Scherk v. Alberto-Culver Co.
Annotate this Case
417 U.S. 506 (1974)
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U.S. Supreme Court
Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)
Scherk v. Alberto-Culver Co.
Argued April 29, 1974
Decided June 17, 1974
417 U.S. 506
Respondent, an American manufacturer based in Illinois, in order to expand its overseas operations, purchased from petitioner a German citizen, three enterprises owned by him and organized under the laws of Germany and Liechtenstein, together with all trademark rights of these enterprises. The sales contract, which was negotiated in the United States, England, and Germany, signed in Austria, and closed in Switzerland, contained express warranties by petitioner that the trademarks were unencumbered and a clause providing that "any controversy or claim [that] shall arise out of this agreement or the breach thereof" would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that Illinois laws would govern the agreement and its interpretation and performance. Subsequently, after allegedly discovering that the trademarks were subject to substantial encumbrances, respondent offered to rescind the contract, but when petitioner refused, respondent brought suit in District Court for damages and other relief, contending that petitioner's fraudulent representations concerning the trademark rights violated § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Petitioner moved to dismiss the action or alternatively to stay the action pending arbitration, but the District Court denied the motion to dismiss and, as sought by respondent, preliminarily enjoined petitioner from proceeding with arbitration, holding, in reliance on Wilko v. Swan, 346 U. S. 427, that the arbitration clause was unenforceable. The Court of Appeals affirmed.
Held: The arbitration clause is to be respected and enforced by federal courts in accord with the explicit provisions of the United States Arbitration Act that an arbitration agreement, such as is here involved, "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. §§ 1, 2. Wilko v. Swan, supra, distinguished. Pp. 417 U. S. 510-520.
(a) Since uncertainty will almost inevitably exist with respect to any contract, such as the one in question here, with substantial
contacts in two or more countries, each with its own substantive laws and conflict of laws rules, a contractual provision specifying in advance the forum for litigating disputes and the law to be applied is an almost indispensable precondition to achieving the orderliness and predictability essential to any international business transaction. Such a provision obviates the danger that a contract dispute might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved. Pp. 417 U. S. 515-517.
(b) In the context of an international contract, the advantages that a security buyer might possess in having a wide choice of American courts and venue in which to litigate his claims of violations of the securities laws, become chimerical, since an opposing party may by speedy resort to foreign court block or hinder access to the American court of the buyer's choice. Pp. 417 U. S. 517-518.
(c) An agreement to arbitrate 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, and the invalidation of the arbitration clause in this case would not only allow respondent to repudiate its solemn promise but would, as well, reflect a "parochial concept that all disputes must be resolved under our laws and in our courts." The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 407 U. S. 9. P. 417 U. S. 519.
484 F.2d 611, reversed and remanded.
STEWART, J., delivered the opinion of the Court, in which BURGER, C.J., and BLACKMUN, POWELL, and REHNQUIST, JJ., joined. DOUGLAS, J., filed a dissenting opinion, in which BRENNAN, WHITE, and MARSHALL, JJ., joined, post, p. 417 U. S. 521.