Scherk filed motions which included a motion to stay the action pending arbitration in Paris pursuant to the agreement of the parties. Alberto-Culver sought a preliminary injunction restraining the prosecution of arbitration proceedings. This was granted by the District Court on January 14, 1972, in reliance entirely on the Supreme Court's decision in Wilko v. Swan, 346 U.S. 427 (1953). That case held that an arbitration agreement could not prevent a securities buyer from seeking a judicial remedy under the Securities Act of 1933 since § 14 of that Act barred "[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this sub-chapter. . . ." (15 U.S.C. § 77n.) The Court of Appeals for the Seventh Circuit affirmed, again relying on Wilko. 484 F.2d 611 (1973). The Supreme Court reversed, with Justice Stewart delivering the opinion of the Court in which Chief Justice Burger and Justices Blackmun, Powell, and Rehnquist, joined. Justice Douglas filed a dissenting opinion, in which he was joined by Justices Brennan, White, and Marshall.

In the opinion of the Court, there were crucial differences between the agreement involved in Wilko and the one involved in the case at bar. The Court emphasized the international nature of the Scherk and Alberto-Culver agreement and what it felt to be the essentiality of a contractual provision specifying the forum for possible litigation and the law to be applied. The Court said:

Accepting the premise, however, that the operative portions of the language of the 1933 Act relied upon in Wilko are contained in the Securities Exchange Act of 1934, the respondent's reliance on Wilko in this case ignores the significant and, we find, crucial differences between the agreement involved in Wilko and the one signed by the parties here. Alberto-Culver's contract to purchase the business entities belonging to Scherk was a truly international agreement. Alberto-Culver is an American corporation with its principal place of business and the vast bulk of its activity in this country, while Scherk is a citizen of Germany whose companies were organized under the laws of Germany and Liechtenstein. The negotiations leading to the signing of the contract in Austria and to the closing in Switzerland took place in the United States, England, and Germany, and involved consultations with legal and trademark experts from each of those countries and from Liechtenstein. Finally, and most significantly, the subject matter of the contract concerned the sale of business enterprises organized under the laws of and primarily situated in European countries, and whose activities were largely, if not entirely, directed to European markets.

Such a contract involves considerations and policies significantly different from those found controlling in Wilko. In Wilko, quite apart from the arbitration provision, there was no question but that

the laws of the United States generally, and the Federal securities laws in particular, would govern disputes arising out of the stock purchase agreement. The parties, the negotiations, and the subject matter of the contract were all situated in this country, and no credible claim could have been entertained that any international conflict of laws problems would arise. In this case, by contrast, in the absence of the arbitration provision considerable uncertainty existed at the time of the agreement, and still exists, concerning the law applicable to the resolution of disputes arising out of the

contract.

Such uncertainty will almost inevitably exist with respect to any contract touching two or more countries, each with its own substantive laws and conflict of law rules. A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved.

A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages. In the present case, for example, it is not inconceivable that if Scherk had anticipated that Alberto-Culver would be able in this country to enjoin resort to arbitration he might have sought an order in France or some other country enjoining Alberto-Culver from proceeding with its litigation in the United States. Whatever recognition the courts of this country might ultimately have granted to the order of the foreign court, the dicey atmosphere of such a legal no-man'sland would surely damage the fabric of international commerce and trade, and imperil the willingness and ability of businessmen to enter into international commercial agreements.

(Foonotes omitted.)

The Court said further that agreement to arbitrate a dispute before a specified tribunal is, "in effect, a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute. The invalidation of such an agreement in the case before us would not only allow the respondent to repudiate his solemn promise but would, as well, reflect a 'parochial concept that all disputes must be resolved under our laws and in our courts. . . . We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts.'" (citing The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).)

The Court, in a footnote, also referred to the significance of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (TIAS 6997; 3 UST 2517; entered into force for the United States December 29, 1970, subject to declarations) as follows:

Our conclusion today is confirmed by international developments and domestic legislation in the area of commercial arbitration subsequent to the Wilko decision. On June 10, 1958, a special conference of the United Nations Economic and Social Council adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In 1970 the United States acceded to the treaty, . . . and Congress passed Chapter 2 of the United States Arbitration Act, 9 USC §§ 201ff., in order to implement the Convention. Section 1 of the new Chapter provides unequivocally that the Convention "shall be enforced in United States courts in accordance with this chapter.'

The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, S. Exec. E. 90th Cong., 2d Sess. (1968); Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L. J. 1049 (1961). Article II (1) of the Convention provides:

"Each contracting state shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration."

In their discussion of this Article, the delegates to the Convention voiced frequent concern that courts of signatory countries in which an agreement to arbitrate is sought to be enforced should not be permitted to decline enforcement of such agreements on the basis of parochial views of their desirability or in a manner that would diminish the mutually binding nature of the agreements. See Haight, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Summary Analysis of Record of United Nations Conference 24-28 (1958).

Without reaching the issue of whether the Convention, apart from the considerations expressed in this opinion, would require of its own force that the agreement to arbitrate be enforced in the present case, we think that this country's adoption and ratification of the Convention and the passage of Chapter 2 of the United States Arbitration Act provide strongly persuasive evidence of congressional policy consistent with the decision we reach today.

The Court noted further that while it was not deciding the question, the type of fraud alleged in this case presumably could be raised,

under Article V of the 1958 Convention, in challenge to the enforcement of an arbitral award. Article V (2) (b) of the Convention provides that a country may refuse recognition and enforcement of an award if "recognition or enforcement of the award would be contrary to the public policy of that country."

The dissent could not accept the distinction made by the majority for dealings of a transnational character. The dissenters, said in part:

When a defendant, as alleged here, has through proscribed acts within our territory brought itself within the ken of Federal securities regulation, a fact not disputed here, those laws-including the controlling principles of Wilko-apply whether the defendant is foreign or American, and whether or not there are transnational elements in the dealings. Those laws are rendered a chimera when foreign corporations or funds-unlike domestic defendants-can nullify them by virtue of arbitration clauses which send defrauded American investors to the uncertainty of arbitration on foreign soil, or, if those investors cannot afford to arbitrate their claims in a faroff forum, to no remedy at all.

Moreover, the international aura which the Court gives this case is ominous. We now have many multinational corporations in vast operations around the world-Europe, Latin America, the Middle East, and Asia. The investments of many American investors turn on dealings by these companies. Up to this day, it has been assumed by reason of Wilko that they were all protected by our various Federal securities Acts. If these guarantees are to be removed, it should take a legislative enactment. I would enforce our laws as they stand, unless Congress makes an exception.

The virtue of certainty in international agreements may be important, but Congress has dictated that when there are sufficient contacts for our securities laws to apply, the policies expressed in those laws take precedence. Section 29, which renders arbitration clauses void and inoperative, recognizes no exception for fraudulent dealings which incidentally have some international factors. The Convention makes provision for such national public policy in Art. II (3). Federal jurisdiction under the 1934 Act will attach only to some international transactions, but when it does, the protections afforded investors such as Alberto can only be full-fledged.

Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful for any person by use of agencies of interstate commerce or the mails "to use or employ, in connection with the purchase or sale of any security," whether or not registered on a national securities exchange, "any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe." (15 U.S.C. § 78j (b))

The regulations of the Securities and Exchange Commission provide:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. (17 CFR 240.10b-5.)

Section 14 of the Securities Act of 1933, 15 UST § 77n, provides:

Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.

Section 29 (a) of the Securities Exchange Act of 1934, 15 UST § 78cc (a), provides:

Any condition, stipulation or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.

The Court did not reach the question whether the acquisition of Scherk's enterprises was a security transaction within the meaning of § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The petitioner did not assign the adverse ruling on the question as error and it was not briefed or argued before the Supreme Court.

Bankruptcy Proceedings

On June 4, 1974, the United States District Court for the Eastern District of New York, in the case of In Re Fotochrome, Inc., 377 F. Supp. 26 (1974), held that pending foreign arbitration proceedings are not subject to stays by a U.S. bankruptcy judge, and that treaties to which the United States is a party compelled granting the same finality to a Japanese arbitration award in a U.S. court as it had been given in the Japanese courts.

Fotochrome, Inc., a New York corporation, had a dispute with Copal Co., Ltd., a Japanese corporation apparently neither present nor doing business in the United States. Copal sought damages for Fotochrome's failure to pay for special cameras manufactured by Copal, and Fotochrome claimed damages for defective cameras. In accordance with their contract, the two parties arbitrated the dispute before the Commercial Arbitration Association in Tokyo, Japan. In March 1970, while the parties were awaiting an award from the Arbitration Association, Fotochrome filed a Chapter XI arrangement in the Eastern District of New York. The bankruptcy judge issued an order which, inter alia, stayed all proceedings by creditors, including pending arbitrations, under the authority of section 11 (a) of the Bankruptcy Act. 11 U.S.C.A. 29 (a). Fotochrome then "withdrew" from the arbitral proceedings, but the Association published its decision in favor of Copal in September 1970. Copal entered judgment on its award in Japan and filed a proof of claim in the Eastern District of New York. It did not enter judgment on the award in an American court on the theory that it was prevented from so doing by the stay