rights case, plaintiffs charge discrimination on the bases of sex and national origin in violation of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e Et seq. (1974), and of 42 U.S.C. § 1981 (1970). *fn1" They seek class action status. Plaintiffs are past and present female secretarial employees of defendant Sumitomo Shoji America, Inc. *fn2" ("Sumitomo"). Sumitomo is an "integrated trading company" *fn3" incorporated in New York as a wholly owned subsidiary of a Japanese corporation. The parent corporation is not a party to this action. Plaintiffs, seeking injunctive and compensatory relief, claim that they have been restricted to clerical jobs and not trained for or promoted to executive, managerial or sales positions for which Sumitomo favors male citizens of Japan. Jurisdiction is based upon 28 U.S.C. § 1331 and § 1343. *fn4"

Sumitomo denies that the company discriminates and now moves pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the claims asserted under Title VII and section 1981. Sumitomo claims that the provisions of Title VII and of section 1981 must yield to the right of freedom of choice in employment assured by the 1953 Treaty of Friendship, Commerce and Navigation between the United States and Japan, (1953) 4 U.S.T. 2063, T.I.A.S. 2863 (entered into force Oct. 30, 1953) ("the Treaty"). In addition to positing that Sumitomo is insulated from federal review of its employment practices by the Treaty, Sumitomo claims that plaintiffs' allegations of discrimination based on sex and national origin fail to state a claim under 42 U.S.C. § 1981.

Sumitomo also interposes four counterclaims, invoking this Court's ancillary jurisdiction essentially to seek redress for plaintiffs' alleged abuse of legal process and tortious interference with Sumitomo's business activities. Plaintiffs cross-move for dismissal of the counterclaims pursuant to Rule 12(b) of the Federal Rules of Civil Procedure on the grounds that none states a claim upon which relief can be granted and that the Court lacks subject matter jurisdiction. For the reasons discussed below, the motions to dismiss plaintiffs' section 1981 claim and Sumitomo's first counterclaim are granted, and the motions to dismiss the Title VII claim and the remaining counterclaims are denied.

 The Treaty

 On April 2, 1953 the United States and Japan entered into a Treaty of Friendship, Commerce and Navigation. The purpose of the Treaty is

 
(to strengthen) the bonds of peace and friendship traditionally existing between them and (to encourage) closer economic and cultural relations between their peoples . . . by arrangements promoting mutually advantageous commercial intercourse, encouraging mutually beneficial investments, and establishing mutual rights and privileges . . . based in general upon the principles of national and most-favored-nation treatment unconditionally accorded . . . . *fn5"
 
4 U.S.T. at 2066. The effect of the Treaty is to assure that nationals of one party are not discriminated against within the territory of the other party. *fn6"
 
Article VIII(1) of the Treaty provides, in pertinent part, that "nationals and companies of either Party shall be permitted to engage, within the territories of the other Party, accountants and other technical experts, executive personnel, attorneys, agents and other specialists of their choice." Id. At 2070. Sumitomo, in moving to dismiss the discrimination claims against it, frames the issue before this Court as whether Title VII and section 1981 of the Civil Rights Act of 1964 must yield to the right of freedom of choice in executive and other specialist personnel granted by Article VIII(1) of the Treaty. However, the Court finds that the issue before it is even more fundamental; that is, whether Sumitomo can invoke the aegis of the Treaty as sanction for its employment practices. The initial inquiry concerns the nationality of Sumitomo.
 
Article VIII(1) of the Treaty provides that Japanese and American corporations may engage within the territory of the other certain personnel of their choice. Article XXII, the definitional section of the Treaty, states in paragraph 3 that:
 
(a)s used in the present Treaty, the term "companies" means corporations, partnerships, companies and other associations, whether or not with limited liability and whether or not for pecuniary profit. Companies constituted under the applicable laws and regulations within the territories of either Party shall be deemed companies thereof and shall have their juridical status recognized within the territories of the other Party.
 
Id. at 2079-80. *fn7" This is entirely consistent with traditional rules of corporate law which, for most purposes, treat a corporation as an entity distinct from its shareholders and accord to the corporation the citizenship of its place of incorporation:
 
The theory of "corporate personality" permits a corporation to be regarded as a "person" with an existence in the state of incorporation separate from the natural persons who own it. . . . (F)or purposes of federal court jurisdiction . . . a corporation is "deemed" to be a citizen of the state by which it was created.
 
Hornstein, Corporate Law and Practice § 281 (1959) (Citing Louisville, Cincinnati, and Charleston R. R. Co. v. Letson, 43 U.S. (2 How.) 497, 555, 11 L. Ed. 353 (1844)). Sumitomo is incorporated under the laws of New York. Therefore, according to the very terms of the Treaty, Sumitomo is a company of the United States, not of Japan, and as such has no standing to invoke the freedom-of-choice provision granted by Article VIII(1) to companies of Japan within the territory of the United States.
 
This conclusion is supported by two district court decisions in which the 1953 Japanese-American Treaty was raised by way of defense. In United States v. R. P. Oldham Co., 152 F. Supp. 818 (N.D.Cal.1957), a wholly owned American subsidiary of a Japanese corporation was one of five corporations indicted for conspiracy in restraint of commerce in Japanese wire nails. The defendant argued that Article XVIII of the Treaty, which dealt with antitrust violations, denied the federal court jurisdiction by providing the exclusive remedy. Not only did the district court hold that Article XVIII provided a supplemental rather than exclusive remedy, but it also found that, even were Article XVIII an exclusive remedy, the California-incorporated subsidiary lacked standing to invoke this provision. The nationality of the defendant was determined by the terms of Article XXII and the traditional principles of corporate law. Moreover, the Oldham court found this conclusion not inconsistent with the policies underlying the Treaty:
 
If (the defendant) had wished to retain its status as a Japanese corporation while doing business in this country, it could easily have operated through a branch. Having chosen instead to gain privileges accorded American corporations by operating through an American subsidiary, it has for most purposes surrendered its Japanese identity with respect to the activities of this subsidiary.
 
United States v. R. P. Oldham Co., supra, 152 F. Supp. at 823.
 
In Spiess v. C. Itoh & Co. (America), Inc., 469 F. Supp. 1 (S.D.Tex.1979), Judge Bue of the Southern District of Texas recently held that the 1953 Treaty did not provide the New York-incorporated subsidiary of a Japanese corporation with immunity from Title VII and section 1981. The motion before Judge Bue was essentially identical to that before this Court. Non-Japanese employees of a wholly owned domestic subsidiary of a Japanese corporation filed suit against their employer alleging racially discriminatory employment practices. The defendant C. Itoh & Co. (America), Inc. ...

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