417 U.S. 506 (1974)
Alberto-Culver Co., an American company incorporated in Delaware with its principal office in Illinois, manufactures and distributes toiletries and hair products.1 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.2
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 1968.3 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.4
The closing of the transaction took place in Geneva, Switzerland, in June 1969.5 Nearly one year later Alberto-Culver allegedly discovered that the trademark rights purchased under the contract were subject to substantial encumbrances.6 These encumbrances threatened to give others superior rights to the trademarks and to restrict or preclude Alberto-Culver's use of them.7 Alberto-Culver thereupon tendered back to Scherk the property that had been transferred to it and offered to rescind the contract.8 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-5.9
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.10 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.11 The Court of Appeals for the Seventh Circuit affirmed, and the Supreme Court granted Scherk's petition for a writ of certiorari.12
Whether an agreement to arbitrate disputes arising out of an international commercial transaction is enforceable under the United States Arbitration Act when the claims allege violations of the Securities Exchange Act of 1934?13
The United States Arbitration Act, 9 U.S.C. § 2, provides that an arbitration agreement shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.14 In the context of international commercial transactions, such agreements are to be respected and enforced by federal courts to achieve the orderliness and predictability essential to international business.15
Yes. The contract between Alberto-Culver and Scherk was a truly international agreement involving parties from different countries, negotiations in multiple countries, and subject matter in European markets.16 The arbitration clause specified arbitration in Paris under Illinois law.17 In contrast to Wilko v. Swan, where the parties, negotiations, and subject matter were all situated in this country with no international conflict-of-laws problems, here the uncertainty about applicable law makes the arbitration provision an indispensable precondition.18
The parochial refusal to enforce such an agreement would frustrate the purposes of the Arbitration Act and invite jockeying for litigation advantages.19 Therefore, the agreement is to be respected and enforced by the federal courts in accord with the explicit provisions of the Arbitration Act.20
The arbitration agreement is enforceable under the Arbitration Act despite the securities claims.21
Related opinions on this issue
Joined by Mr. Justice Brennan, Mr. Justice White, And Mr. Justice Marshall
Justice Douglas dissented, arguing that Wilko v. Swan controls this case because the Securities Exchange Act of 1934 contains a similar anti-waiver provision in section 29(a), making agreements to arbitrate liabilities under section 10 void.22 He emphasized that the Act protects investors, including through the thousands of security holders in Alberto-Culver, and that the rules are the same for sophisticated parties as for small investors.23 The international character does not dilute the protections, and arbitration in a foreign forum would deprive the plaintiff of substantial rights such as discovery and judicial review.24
Whether the decision in Wilko v. Swan precludes enforcement of an arbitration clause in a contract for the sale of foreign business entities involving an American purchaser?25
Wilko v. Swan held that an agreement to arbitrate could not preclude a buyer of a security from seeking a judicial remedy under the Securities Act of 1933 due to the anti-waiver provision.26 This holding is inapposite to international commercial transactions where the parties have agreed to arbitration in a foreign forum under the Arbitration Act.27
No. Although Wilko involved similar anti-waiver language, the significant differences in this case, including the international nature of the contract with parties from different countries and subject matter in European markets, mean that the advantages of the securities laws become chimerical when an opposing party may resort to a foreign court.28 The Court in The Bremen v. Zapata Off-Shore Co. rejected parochial refusal to enforce forum-selection clauses, and an arbitration agreement is a specialized kind of forum-selection clause.29 Thus, Wilko does not preclude enforcement here.30
The decision in Wilko v. Swan does not preclude enforcement of the arbitration clause in this international contract.31
Related opinions on this issue
Joined by Mr. Justice Brennan, Mr. Justice White, And Mr. Justice Marshall
Justice Douglas argued that Wilko was held by the Court of Appeals to control this case and properly so.32 He maintained that the Act does not substitute an arbiter for the settlement of disputes under the 1933 and 1934 Acts.33 If there are victims here, they are not Alberto-Culver the corporation, but the thousands of investors who are the security holders in Alberto-Culver.34
When a foreign corporation undertakes fraudulent action which subjects it to the jurisdiction of our federal securities laws, nothing justifies the conclusion that only a diluted version of those laws protects American investors.35 The international character of the transaction does not justify abandoning the protections of the securities laws.36