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Macnamara v. Korean Air Lines

argued: May 6, 1988.


On Appeal From the United States District Court For the Eastern District of Pennsylvania, Civil Action No. 82-5085.

Higginbotham, Stapleton, and Greenberg, Circuit Judges.

Author: Stapleton


STAPLETON, Circuit Judge.

In this appeal we must determine the relationship between the employer choice provisions contained in the Treaty of Friendship, Commerce and Navigation, November 28, 1956, United States-Korea, 8 U.S.T. 2217, T.I.A.S. No. 3947 ("Korean FCN Treaty"), and the proscriptive employer choice language of subsequently enacted federal civil rights legislation, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et. seq. ("Title VII"), and the Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621 et. seq. ("ADEA"). We find ourselves in disagreement with the analysis of the district court and will reverse and remand for further proceedings.


Appellant Thomas MacNamara, an American citizen, began working for the appellee Korean Airlines ("KAL") in 1974, after having previously worked for several other airlines. In December, 1977, he was promoted from salesman to district sales manager for Delaware, Pennsylvania and southern New Jersey. On June 15, 1982, MacNamara, then fifty-seven years of age, was dismissed, ostensibly as part of KAL's reorganization of its United States operations. KAL discharged six American managers nationally, including MacNamara, and replaced them with four Korean citizens. The Korean citizen who replaced MacNamara was a forty-two year old man who previously had been in charge of KAL's Washington office. After exhausting his administrative remedies, MacNamara filed suit against KAL in November, 1982, alleging that his discharge violated Title VII, the ADEA and the Employment Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"). He complained specifically that KAL had discriminated against him on the basis of race, national origin and age, and additionally that he was entitled to recover because "all of Defendant's American Sales Managers in the United States were replaced by Koreans."

In January, 1983, KAL filed a motion to dismiss MacNamara's complaint on the ground that its conduct was privileged under the terms of the Korean FCN Treaty. The Korean FCN Treaty is one of a series of Friendship, Commerce and Navigation Treaties the United States signed with various countries after World War II. Although initially negotiated primarily for the purpose of encouraging American investment abroad, the Treaties secured reciprocal rights and thus granted protection to foreign businesses operating in the United States. See generally Walker, Treaties for the Encouragement and Protection of Foreign Investment: Present United States Practice 5 Am. J. Comp. L. 229 (1956). The specific provision of the Korean FCN Treaty relied upon by KAL in this case provides as follows:

1. 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. Moreover, such nationals and companies shall be permitted to engage accountants and other technical experts regardless of the extent to which they may have qualified for the practice of a profession within the territories of such other Party, for the particular purpose of making examinations, audits and technical investigations for, and rendering reports to, such nationals and companies in connection with the planning and operation of their enterprises, and enterprises in which they have a financial interest, within such territories.

8 U.S.T. at 2223. KAL argued to the district court that the "of their choice" language in the first sentence of Article VIII(1) gave it the right to employ executives of its own choosing, unhampered by domestic anti-discrimination employment statutes.

In response to KAL's motion, MacNamara, joined by the United States as amicus, claimed that Article VIII(1) secured to a foreign business only the right to select managerial and technical personnel on the basis of citizenship and did not provide a broad exemption from laws such as Title VII and the ADEA which prohibit employment decisions on the basis of race, national original, or age.

The district court granted KAL's motion, reasoning that the signatory countries, especially the United States, intended that the Treaty assure foreign corporations of their ability to manage investments in the host country without interference. Consistent with the Treaty's general intent, Article VIII(1)'s unconditional language was drafted specifically to exempt a foreign company's choice as to essential personnel from the operation of domestic employment laws. As a result, the court concluded that Title VII and the ADEA could not be reconciled with Article VIII(1), and in the face of such conflict, the terms of the Treaty controlled. The court, however, limited its holding to employment decisions regarding essential personnel, and to situations involving the favoring of Korean citizens; thus KAL employment decisions not having the effect of favoring Korean citizens would be subject to the ADEA and Title VII.

The district court's decision is consistent with the opinion of the Fifth Circuit Court of Appeals in Spiess v. C. Itoh & Co. (America), 643 F.2d 353 (5th Cir. 1981) vacated on other grounds, 457 U.S. 1128, 102 S. Ct. 2951, 73 L. Ed. 2d 1344 (1982), which considered the scope of the Japanese FCN Treaty. In Spiess, American employees of C. Stoh & Company (America) brought a class action against their employer alleging that promotions and benefits were made available to Japanese citizens alone, in violation of federal law. C. Stoh & Company (America), a New York corporation wholly owned by a Japanese Corporation, invoked the protection of Article VIII(1) of the Japanese FCN Treaty, which is identical in relevant part to the Korean FCN Treaty, and moved for dismissal. The district court held that C. Stoh & Company (America) was a United States company for purposes of the Treaty and thus could not assert the Article VIII(1) rights of Japanese corporations operating in this country. The Court of Appeals reversed, reasoning that the Treaty not only covered the actions of the foreign subsidiary, but provided it with a complete defense as well. The absolute language of Article VIII(1), the court held, fully insulated the company from domestic anti-discrimination laws with respect to the hiring of executives.

The Fifth Circuit Court of Appeals, however, is only one of three federal appellate courts that has considered the issue. Several months before Spiess, the Second Circuit Court of Appeals decided Avigliano v. Sumitomo Shoji America, Inc., 638 F.2d 552 (2nd Cir. 1981), vacated on other grounds, 457 U.S. 176, 102 S. Ct. 2374, 72 L. Ed. 2d 765 (1982). Sumitomo involved a class action against a wholly-owned subsidiary of a Japanese corporation brought by secretaries who alleged that the corporation had a discriminatory policy of filling its management level positions exclusively with male Japanese nationals. The court first concluded, like Spiess, that the subsidiary could invoke the Japanese FCN Treaty in defense. Nevertheless, in contrast to Spiess, the court additionally held that the Treaty did not give the company a broad license to violate American anti-discrimination laws. Rather, the court reasoned, Article VIII(1) was primarily intended to exempt foreign companies from local legislation restricting the employment of noncitizens, and more generally, to facilitate a company's employment of its own nationals. In light of that purpose, the court suggested that the Treaty and Title VII could be reconciled by reference to Title VII's "bona fide occupational qualification" ("BFOQ") exception.*fn1 Although ordinarily the BFOQ exception is narrowly construed, the Second Circuit Court of Appeals reasoned that interpreting it more broadly in the context of FCN Treaties was warranted by the terms of Article VIII(1) and would give foreign employers reasonable latitude to hire solely nationals for its management positions. In the court's view, a foreign employer exercising its right under Article VIII(1) is sufficiently protected by allowing it to escape liability when it can demonstrate that the employment of its citizens was "reasonably necessary to the successful operation of its business" in the United States. 638 F.2d at 559. With respect to the facts in Sumitomo, this meant that the employment decision would have to be justified on the basis of

the unique requirements of a Japanese company doing business in the United States, including such factors 'as a person's (1) Japanese linguistic and cultural skills, (2) knowledge of Japanese products, markets, customs, and business practices, (3) familiarity with the personnel and workings of the principal or parent enterprise in Japan, and (4) acceptability to those persons with whom the company or branch does business.'


The Supreme Court granted certiorari in Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 72 L. Ed. 2d 765, 102 S. Ct. 2374 (1982), and vacated the judgment on the ground that the wholly-owned subsidiary was not a company of Japan so as to come within the coverage of the FCN Treaty. Although the Court expressly declined to interpret the scope of Article VIII(1) of the Japanese FCN Treaty, it nevertheless declared:

The purpose of the Treaties was not to give foreign corporations greater rights than domestic companies, but instead to assure them the right to conduct business on an equal basis without ...

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