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Foreign affairs.

Foreign Affairs

Most associations are in the business of recruiting members, sometimes expanding their eligibility categories to do so more successfully. But the question does occasionally arise whether an association may exclude foreign applicants from membership. An applicant may be foreign in two senses: It is physically domiciled in another country, or it operates in America but is foreign-owned.

The answer is that if a foreign applicant does any business in the United States, an association should not exclude it solely because it is foreign, if it otherwise meets the eligibility criteria. This is especially so if membership in the organization is essential to compete in the domestic market.

Apply the same rule to foreign applicants that are not doing business in the United States presently but are about to enter the market and seek association membership as a preliminary step. If a foreign applicant does not meet membership standards, then of course it need not be admitted.

Exclusion of foreign applicants is seldom litigated. In the past 20 years, there appear to be only two published cases. In one, United States v. Material Handling Institute, Inc., a consent decree entered into by the parties, the court ordered the Material Handling Institute, Inc., Charlotte, North Carolina, and several other codefendant associations to do the following: 1. Cancel any rule or practice that restricts eligibility for membership to a person who manufactures within the United States not less than 75 percent of all material handling equipment he or she sells here. The court said it did not matter whether the minimum percentage was based on dollar volume or any other measure. 2. Not adopt or adhere to any rule or practice that restricts or limits eligibility for membership to a person who domestically manufactures any particular percentage of material handling equipment he or she sells here. 3. Not adopt or adhere to any qualification for membership that is unreasonable or discriminatory. 4. Admit to membership any person who meets membership requirements. 5. Permit any person who manufactures material handling equipment for sale in the United States to participate in trade shows. 6. Not adopt or adhere to any rule or practice that establishes any qualification for membership that limits a person's manufacture or sale of material handling equipment outside the United States. 7. Not restrict any member from exhibiting equipment manufactured in any foreign country at trade shows.

The court did permit the associations to require as a condition of membership that an applicant actually manufacture in facilities maintained in this country. It also permitted the association to require that corporate applicants be organized under the laws of the United States or a state.

In the second case, United States v. Time Finance Adjusters, also a consent decree, the court ordered the association to eliminate certain restrictions on membership, including one that an applicant have U.S. citizenship. The association's members provide repossession services for banks, credit unions, and other lenders seeking to recover merchandise when the debtor has defaulted on loan terms.

Any challenge to an association policy that prohibits foreign applicants from becoming members based on antitrust law will be judged by the "rule of reason" standard. Restrictions are not automatically illegal but may be depending on their purpose and economic effect. The fact that an association cannot know in advance whether a court will agree with its reasoning in restricting foreign applicants' access to membership makes such a restriction risky. It also makes it difficult for counsel to give a definitive opinion.

A comparison of the two cases above illustrates these points. In Time Finance Adjusters, the court prohibited the association from insisting on citizenship as a requirement of membership; but in Material Handling Institute, the court permitted the association to require that a corporate applicant be organized under U.S. or state law, the equivalent of having to be a "citizen" (corporations are deemed to be citizens of the states in which they are incorporated).

These opposite outcomes show that the courts do not read antitrust law to require the automatic admission of all foreign applicants. At the same time, the decisions also show that an association may not have a blanket rule excluding all foreign applicants from membership simply because they are foreign.

Given the scanty authority available, the following is the best advice counsel can give and the safest and most conservative course for associations to follow: 1. The standards, rules, and criteria that apply to any applicant for membership in the association must be applied equally and in a nondiscriminatory fashion to foreign applicants. 2. The association should not have any rules, procedures, or practices that automatically and always exclude foreign applicants from membership solely by virtue of the applicant being foreign. 3. The association may deny membership to a foreign applicant if it fails to meet eligibility standards or criteria. 4. The association probably may require that a foreign applicant have some connection with or presence in the United States. This may take the form of having operations in the country, being incorporated here, doing business here, or even giving evidence of a serious intent to do business here. The association should not, however, specify any minimum level or volume of business or presence (e.g., at least half its operations or business here). 5. In those rare instances in which membership in the association is so essential that without it an applicant will virtually be driven out of business, an association should never voluntarily exclude foreign applicants simply and solely on the basis that they are foreign.

In an equally rare instance, if for national security reasons or because of other governmental orders or request foreign applicants may not be admitted, then the association probably will not be held liable on antitrust grounds for refusing foreign applicants.

George D. Webster is general counsel to ASAE and a partner in Webster, Chamberlain & Bean, a Washington, D.C., law firm.
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Title Annotation:associations recruitment of foreign members
Author:Webster, George D.
Publication:Association Management
Article Type:column
Date:May 1, 1991
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