Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), is a United States Supreme Court decision concerning arbitration of antitrust claims. The Court heard the case on appeal from the United States Court of Appeals for the First Circuit, which had ruled that the arbitration clause in a Puerto Rican car dealer's franchise agreement was broad enough to reach its antitrust claim. By a 5–3 margin it upheld the lower court, requiring that the dealer arbitrate its claim before a panel in Tokyo, as stipulated in the contract.
Justice Harry Blackmun wrote for the majority that the Federal Arbitration Act (FAA) was broad enough to require arbitration of statutory claims as well as contractual ones, extending a recent line of Court decisions favorable to arbitration. A controversial footnote, creating a possible "prospective waiver" doctrine that would allow a party to avoid arbitration under foreign law, has been much criticized by commentators and at the same time raised by many litigants. In 2009 the Eleventh Circuit found it valid for an injured cruise-ship worker, but two years later cast doubt on that conclusion.
In dissent, Justice John Paul Stevens argued that antitrust claims were too complex and important to be left to arbitrators and that in any event none of the claims were arbitrable under the terms of the contract itself. He expressed incredulousness that his colleagues would require an American company to arbitrate a claim under American antitrust law before a panel of foreign arbitrators.
While the case formed an important part of the Court's expansion of arbitrability in the late 20th and early 21st centuries, it could not have reached a court today. In 2002, after years of lobbying by the National Automobile Dealers Association, Congress passed the Motor Vehicle Franchise Contract Arbitration Fairness Act, which prohibited mandatory predispute arbitration clauses in motor vehicle dealership franchise agreements. President George W. Bush signed it into law, the first time a specific exception to the FAA had been legislated since the Court began expanding its scope.
Underlying dispute
In 1979 Soler was incorporated in San Juan, Puerto Rico, and became a Chrysler-Plymouth dealer, doing business in the Pueblo Viejo district of the nearby suburb of Guaynabo.Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (Mitsubishi Motors II), , at 617, Blackmun, J. It and Mitsubishi Motors, a joint venture of Chrysler and Mitsubishi Heavy Industries, incorporated in Geneva, Switzerland, concluded two separate agreements to this effect: a distributor agreement with Chrysler and separate sales procedure agreements with Chrysler and Mitsubishi. The latter contained arbitration clauses requiring that any disputes under them be arbitrated in Japan under the rules of the Japan Commercial Arbitration Association (JCAA).Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (Mitsubishi Motors I), 723 F.2d 155 (1st Cir., 1983) at 157. The goal of the manufacturer and dealer was to introduce the small cars Mitsubishi made for both Chrysler and itself to the Puerto Rican market, for which they were considered ideal.
Soler did excellent business in its first two years, selling more than twice the number of vehicles set in its quota. As the market began to slow down in late 1981, the relationship between Soler and Mitsubishi began to break down. The dealer had trouble meeting sales targets under a higher quota, and Mitsubishi withheld shipments of new vehicles. Eventually 966 destined for Soler were stored near its factories in Japan. Soler began having trouble financing its purchases of new vehicles.
Seeing that other Japanese car makers were allowing their dealers in Puerto Rico to transship excess inventory to Latin America and the continental United States, Soler asked if it could do the same. Mitsubishi refused, saying the vehicles were customized for the Puerto Rican market. They lacked heaters and defoggers that they would have needed on the mainland, and their engines could not run on the lower-grade leaded gasoline sold in many Latin American countries at that time. Further, Soler had no experience with maritime shipping and would not been able to meet its service obligations under warranty for transshipped cars and trucks. Mitsubishi also was concerned that transshipments to the continental U.S. would be seen as skirting the voluntary import restraints Japanese automakers had been practicing in the American market to mitigate the potential political backlash from their distressed American counterparts.Mitsubishi Motors II, at 618n1.
Soler would later claim that it was told the real reason for the refusal to allow transshipping was that Mitsubishi and Chrysler had divided their territories, informally agreeing that the former brand would have preference outside the mainland U.S. while Chrysler maintained it domestically. The dealership then began to suspect that Mitsubishi intended to sabotage its business in order to replace it with a wholly owned subsidiary once the brand had been established in Puerto Rico. Early in 1982 Soler stopped paying storage costs for the vehicles in Japan, claiming it had disowned them.Mitsubishi Motors I, at 160. Later that year the franchise agreement either ended or was terminated.
Lower courts
Mitsubishi sued in federal district court for Puerto Rico, alleging various breaches of the sales procedure agreement. Soler countersued, alleging violations of the federal Automobile Dealers' Day in Court Act, which allowed civil suits by dealerships for damage due to bad faith on the part of the franchisor.P.L. 84-1026, Aug. 8, 1956, ch. 1038, 70 Stat. 1125 (). and its equivalent territorial statute. They also included antitrust claims under the Sherman Act, claiming that Mitsubishi was purposely driving it out of the motor vehicle retail business with the intent of replacing Soler with its own wholly owned subsidiary.Mitsubishi Motors I, at 158.
Mitsubishi's response was a motion to the judge to compel arbitration as mandated by the agreement. The court ordered most of the contractual claims arbitrated, but reserved jurisdiction on the statutory claims alleged by Soler, including antitrust. Soler made an interlocutory appeal to the First Circuit Court of Appeals, whose jurisdiction includes Puerto Rico, arguing that all its statutory counterclaims were not covered by the arbitration clause, and that Sherman Act claims could not be arbitrated in any event.
Appeals court
In 1983 a three-judge panel of Levin H. Campbell, then the circuit's chief judge, Frank M. Coffin and Hugh Henry Bownes, heard the case. Near the end of the year they handed down their decision. Unanimously they ruled for Mitsubishi on the statutory claims, holding them within the ambit of the arbitration clause. However, they also said, the Sherman Act claims could be litigated as they were not so parochial to American law, and were too important to U.S. public policy to leave to arbitrators.
Coffin wrote for the panel that although the agreement was governed by Swiss law, the scope of the arbitration clause was within the court's jurisdiction. The Federal Arbitration Act preempted Puerto Rican law on the subject, which, he noted, Soler tacitly acknowledged by arguing that the Puerto Rico Dealers' Act (PRDA) was implicitly incorporated into the agreement, since it explicitly incorporated savings and separability clauses from the distributorship agreement that violated the PRDA. He called this argument "tortured", since neither was actually incorporated into the sales procedure agreement as Soler claimed. Nor was the arbitration clause limited to contractual claims.Mitsubishi Motors I, at 159.
"Soler's Sherman Act counterclaim poses a murkier problem," Coffin wrote. It rested on the claim that, by refusing to allow transshipment of unsold vehicles, Mitsubishi was dividing markets. Further anticompetitive practices alleged were wrongful termination of Soler's franchise, and the refusal to ship cars and parts. Mitsubishi responded with its practical objections to the transshipments, that the franchise had expired without being renewed and that the shipments were halted sometimes at Soler's request and sometimes for lack of an acceptable letter of credit. Most of these, Coffin concluded, were differences over the execution of the contract and therefore covered by the arbitration clause.
"The important question now before us," Coffin continued, "is whether, despite such coverage, they are nonarbitrable because of a judicially created policy, hitherto applied only to 'domestic' contracts involving United States citizens, reserving antitrust issues for judicial determination." After oral argument, he recounted, the court had concluded this was a question of first impression and sought guidance from the federal government. The Justice Department responded with an amicus curiae brief, joined by the State Department's Legal Advisor, urging the court to uphold that tradition in this case. The First Circuit agreed.Mitsubishi Motors I, at 161–62.
Coffin found three issues relevant to that determination. The policy he referred to was the Second Circuit's holding in American Safety Equipment v. J.P. Maguire & Co.: "We do not believe that Congress intended such claims to be resolved elsewhere than in the courts."American Safety Equipment v. J.P. Maguire & Co., 391 F. 2d 821, at 827 (2nd Cir., 1968). Several other circuits had affirmed that precedent. "We conclude, therefore, that the nonarbitrability of antitrust issues in domestic contract disputes is established as solid and sound doctrine."Mitsubishi Motors I, at 162–163.
However, this was not a domestic contract dispute but one between an American company and a Japanese one, whose contract, governed by Swiss law, called for any disputes to be arbitrated in Tokyo. Coffin said there were two more questions. "The first is: is the American antitrust ethic and system of law so 'parochial' that insistence on the application of the nonarbitrability of antitrust issues to international agreements would be anathema to other countries and would incite retaliation?" This concern had motivated the Supreme Court in deciding to hold an American firm to its agreement to litigate in London." in The Bremen v. Zapata Off-Shore Co., a key forum selection case.The Bremen v. Zapata Off-Shore Co., .
"We doubt that other nations are ignorant of the primacy we accord to antitrust law," Coffin wrote. The government's amicus brief had advised that German law similarly prohibited disputes under its corresponding statutes from being arbitrated, and the Treaty of Rome which established what was then known as the European Union had five articles devoted to forbidding or restricting anti-competitive practices. "[W]hether or not other nations agree with United States law and attitudes relating to competition, it is extremely doubtful that they would describe them as 'parochial' in the sense of being petty provincialisms," he concluded.
The second question was whether any policy applied that would specifically prevent foreign concerns from arbitrating antitrust claims brought against them by American companies. Coffin again readily found the answer: