Fruehauf Corp. v. Massardy

S.A. Automobiles Berliet (Berliet), a French company, ordered a large volume of trailers, semi-trailers, and other truck equipment from S.A. Fruehauf Corporation (Fruehauf-France) (defendant), also based in France, which Berliet intended to export to the People’s Republic of China. Fruehauf-France was majority-owned by American shareholders affiliated with Fruehauf Corporation (Fruehauf-Detroit) (defendant). United States authorities began investigating the transaction as a possible violation of the Trading with the Enemy Act, which the United States Congress had expanded to create an embargo against China. As a result, the Fruehauf entity overseeing non-United States Fruehauf entities (Fruehauf-International) directed Fruehauf-France to terminate the Berliet contract. Fruehauf-France asked Berliet if it would voluntarily cancel the contract, but it declined and threatened to sue. The directive led to key resignations at Fruehauf-France and legal proceedings in the French commercial court between Fruehauf-France’s minority French directors and officers (including President-General Manager Raoul Massardy (plaintiff), who ultimately resigned) and its American directors and shareholders regarding the continuing operation of the company. The commercial court found that Fruehauf-France’s ability to continue business was doubtful because Berliet represented 40 percent of its export business. The contract cancellation would lead to exposure to damages exceeding five million francs. If Fruehauf-France collapsed, more than 600 French employees would lose their jobs. The American directors argued that the French commercial court had no jurisdiction to interfere with the company’s management to uphold the position of the minority French shareholders and directors. The French commercial court took various actions regarding the operation and control of Fruehauf-France, including directing it to complete its contract with Berliet. Fruehauf-Detroit appealed.