Fortino v. Quasar Co.: Parent-Right Invocation of Rights for U.S. Subsidiaries of Japanese Companies Under U.S.-Japan Treaty of Friendship, Commerce, and Navigation

Abstract

This Comment argues that the Seventh Circuit\u27s decision in Fortino undermined the U.S. Supreme Court\u27s holding in Sumitomo Shoji Am., Inc. v. Avigliano. In Sumitomo, the Supreme Court rejected the right to assign defense and unanimously held that U.S. subsidiaries of Japanese companies can not take advantage of the parent\u27s rights conferred by Article VIII(1). Although not explicit in the Court\u27s published opinion, the Supreme Court precluded the subsidiary\u27s use of Article VIII(1) upon virtually identical facts and arguments as those before the Seventh Circuit and, more specifically, upon the subsidiary\u27s contention that the parent dictated its discriminatory conduct. Part I describes the background of the parent-right invocation principle in the context of an Article VIII(1) defense to Title VII claims against Japanese companies. Part I of this Comment sets forth a detailed analysis of the Sumitomo decision. Finally, Part I discusses the cases which bear on the issue of whether a U.S. subsidiary can invoke its parent\u27s Article VIII(1) rights. Part II discusses the background and holding of the Seventh Circuit\u27s decision Fortino. Part III demonstrates that the Seventh Circuit erred in both finding an Article VIII(1) right to assign and in permitting the subsidiary to invoke its parent\u27s rights to defeat the Title VII claim because neither the FCN Treaty nor the Sumitomo decision permits this result. Part III further illustrates that after finding an Article VIII(1) right to assign, the court erroneously assumed that the parent\u27s system of assignment, rather than the subsidiary\u27s independent conduct, caused the Title VII violation. Finally, Part III demonstrates that the principle of parent-right invocation rests upon inapposite theories, violates fundamental principles of U.S. corporate law, and results in illogical consequences. This Comment concludes that courts should not permit Japanese companies to ignore the corporate form of their U.S. subsidiaries by allowing subsidiaries to invoke their parents\u27 FCN Treaty rights in defense of Title VII claims