## Facts

- Fritz Scherk, a German citizen, owned three foreign enterprises involved in toiletries and trademark licensing.
- Alberto-Culver Co., a Delaware corporation headquartered in Illinois, sought to expand overseas and agreed to purchase Scherk’s enterprises and related trademark rights.
- The transaction was international: negotiated across multiple countries, signed in Austria, and closed in Switzerland.
- The contract included warranties that the trademarks were unencumbered.
- The contract also contained a clause requiring arbitration of any dispute arising out of the agreement before the International Chamber of Commerce in Paris, France, and specified that Illinois law would govern interpretation and performance.
- Alberto-Culver later alleged it discovered substantial encumbrances on the trademarks and attempted to rescind; Scherk refused.
- Alberto-Culver sued in federal district court, alleging fraud under § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, and sought to block arbitration.
- The district court enjoined Scherk from proceeding with arbitration, relying on Wilko v. Swan; the Seventh Circuit affirmed.

## Issues

1. Whether an arbitration clause in a freely negotiated international commercial contract is enforceable when the plaintiff pleads claims under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
2. Whether Wilko v. Swan requires a court to refuse enforcement of such an arbitration agreement as an impermissible waiver of federal securities-law remedies.

## Decision

- The Supreme Court reversed the Seventh Circuit and remanded.
- The Court held the arbitration clause was enforceable and should be respected by federal courts under the Federal Arbitration Act.
- The Court treated the agreement to arbitrate as a specialized form of forum-selection clause that is especially important to predictability in international commerce.
- The Court distinguished Wilko v. Swan and declined to extend it to this international transaction involving an implied § 10(b)/Rule 10b-5 claim between sophisticated parties.
- The Court directed proceedings consistent with enforcing the parties’ agreement to arbitrate in Paris under the contract’s terms.

## Legal Principles

- Under the Federal Arbitration Act, written agreements to arbitrate are generally “valid, irrevocable, and enforceable,” absent generally applicable contract defenses.
- An agreement to arbitrate before a specified tribunal functions like a forum-selection clause and is commonly necessary to reduce uncertainty in international transactions involving multiple legal systems.
- Wilko v. Swan does not automatically invalidate arbitration clauses where the dispute involves § 10(b) and Rule 10b-5 claims, particularly in a negotiated international commercial setting.
- In cross-border disputes, enforcing agreed arbitral forums serves predictability and reduces duplicative, strategic litigation in competing national courts.

## Conclusion

The Court required enforcement of an international arbitration clause despite federal securities-fraud allegations, emphasizing the Federal Arbitration Act and the importance of honoring bargained-for dispute-resolution forums in international commercial agreements.


Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)