American Arbitration Law: Reformation--Nationalization--Internationalization

American Arbitration Law This page intentionally left blank American Arbitration Law Reformation Nationalization In...

Author: Ian R. Macneil

164 downloads 1202 Views 11MB Size Report

This content was uploaded by our users and we assume good faith they have the permission to share this book. If you own the copyright to this book and it is wrongfully on our website, we offer a simple DMCA procedure to remove your content from our site. Start by pressing the button below!
Report copyright / DMCA form

DOWNLOAD PDF

American Arbitration Law

This page intentionally left blank

American Arbitration Law Reformation Nationalization Internationalization IAN R. MACNEIL

New York Oxford OXFORD UNIVERSITY PRESS 1992

Oxford University Press Oxford New York Toronto Delhi Bombay Calcutta Madras Karachi Kuala Lumpur Singapore Hong Kong Tokyo Nairobi Dar es Salaam Cape Town Melbourne Auckland and associated companies in Berlin Ibadan

Copyright © 1992 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 200 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Macneil, Ian R. American arbitration law : reformation, nationalization, internationalization / Ian R. Macneil. p. cm. Includes bibliographical references and index. ISBN 0-19-507062-3 1. Arbitration and award—United States— History—20th century. I. Title. KF9085.M33 1992 347.73'9-dc20 [347.3079] 91-42367

987654321 Printed in the United States of America on acid-free paper

Preface

Genesis Work on this book started not long after the decision in Southland Corp. v. Keating (U.S. 1984),1 about the time my colleague Richard Speidel and I were starting on a legal treatise on the United States Arbitration Act (USAA).2 It soon became apparent that we could not write a proper treatise for present day lawyers without a full investigation of the events leading to the enactment of the USAA in 1925. A recent case illustrating this is Oklahoma City Assocs. v. WalMart Stores, Inc. (10th Cir. 1991).3 There, the absence of an entry of judgment clause in an arbitration agreement led the court to refuse enforcement of the agreement under the USAA. This result is bad law stemming quite directly from a lack of judicial understanding of the historical development of the USAA.4 Nothing in the opinion suggests that counsel for the party seeking to enforce the agreement presented the court with a picture of that historical development. It also became apparent that no such investigation is possible without a detailed understanding of the activities of the arbitration reform movement starting about a decade before the enactment of the USAA. In turn no understanding of the activities of the reform movement is possible without considering the older law the reformers sought to reform. To educate ourselves sufficiently to write a proper modern treatise on the USAA, one of us had to look into these subjects in far

vi

Preface

more detail than they would ever be presented in the treatise itself. The present work is the result of this need. Organization Like Gaul, this book is divided into three main parts. These are preceded, however, by a chapter putting arbitration into the context of the present day alternative dispute resolution movement. They are also followed by a postscript looking back at the significance of the story told and forward to the future of American arbitration law. Part I describes the reformation of American arbitration law. Part II describes the process and consequences of nationalization of American arbitration law from its foundations in Erie v. Tompkins (U.S. 1938)5 to its triumph in Southland Corp. v. Keating (U.S. 1984).6 Part III describes the internationalization of American arbitration law.7 These accounts seek through the events described to search out at the level of the articulated word what the participants thought they were doing, what they said they were doing, and what they were actually doing. This is the level at which occurs most legal analysis of the products of courts and legislatures. Descriptions of this kind are examples of what Professor Edward Purcell calls "the relevant history for purposes of legal argument and authoritative judicial exposition."8 Academic historians may pause at such narrowness, and properly so for many purposes. Nonetheless, for reasons too complex to treat here, it is a staple in the American judicial diet. Apologia There are four justifications for telling this tale. First, arbitration is an increasingly important method of dispute resolution, and the law governing it an increasingly important area. The historical development of arbitration law, particularly as it pertains to the USAA, bears heavily on present day decisions and, hence, is of major significance in the current law of arbitration.

e Prefacee

vii

Second, these events offer a prime example, in Southland Corp. v. Keating (U.S. 1984),9 and its forebear, Prima Paint Corp. v. Flood & Conklin Mfg. Co. (U.S. 1967)10 of the dreadful quality of legislative history as written through the adversary process. As Professor William Wiecik recently put it: The historian who considers the uses to which the United States Supreme Court has subjected the past comes to think that history ought to be brought within the coverage of the [Federal Insecticide, Fungicide, and Rodenticide Act], treated as if it were an insecticide toxic to humans, and required to bear this warning label: "Caution: Inept or improper use of this product may be dangerous to your civic health." For the past half-century, historians, judges, and lawyers have bemoaned the ways that the Court has misunderstood, misapplied, or otherwise abused the past on its way to formulating doctrines for the present.11

A related factor provides a third reason for this study. When the courts distort legislative history, historical public policy is distorted as well. This is by no means to say that the courts should always be governed by historical public policy. But inadvertent distortion or deliberate lies about history always means that a stated public policy basis of decision is at least partially a false one. Where legislative history is truly the tail end of the dog, this may have no very serious public policy consequences. (I am, however, sufficiently old-fashioned to think that this is bad in its own right, completely apart from its practical effect on any given law.) Legislative history, however, seldom lacks at least some impact. When it is referred to it generally plays a genuine, even if sometimes subsidiary, role in judicial decision making. Moreover, even where the decision would have been the same with an accurate historical analysis, the inaccurate analysis is likely to play important roles in the future development of the law. This will be seen repeatedly in Part II. The fourth reason for telling the arbitration story concerns fundamental dynamics of our legal dispute resolution system itself. The common law method of lawmaking dominates much of that system, even respecting law founded in legislation, such as the USAA. That is to say, the law develops largely, or even entirely, through judgments in litigated cases. In modern conditions this results all too often in a kind of mindless bureaucratic formalism.12

Preface

viii

This formalism is a modification of what Karl Llewellyn called the Formal Style of judicial opinion: [In the Formal Style] the rules of law are to decide the cases; policy is for the legislature, not for the courts, and so is change even in pure common law. Opinions run in deductive form with an air or expression of single-line inevitability. "Principle" is a generalization producing order which can and should be used to prune away those "anomalous" cases or rules which do not fit, such cases or rules have no function, except, in places where the supposed "principle" does not work well, to accomplish sense —but sense is no official concern of a formal-style court.13

I refer to this formalism as bureaucratic because of the bureaucratic complexity of the rules to which it is typically applied; any given case typically is enmeshed not in just one statute or regulation involving complex bureaucratic rules, but often in more, perhaps many. Nowhere does this mindless bureaucratic formalism seem more prevalent than in the work of the Supreme Court of the United States. And there are few more vivid examples than the Court's handling of the USAA. Positivism and Bias As I have said elsewhere,14 I believe genuine positivism in social observation to be impossible, and hence reject the idea that any social observation can be either entirely accurate or truly "neutral." Only degrees of objectivity in social observation can exist. Moreover, such objectivity as can be achieved is always melded with whatever else the observer is up to.15 I have, nevertheless, tried in this book to be as objective an observer as I can be. There are two exceptions, the headings, where I have had a bit of fun with the zealous evangelists of arbitration, and the latter part of the Postscript,16 where I have turned overt advocate. The reader will, viewing the effort through his or her own subjective notions of objectivity, decide whether I have succeeded or failed. In the spirit both of the foregoing and of Commonwealth Coatings Corp. v. Continental Casualty Co. (U.S. 1968),17 let me reveal

Prefacee

ix

my biases as forthrightly as possible by summarizing my own views of arbitration: I am not a devoted promotor of arbitration. Rather, arbitration seems to me an often useful technique for dispute resolution. It is one that should, as a general proposition, be available if two conditions are met: (1) all parties really wish to bind themselves to use it; (2) the context, particularly the power relations of the parties, justifies giving effect to their consent to be so bound. As a corollary general proposition, where the two conditions are met, the State18 should provide normal contractual remedies reinforcing arbitration agreements. In dealing with arbitration agreements, as with other contracts, the State should pay attention to efficiency, in both the technical economic and ordinary sense of the word. But the power to enter this kind of contract —to arbitrate — can no more be unlimited than can be other powers of contract. The State is thus obliged to keep an eye on what it is doing when it enforces contracts to arbitrate. The State should not pretend, as has typically been the case with arbitration proponents, that arbitration is, any more than other social behavior, always, or perhaps even usually, reflective of neutral social principles. The kinds of issues Jerold Auerbach raises'about arbitration,19 as well as the other subjects he treats, can never properly be overlooked. Arbitration is always melded into a particular culture and will always reflect existing currents of power; it could be socially neutral only if those currents were in equipoise; this never happens. In sum, I believe that the work of the arbitration reform movement, upon which this work focuses heavily, has been something of a Good Thing, but like all Good Things, hardly the Summum Bonum Free of Flaws suggested by its past and present partisans. Acknowledgments I wish to thank the following for financial support during the writing of this book: National Institute for Dispute Resolution and the following named funds at Northwestern University School of Law: William M. Trumbull, C. C. Linthicum, Edwin Walsh, and Edward B. Berglund. I should also like to express appreciation to the Faculty of Law and its law library and the University Library at

x

Preface

the University of Edinburgh, to the Eastman Library of the American Arbitration Association, and to the Library of Northwestern University School of Law. Research assistants and secretaries who have been very helpful include Melissa McGonigal, Michael Terrien, Shirley Scott, Eric Andersson, Zoran Konstantanovic, Jean Raby, Krystyna Obuchowicz, John Stocker, Jane Amdahl, Susan Wheatley, and Shane Nugent. Comments of anonymous reviewers, especially those of Edward Purcell, who later became nonanonymous, have been very helpful. Finally, and most important, I wish to thank my wife Nancy, who, as always, has kept me in order at the same time that she has worked hard on the book itself. As I took on the writing of this work it developed a life of its own. As a legal scholar digging primarily into the dry legal details of the story, I could nonetheless sense the deep passions, commitments, and prejudices stirring the participants. This lent an excitement to my task I had surely never expected. I hope I have captured at least a tiny bit of that excitement for the reader. Edinburgh January 1992

I. R. M.

Contents

1. Introduction to Alternative Dispute Resolution and Arbitration, 3 The Academy Rediscovers ADR, 3 Arbitration Introduced, 7 Definition, 7 Distinguished from Dispute Resolution Within Hierarchies, 8 A Dispensable Technique, 9 ADR—Revived Interest, 10

PART I REFORMATION OF AMERICAN ARBITRATION LAW 2. Before the Enlightenment, 15 Premodern Arbitration Law in America: Introduction, 15 The Illinois Statute of 1873, 17 Largely Supportive of Arbitration, 19 Weaknesses—Nonenforcement of A rbitration Agreements, 20 Exceptions to Nonenforcement, 20 Arbitration and Our Father in Washington, 21 Confusion in the Cases, 21 Swift v. Tyson (U.S. 1842) and the Judiciary Act of 1789, 23

Contents

xii 3. The Beginning of Reform, 25

The Coming of the Evangelists: 1911-20, 25 New York, New York, 25 Judicial Criticism, English Law, and Academic Silence, 27 The Evangelists, 28 The Quest, 28 The Reform Horse is Spurred; It Jumps, 30 Neopaganism Among the Illinois, 31 The 1917 Illinois Statute, 31 The Reform View: No Step Forward; One Step Backward, 33 4. Reform Gathers Momentum, 34 The Conversion of New York: What Hath God Wrought?: 1920, 34 New York Before Reform, 34 The 1920 New York Act, 35 Significance of the 1920 New York Act, 36 The 1920 New York Act and English Law, 37 Education of the Masses; Organization of the Mother Church: 1920-26, 38 Organizing and Proselytizing, 38 Rivalry, 40 Merger, 40 Picking Up Speed: 1920-25, 41 The Evangelists Capture the A.B.A., 41 The Conversion of New Jersey, 42 Partial Victory in Massachusetts, 43 The Strange Case of Oregon, 45 Converting Our Father in Washington: 1921-25, 47 5. After Adversity, Reform Triumphs, 48 Schism! Treachery: The Commissioners on Uniform State Laws: 1923-25, 48 Early Actions of the Commissioners, 48 Year of Decision for the Commissioners: 1924, 49 Daniel is Eaten in the Lion's Den, 51 The Commissioners Recapture the A.B.A., 52

Contents

xiii

The Evangelists Become the Established Church and Consolidate Their Position: 1925-91, 54 The Reformers Pull Ahead of the Anti-Reformers in the States, 54 Slowdown and Revival in Reform, 55 The Long Haul: Picking Off the States, 56 Labor A rbitration: King of the Mountain, 5 7 Triumph of the A merican A rbitration Association, 58 Tomorrow the World! Evangelism Triumphs after Long Struggles, 58 6. Countercurrents: Neopaganism Refuses To Die, 59 Public Policy Defenses Against Arbitration, 59 Public Regulation of Business, 61 Initial Critiques, 61 The Courts Begin to Side with the Critics: Wilko v. Swan, 63 Kronstein Returns, 64 Thunder on the Labor Front, 65 Arbitration and the Left, 67 One-sidedness in the Making of Arbitration Agreements, 68 The Countercurrents are Damned and Dammed: 1974-91, 71 International Context Overrides Wilko Doctrine, 72 State Wilko-type Limitations Go Down the Drain, 73 Wilko Eroded, then Overruled, 73 One-sidedness in the Federal Courts, 78 Damned and Dammed, Not Extinguished, 79 Review of Part I, 79

PART II NATIONALIZATION OF AMERICAN ARBITRATION LAW 7. The USAA: The Campaign, 83 Initiating the Campaign, 84 The 1921 USAA Draft, 85 Arbitration Provisions, 85 Federal Provisions, 86 Comment, 87

Contents

xiv The 1922 USAA Draft, 87 In Congress: The 1922 Bill, 88 Back to the A.B.A.: 1923, 91 8. The USAA: Enactment, 92

Hearings: January 1924, 92 We, the People, 92 Charles L, Bernheimer: Leadoff Batter, 93 Julius Henry Cohen: Heavy Hitter, 94 Opposition Anyone?, 95 Alexander Rose: Cleanup Man, 96 Cohen Brings His Pen to the Batter's Box, 97 House Judiciary Committee Report: Fast Work, 97 On the Floor of the House: February 1924, 98 Communications to Congress after the House Report, 99 Senate Committee Report: May 1924, 100 The Final Touches: Victory!, 100 9. The USAA: Analysis of Legislative History, 102 The Bills Which Became the USAA: Structure, 102 Basic Principles, 102 Core Implementation of Basic Principles, 102 Supplemental Implementation of Basic Principles, 103 Regulatory Provisions, 104 Miscellaneous Provisions, 104 An Integrated Statute, 105 The All-Important Context, 107 Rubber-stamped Legislation, 107 In the Beginning Was the Reform Movement, 109 The Legal Background, 109 The Hearings: What Was Said and What Was Not Said, 111 What Was Said (and Written), 111 No Opposition: The Dogs Which Didn't Bark, 115 The House Judiciary Committee Report, 117 Later Communications to Congress, 119 The Senate Report, 120 On the Floor of Congress, 120

Contents

xv

10. The USAA: Interpreted as Congress Intended, 122 Commentaries: 1925-38, 122 State Cases: Twenty Years of Silence, Then a Few Murmurs: 1926-59, 127 Federal Cases: 1925-38, 131 11. The USAA: As Amended by the Supreme Court, 134 From Erie to Bernhardt: 1938-56, 134 The Gathering Storm: Erie Begins to Bite: From Bernhardt to Prima Paint: 1956-67, 136 Nationalization Triumphs: From Prima Paint to Southland and Beyond: 1967-91, 138 The Struggle in the States, 138 Southland: History be Damned!, 139 12. The Legal Consequences, 148 What Hath God Wrought This Time? The Great Transformation: 1967-91, 148 Rebirth of State Arbitration Law or Just More Confusion? The Supreme Court Decides Volt: 1989, 150

PART III INTERNATIONALIZATION OF AMERICAN ARBITRATION LAW 13. Internationalization, 159 A Good Start Soon Dies: 1922, 159 Bilateral Treaties: 1946 and Thereafter, 160 The New York Convention: 1958, 160 The United States Adopts the Convention: 1970, 162 Internationalization Moves Ahead: Effect of the Convention, 162 State International Arbitration Acts: 1986-91, 166

Contents

xvi POSTSCRIPT 14. The Road to Damascus, 169 Looking Back, 169 Legislative History Is Pathological History, 170 Bureaucratic Formalism, 171 Context and Causation, 173 Looking Forward, 175 A Heretical View, 176 A Proposal, 178 Notes, 181 Bibliography, 245 Index, 257



1 Introduction to Alternative Dispute Resolution and Arbitration

The Academy Rediscovers ADR ADR—Alternative Dispute Resolution—has for a number of years been one of the hottest of all hot topics in the legal academy. As with each new generation and sex, so too this academic generation and ADR: it thinks it discovered the whole thing. Like sex, however, ADR is as old as humanity itself, and the academic ADR movement is largely one of rediscovery by the academy. Although that movement has discovered nothing fundamental and new, its development has paralleled development of techniques outside the academy differing in important details from those commonly used in the past. The mini-trial in its many variants is an example of special new techniques involving either negotiation, mediation, or aspects of arbitration or all three.1 Also like sex, most of the interest in ADR is found outside the academy. For a good many years the commercial and financial world has felt increasingly beleaguered by the costs of litigation. It has always tried to reduce such costs by such traditional techniques as negotiation. Now, however, it is increasingly turning to use of mediation of various kinds, arbitration, and other ADR techniques.2 The fact that little is really new in ADR is obscured by the 3

4


very phrase, Alternative Dispute Resolution. The word alternative means alternative to dispute resolution processes of the State3—the judges, juries, administrative dispute resolvers, and the like of the State legal system. Thus the term ADR presupposes that the primary, fundamental dispute resolution system is that provided by the State, alternative methods being secondary, supplemental, and probably suspect. This statist view of dispute resolution simply turns the world upside down, whether we look to history or to present socioeconomic behavior. Historically the truly alternative dispute resolution methods are those of State law. State law is the Johnny-come-lately on the scene, because the State itself is a relatively recent development. When we look realistically at the way disputes are resolved currently in even the most State-saturated society, it is obvious that State dispute resolution techniques play only a backup role. From two teenagers bickering in the backyard to disputes among giant corporations, State techniques, if pertinent at all, come to the fore only if all else fails.4 State law does, of course, play a primary role in establishing the rights governing relationships, whether or not State legal mechanisms become involved in the dispute. That law is the creator of the operating legal structure of property and liberty rights, contract, and regulation. In governing such relationships, where the focus is on structure rather than on resolving disputes concerning operation of the structure, State law and the law of ordinary human behavior are often so close as to be indistinguishable. But the role of State law here is quite different from its role as an actual or potential resolver of particular disputes. In any society, the primary methods of resolving differences that have risen to the level of disputes are unilateral exercises of power—hereafter called self-help—negotiation,5 and binding decisions by third parties. No socioeconomic activity can long exist without the first two of these techniques, and no hierarchical socioeconomic activity can exist without the last. Mention should also be made of mediation, in which a third person assists the parties toward a negotiated settlement of the dispute with no power to bind them by a decision, a very common method. It lies in nature somewhere between negotiation and third

Alternative Dispute Resolution and Arbitration

5

party decision making. In spite of mediation's purported lack of bindingness, it is virtually impossible for a mediator not to put pressure on the parties to settle, sometimes a great deal of it. It may be noted that this pressure is not necessarily equally distributed between the parties. Mediation is one of the favorites of the ADR movement, which has spawned a great variety of mediation techniques. One of the new ones is the mini-trial, the decision in which is often entirely advisory.6 (Mini-trials may also have no independent third person, e.g., where the "trial" proceeds before the CEOs of the two parties, who then may negotiate a settlement.) All these activities may indeed be carried on in the shadow of State law,7 but the processes themselves need not, and in the totality rarely do, involve activation of State dispute resolution processes. Even more rarely do they involve full activation, that is, carrying the dispute through to judgment, and still less often, to appeal. These so-called alternative methods are generally vastly more efficient and effective than are State dispute resolution processes. As to the justice of their outcomes, they are extensions of the nondispute relations of the participants. They thus tend to yield justice more or less commensurate with the justice of the relations themselves. Professor David Luban has made this point respecting ADR generally: A pervasive disagreement about the quality of justice in ADR is this. Proponents of ADR argue that ADR resolves disputes more justly than either litigation or unmediated negotiation, while critics suspect that ADR programs simply cool out legitimate grievances and thereby perpetuate a system that is fundamentally unjust. Though this tension is real, the dichotomy is not, for an ADR program may resolve disputes justly (in one sense of the word) and cool out legitimate grievances, thereby perpetuating a system that is fundamentally unjust (in another sense). Indeed, the better the ADR system is at resolving disputes justly (in the first sense), the more effectively it will cool out legitimate grievances and perpetuate the system, which may itself be unjust (in the second sense).8

For example, a consumer purchasing an off-the-shelf item generally buys on a take-it-or-leave-it basis both the item and the ADR technique offered by the seller respecting disputes.9 This take-it-or-

6


leave-it basis extends typically to the actual implementation of the ADR technique. That is to say, if a dispute does arise the buyer is likely to accept the seller's implementation of its own ADR process, like it or not. Similarly, participants in hierarchical organizations are subject to their hierarchical structures, with whatever justice or injustice there is generally in the particular structure. For example, if an employee has a dispute with another employee10 over whom he or she has no effective superior control, the resolution of that dispute by someone superior to both will tend to reflect the patterns of justice of day-to-day nondispute behavior in the organization. Disputes are nonetheless a particularly nasty part of relationships, and the actual implementation of an ADR process may well be viewed as more unjust than the fact that such implementation was always a possibility. For example, we would certainly think the actual smashing of kneecaps for nonpayment by a drug seller's thugs to be more unjust than the prior situation in which the buyer simply knew such an ADR technique might be used. State law cannot eliminate self-help and negotiation as alternative dispute resolution techniques in socioeconomic relations without eliminating the relations themselves. Nor can it eliminate third-party dispute resolution within hierarchical relations without destroying their hierarchical nature. The most it can do is regulate these behaviors. Negotiation is particularly difficult to regulate. Perhaps the greatest single endeavor to do so in American law is the good faith bargaining requirement of the National Labor Relations Act and analogous state laws. This effort has involved creation of large administrative bureaucracies, only marginally effective in forcing good faith bargaining on recalcitrant employers and unions. Regulation of self-help and of negotiation may take the form of positive prohibitions, such as criminal sanctions for the smashing of kneecaps. Alternatively or cumulatively, State regulation may take the form of negative sanctions, that is, refusing to give legal effect to the resolution of the dispute achieved by the misused ADR. In sum, a wide range of so-called alternative dispute resolution techniques constitute the basic ways in which people in society resolve disputes, State law methods being largely backups when all else fails.

A Iternative Dispute Resolution and A rbitration

1

Arbitration Introduced

Definition Arbitration of the type treated in this book has these characteristics: (1) the parties choose to have a dispute or disputes decided by a third party, called an arbitrator;11 (2) the parties choose the arbitrator or a method for his or her selection; (3) the arbitrator hears the dispute; (4) the arbitrator makes a binding award; (5) the arbitrator's decision is, subject to very limited grounds of review, final and enforceable by State law in the same manner as a judgment. It may be noted that dispute resolution lacking any or all of these characteristics exists and is sometimes called arbitration. Where the parties do not choose arbitration, but have it imposed on them, the process is usually called mandatory arbitration. This is most common in labor relations, particularly those of public bodies and their employees. The parties may be able to choose a method of dispute resolution, but not the resolver or method of selecting the resolver. For example, in federal government contracts, aggrieved contractors generally have a choice between having a dispute decided administratively (Board of Contract Appeals) or judicially (United States Claims Court). Nonetheless, they have no right to choose who sits on those bodies. Very rarely arbitration is conducted without a hearing, evidence being submitted only in writing. Binding appraisals, especially in insurance, which State law often treats differently from arbitration, are quite commonly conducted without hearings. Third-party decisions may be advisory only, unbinding even in a moral sense. This is a common characteristic of mandatory courtannexed arbitration. There constitutional requirements typically preclude taking final decision-making power away from juries. Thus, even though required to arbitrate first, the party adversely affected by the arbitration decision has no legal or extra-legal obligation to abide by it and can insist on a de novo trial before a jury. 12 Also, even though a decision may be binding in terms of various non-State ties that bind, it may, by party agreement, not be binding in terms of State enforcement. Finally, bindingness is a matter of degree in terms of review and consequent legal enforcement by the State. For example, decisions

8


of federal Boards of Contract Appeals on issues of law are far more open to judicial review than are arbitrators' decisions on such issues. Obviously, the fewer of the five characteristics listed are present, the less likely the process is to be called arbitration. In this book, unless otherwise noted, the word arbitration refers to arbitration with all five of the characteristics set out above. Distinguished from Dispute Resolution Within Hierarchies Arbitration differs from third-party dispute resolution within existing hierarchies. First, in arbitration the parties do not start out as participants in a hierarchy, but create the hierarchical relationship with the arbitrator by their agreement. This must not, of course, be taken too literally. Parties always bring different kinds of power to the making of an agreement. To the extent that in any sense the power of one is greater than the power of the other they are already in a hierarchical relationship. It may be noted that one may be on top in one or more respects and the other on top in other respects, but that, of course, is typical of all hierarchies. Second, the arbitrator has to deal only with disputes, whereas in a typical existing hierarchy a superior's resolution of disputes between inferiors is simply an adjunct to his or her ordinary control of affairs. It may be noted, however, that nothing prevents a hierarchical structure from establishing internal arbitration procedures. If, for example, one views the franchise relationship as a single hierarchical one, rather than simply as a contract between franchisor and franchisee, the use of arbitration (quite common) is an example of such internal arbitration. Third, the extent and nature of the "hearing," if any, a party gets in a dispute within an existing hierarchy is entirely dependent on how that hierarchy operates. In other words, in terms of hierarchies generally, an infinite variation is possible. In view of the foregoing, no generalization is possible respecting hearings respecting disputes within hierarchies. Similarly, no generalization can be made respecting the bindingness of the superior's decision, respecting either non-State ties or State enforcement. At one extreme the decision may be final and binding both within the hierarchy and without, including being enforceable by State law.


9

For example, where a firmly entrenched management decides with the concurrence of the board of directors to build a new plant in Hartford rather than Savannah — a hotly disputed issue at middle management levels —there is on one to gainsay the decision.13 At the other extreme a decision within a hierarchy may be subject to immediate overruling by a higher superior. For example, a supervisor's ordering an employee to work overtime might be overruled immediately by the shift manager's decision that such order violated a collective bargaining agreement. The higher superior may also be the State, although it can seldom act immediately. For example, if a supervisor fires an employee, and the employee's pleas with higher management to overrule the decision fail, the employee may seek reinstatement on the grounds of illegal racial or sexual discrimination. A Dispensable Technique While third-party dispute resolution within hierarchies is essential to their existence, arbitration of the type treated in this book is an ADR technique that is not essential to socioeconomic relations. Even collective bargaining arbitration, the most common and most strongly State-reinforced arbitration in this country, is not essential to the continued existence of collective bargaining relations between unions and employers. True, its absence would change those relations markedly, but the existence for many decades of such relations without arbitration in the United Kingdom is proof positive that they can exist. Thus arbitration, unlike self-help, negotiation, and third-party dispute resolution within hierarchies, is dispensable. The ability in general of socioeconomic relations to survive and often to prosper without the use of arbitration creates a very different relationship between arbitration and State law than do many other so-called ADR techniques. Assuming the State is not out to destroy the relationships altogether,14 it cannot prevent parties to relationships from ever engaging in self-help, negotiating to resolve disputes, or using third-party resolution of disputes within hierarchies. Nor can it, without damaging the relations, simply refuse to give effect to the outcomes of such processes of dispute resolution where State law recognition is important to the relations. It can,

10


however, prohibit arbitration, or more likely, refuse to give effect to its outcome, without necessarily doing major damage to the relations. If it does so, the parties will, to the extent that state reinforcement is important, simply use some technique the State will reinforce, such as its own judicial processes. In view of the foregoing, questions of policies of State law respecting self-help and negotiation on one hand and arbitration on the other differ markedly. The State is more circumscribed respecting dispute resolution by self-help and negotiation in particular types of relations than it is respecting arbitration. Even regulation of the former must be carefully designed so as not fatally to damage the relation, and prohibition is out of the question as long as the State wishes the relation to continue. On the other hand, regulation or even prohibition of arbitration — although not costless — is unlikely to destroy the relationships in question. State decision makers are therefore considerably freer to take into account the quality of justice achieved by arbitration in deciding how and how much to regulate it or even prohibit it in appropriate cases. ADR-Revived Interest If the current ADR movement has discovered little new, what it has done is to create a great deal of academic interest in the academically long neglected subject of non-State dispute resolution techniques. Traditional arbitration has not, however, been a hot area of currently chic ADR; it has been around too long to be fashionable in this year's Easter Parade. Instead to the extent that the ADR movement has focused on arbitration, that focus has been heavily on new types, for example, mandatory court-annexed arbitration.15 It is unfortunate that conventional arbitration has been the Cinderella of ADR. All the issues of effectiveness and justice concerning ADR writers are raised by traditional arbitration, just as much as by newer or newly discovered ADR techniques. Moreover, its use is widespread and increasing. It is a subject worthy of central, rather than peripheral, attention. While the ADR movement as such has somewhat bypassed traditional arbitration, neither legal academia in general, nor the State


11

legal system, nor the world at large, has done so. Collective bargaining arbitration has been an essential aspect of the labor law taught throughout American law schools for half a century. Noncollective bargaining arbitration,16 the subject of this book, is less evident in the curriculum, but by no means nonexistent. Law review articles on both collective bargaining arbitration and commercial arbitration abound. With or without academic attention, arbitration is a burgeoning activity throughout much of our socioeconomy, and the law of arbitration is a major area of the law.


I Reformation of American Arbitration Law


2 Before the Enlightenment

Premodern Arbitration Law in America: Introduction Once upon a time, say, at the turn of the century, arbitration was neither a new nor an uncommon practice in the United States, particularly in such great commercial and financial centers as New York1 and Chicago.2 A robust and active law of arbitration also existed.3 This arbitration law was both statutory and judge-made, although arbitration statutes were in effect in most states.4 It is easy to lose sight of these older statutes; almost all have been replaced by "modern" arbitration statutes. An anachronistic pause in our tale is in order here to define "modern" arbitration statutes. The word "modern" is a term of art respecting arbitration statutes. The key characteristic distinguishing nonmodern from modern is that the latter make simple executory agreements to arbitrate disputes — particularly future disputes—irrevocable and fully enforceable and the former do not. Enacting this characteristic into legislation was the prime goal of the reform movement treated in subsequent chapters; the terminology is a product of that movement. So engrained in our thinking is the association of "modern" with such "enforceability" that the current edition of Domke, Commercial Arbitration, a leading arbitration treatise, uses the letter "M" to identify statutes providing for enforceability of agreements to arbitrate future disputes in its list of general arbitration statutes in the United States.5 15 IS

16

Reformation of American Arbitration Law

Earlier, Domke supplied a more extensive definition in the form of the elements essential to a modern statute. It is one providing: 1. irrevocability of any agreement to submit future disputes to arbitration; 2. power of a party, pursuant to a court directive, to compel a recalcitrant party to proceed to arbitration; 3. provision that any court action instituted in violation of an arbitration agreement may be stayed until arbitration in the agreed manner has taken place. 4. authority of the court to appoint arbitrators and fill vacancies when the parties do not make the designation, or when arbitrators withdraw or become unable to serve during the arbitration; 5. restrictions on the court's freedom to review the findings of facts by the arbitrator and his application of the law; 6. specifications of the grounds on which awards may be attacked for procedural defects, and of time limits for such challenges.6 The first four of these elements are aspects of the irrevocability and enforceability of arbitration agreements, that is, the modern element of a modern arbitration statute. As will be seen, many older nonmodern arbitration statutes commonly contained most or all of the fifth and sixth of these elements.7 Returning to the past, as the premodern arbitration statutes were largely in the tradition of the common law, they now tend to blend in with that common law. Only very careful examination of old and sometimes fairly inaccessible law could separate the two. No one, however, appears to have done an in-depth study of developing nineteenth-century arbitration legislation comparing it to judge-made arbitration law.8 No proper base of scholarship thus exists from which to differentiate the two types of old law. And indeed, some of the things we think of as judge-made, such as enforcement of awards, may, at least in the United States, be largely statutory in origin. The lack of scholarship on this subject is quite curious. Arbitration legislation challenges code pleading as the most extensive nineteenth-century legislative intervention into the workings of the

Before the Enlightenment

17

judicial system (geographically, arbitration legislation is the clear winner) and was certainly one of the most pervasive and early legislative interventions into discrete freedom (power) of contract. I suspect that the scholarly omission is explained in part by the reform movement and its progeny of modern arbitration statutes. These modern statutes have been promoted in ways suggesting that both the old judge-made and old statutory law of arbitration are obsolete and apparently only of antiquarian interest. In fact, much of that law has simply been carried into the modern statutes. Moreover, in any event, the old law is of more than mere antiquarian interest. Without knowing more about this background, we can fully understand neither the reform movement itself nor, more importantly, what the "real" law was in the minds of businessmen, lawyers, judges, and legislators before the reform movement cast its ideological veil over the scene. Understanding both is, I believe, quite significant to a full grasp of what has happened in recent years and is still happening to American arbitration law. Due to the lack of existing research into premodern arbitration statutes or easy ways of conducting it, one is driven —in referring to the whole American corpus of the day—to lump together both statutory and judge-made law. For an overall label one must either speak infelicitously of "common law arbitration," meaning both, or of "premodern arbitration law."9 Both are inaccurate terms, the first for obvious reasons, the second because much of so-called modern arbitration law was also found in the old law, especially on its statutory side. Examining one of the early statutes in some detail will help both to counter the inherent bias of the labels "common law" or "premodern" and to reveal the richness of the old arbitration law. The Illinois statute of 1873,10 in effect and unamended until 1917, is a good example. The Illinois Statute of 1873 Under the Illinois act, parties could agree to refer issues in pending suits to arbitration;11 during the reference the suit was stayed.12 If the parties were unable to agree to the names of three impartial arbitrators, each party chose one, and the court appointed the

18


third.13 When no suit had been brought, the parties could agree in a signed and sealed writing to submit any existing controversy to arbitration and to agree to judgment on the award.14 The act required arbitrators to take an oath to determine the matters before them according to the principles of equity and justice.15 Although the arbitrators could administer oaths to witnesses, accept depositions in evidence, and the like, power to subpoena witnesses for arbitration proceedings resided only in court clerks and justices of the peace.16 Arbitrators did, rather surprisingly, have power to punish for contempt committed in their presence during arbitration hearings.17 Awards were required to be given in signed writings and to be delivered to the parties.18 Contrary to the old common law rule, only a majority, not unanimity, of the arbitrators was required for an award to be effective.19 If a party did not comply with the terms of an award, the other party had one year in which to petition the court named in the submission.20 If there were no exceptions to the award, the petitioning party was entitled to final judgment on it, to the costs of arbitration, and to execution on the judgment.21 Where performance of the award required something other than paying money, the court could enforce the award by rule and attachment or by contempt.22 The court was empowered to set aside the award for legal defects in the award itself or in the proceedings, and for fraud, corruption, other undue means, or arbitrator misbehavior.23 The court was also empowered to modify or correct the award for miscalculation or misdescription, for decisions on matters not submitted (provided the decisions did not affect the merits of the decision on matters that were submitted), and for formal imperfections (provided the imperfections did not affect the merits of the controversy) where, had the errors or defects been in a jury verdict, the court could have disregarded or modified them.24 The courts were also granted authority to compel arbitrators to proceed and report.25 Errors and appeals from the lower court proceeded in the same manner as in other cases.26 Fees were established for arbitrators,27 witnesses, and law officials.28 The 1873 Illinois statute was thus a clear legislative recognition of arbitration as an acceptable, indeed desirable, approach to dispute resolution, as well as the establishment of a comprehensive bureaucratic structure for its utilization.

t Before the Enlightenment

19

Largely Supportive of Arbitration In sum, contrary to modern folklore, and as the almost-modern 1873 Illinois statute suggests, the premodern statutory law of arbitration was largely supportive of that institution, as was the common law. As to subject matter, almost any kind of dispute could be submitted to arbitration.29 Arbitration awards were enforceable by actions at law,30 and in appropriate cases, by specific performance in equity.31 This was true whether the award was made pursuant to an agreement to arbitrate an existing dispute32 or pursuant to an agreement in a contract to submit future disputes to arbitration.33 Common law arbitration awards barred actions on the causes that had or should have been submitted to the arbitrators. The courts necessarily policed arbitrations, but allowed arbitrators broad leeway in making their awards, far broader respecting both fact and law than would normally be accorded to lower courts. An early nineteenth-century New York case captures the prevailing spirit: If every award must be made conformable to what would have been the judgment of this Court in the case, it would render arbitrations useless and vexatious, and a source of great litigation; for it very rarely happens that both parties are satisfied. The decision by arbitration is the decision of a tribunal of the parties' own choice and election. It is a popular, cheap, convenient, and domestic mode of trial, which the courts have always regarded with liberal indulgence; they have never exacted from these unlettered tribunals, this rusticum forum, the observance of technical rule and formality. They have only looked to see if the proceedings were honestly and fairly conducted, and if that appeared to be the case, they have uniformally and universally refused to interfere with the judgment of the arbitrators.34

The foregoing picture is hardly that of an unrelieved judicial or legislative hostility to arbitration. Yet the latter is the picture of common law arbitration to which we have become accustomed ever since the arbitration reform movement focused attention on its very real and serious, but also very limited, weaknesses.35

20


Weaknesses—Nonenforcement of Arbitration Agreements The weaknesses consisted of historical baggage, particularly on the equitable side, which handicapped arbitration agreements. These weaknesses centered on the relative lack of enforceability of such agreements before an award was made, whether submission agreements pertaining to existing disputes or agreements to submit future disputes.36 Such an agreement did not bar a party from breaching it and bringing a judicial action or suit on the cause giving rise to the dispute. The court would not stay such an action or suit pending arbitration. Moreover, revocation by one party at any time before an award had been rendered — even after the arbitration hearing—terminated the power of the other party to proceed with arbitration and deprived arbitrators of any power to make an award.37 True, such a revocation was a breach of the arbitration agreement, but it was a breach for which only damages, not specific performance,38 were available, and these were largely ineffective.39 And finally, American courts generally did not follow the promising route suggested by the judgments in the House of Lords in Scott v. Avery (H.L. 1855)40 that arbitration could, by an appropriate clause in the agreement, successfully be made a condition precedent to any action. Instead, they limited that route to agreements relating only to specific questions, not to the entire cause of action.41 Exceptions to Nonenforcement There were, however, important exceptions to the nonenforceability of executory arbitration agreements. First, a fairly wide range of agreements for third-party determinations were quite commonly classified as not providing for arbitration and, hence, not subject to the limitations of enforceability peculiar to arbitration agreements. These included setting prices and fixing valuations;42 provisions in various kinds of construction contracts for the architect, engineer, and others to interpret plans, to ascertain compliance with the contract, and even to determine damages for default or defective performance;43 and provisions for appraisal of loss or damages to property in insurance contracts.44 Such clauses were viewed as establishing valid conditions precedent to recovery.45


21

Second, with respect to existing disputes, parties could also agree in court to arbitration and could secure a rule of court ordering the arbitration.46 Such a rule was enforceable against a subsequently reluctant party, who could not effectively revoke the agreement except with leave of court for sufficient cause.47 The availability of this procedure varied,48 and it was useless to bind anyone to arbitrate future disputes. Nevertheless, the number of appellate cases discussed in Corpus Juris suggests that it was by no means an unimportant aspect of arbitration practice at the time in question.49 This may, in part, have been due to its additional advantage over ordinary arbitration in that judgment could be entered directly on the award,50 rather than the winner having to bring an action or suit on the award if the loser failed to perform the award.51 Finally, a number of jurisdictions had enacted statutes providing for the irrevocability of submission agreements relating to existing disputes.52 Thus, even respecting the key defects in the American arbitration law of seventy years ago as perceived by contemporary reformers,53 an accurate picture of the times is hardly that of the unrelieved gloom one might gather from their writings both before and after the successes of the reform movement.54 Nevertheless the problems they addressed were real and serious hindrances to an effective arbitration law implementing voluntary arbitration agreements.55 Arbitration and Our Father in Washington Confusion in the Cases Before World War I, American arbitration law was, apart from state statutes, the common law of Nowhere.56 That is to say, it was evidenced by a great hodgepodge of English, state, and federal cases. These were hardly in universal harmony, and the law of some states certainly differed in significant respects from the law of other states, even without the intervention of statutes. Given this, federal cases were bound to be in occasional disagreement with the cases (and statutes) of some states. And, as will be seen, the federal courts largely saw themselves as applying federal, not state, arbitration law. Nonetheless, the federal law was largely in accord with the views commonly prevailing in the state courts and

22


legislatures at the time, including those pertaining to the important limitations discussed earlier. Thus, for example, the structure and presentation of such studies as Corpus Juris57 and Williston's 1893 edition of Parsons58 show no evidence of a body of federal arbitration law substantively distinct from prevailing state law.59 Even though no distinctive body of federal arbitration law existed, federal courts in individual cases had to use the law of somewhere, and sometimes consciously had to choose which somewhere. A review of the late nineteenth century federal cases reveals two lines of thinking in making this choice: jurisdiction and remedies. The ideas were not necessarily kept separate and were rather fuzzy. But both lines led to the adoption of the principle that law of the federal forum governed arbitration. In the latter nineteenth century, early federal cases applying state law60 were either ignored, skirted, or overruled.61 In 1898, the court in Mitchell v. Dougherty (3d Cir. 1898)62 used traditional ouster of jurisdiction arguments in refusing to enforce an executory agreement to arbitrate disputes. In doing so, it refused to analyze Pennsylvania cases supporting enforcement because federal law governed: The question before us is not as to the enforcement of the contract in accordance with the law of the place where it was made, but is as to whether a court of the United States should, because of the parties' agreement in advance to abstain from invoking its jurisdiction, refuse to enforce the contract at all.63

Mitchell was followed in a number of cases, both before64 and after the enactment of the United States Arbitration Act in 1925.65 Indeed there were perhaps more such cases than appear: whenever a federal court based its decision on ouster of jurisdiction66 it may have been thinking of that argument not only in terms of policy respecting arbitration but also in terms on the limitations of state law governing in federal courts. Another route was that adopted in United States Asphalt Ref. Co. v. Trinidad Lake Pet. Co. (S.D.N.Y. 1915)67 where the court was sitting in admiralty.68 The arbitration contract in Asphalt Refining was governed by the law of England, which provided by statute for stays of suits brought in violation of arbitration agree-


23

ments. In refusing the stay, the court cited Mitchell v. Dougherty (3d Cir. 1898)69 and Jefferson Fire Ins. Co. v. Bierce & Sage, Inc. (C.C.E.D. Mich. 1910)70 and held that it was not bound by the law of New York because the question in issue was governed by general federal law, not state law. Nor was the court bound by English law, because the question was one of remedy not of right, and the law governing remedies is the law of the forum.71 Swift v. Tyson (U.S. 1842) and the Judiciary Act of 1789 Where, may ask the modern reader, were the two key factors one would have thought pertinent to such decisions: the Judiciary Act of 178972 as interpreted in Swift v. Tyson (U.S. 1842)73 and the 1872 Conformity Act?74 (Both still had many years of life following enactment of the first modern arbitration act in New York in 1920 and the United States Arbitration Act in 1925.) Swift had held that, in the absence of a pertinent state statute, federal common law, rather than state common law, was the substantive law governing diversity cases in federal courts.75 The Conformity Act provided: The practice, pleadings and forms and modes of proceedings in other than equity and admiralty causes in the circuit and district courts, shall conform, as near as may be, to the practice, pleadings, and forms and modes of proceeding existing at the time in like causes in the courts of record of the State within which such circuit or district courts are held, any rule of court to the contrary notwithstanding. . . . 76

With such law governing and with the benefit of half a century of post-Erie11 hindsight, one might have expected to find by World War I a clear-cut body of federal law along one of two lines: (1) The law of arbitration and award concerns "practice, pleadings and forms and modes of proceedings," and hence, state law governs the law of arbitration on the law side of the district courts under the Conformity Act; or (2) the law of arbitration is substantive and governed by the Judiciary Act of 1789 as interpreted by Swift. In the latter case one would then expect to find that federal common law governed diversity of jurisdiction cases, subject to being super-

24


ceded by state arbitration statutes. Under either line of reasoning equity and admiralty causes would be in some special realm of their own. Such expectations are doomed to disappointment. It is not until 1932 that a case can be found approximately following the foregoing neat pattern,78 and even it is more complicated. Both the ouster of jurisdiction route and the "remedy-not-a-right" route evaded the Conformity Act, but without, however, adopting a position that the question was substantive and hence governed by federal general law under Swift. These routes became particularly vital when the issue concerned applicability of a state arbitration statute, rather than common law cases. Swift did not prevent the enforcement of state statutes in federal courts pursuant to the Judiciary Act of 1789.79 And the Conformity Act did not prohibit following state procedure just because it was set out in state statutes. Both routes allowed the federal courts to avoid state arbitration statutes in spite of both the Judiciary Act of 1789, as interpreted in Swift, and the Conformity Act.80 In sum, at the time with which we are now concerned, it was clear that in federal courts a general federal law governed the key arbitration questions. This was true whether the case was in federal court because of its admiralty jurisdiction or its diversity jurisdiction, and whether the case was one in law or equity. And it was true whether the otherwise applicable state law was statutory or judge-made. But the reasons for this rule were far less clear and were certainly not worked out systematically relative to either the Judiciary Act of 1789 or the Conformity Act. This theoretical confusion was to play a considerable role in the story told here.

3 The Beginning of Reform

The Coming of the Evangelists: 1911-20 New York, New York Without putting too fine a point on causation, it may be said that the reform movement first flowering in New York had many roots. Undoubtedly the most important was the actual practice of arbitration, including the custom of including clauses relating to future disputes and abiding by those clauses in spite of their unenforceability at law. New York had long been a center of arbitration activity,1 especially among members of financial and trade associations of various kinds. The Chamber of Commerce of the State of New York and its institutional forebears had been active in arbitration since 1768.2 Where arbitration agreements are common many factors may cause people to abide by them even when they are legally unenforceable before the award. The most obvious, apart from simple integrity, is the immediate self-interest of having the dispute resolved by the method each party wanted in the first place and is quite likely to continue to want (at least until the award is announced). When that is insufficient, other pressures of interdependence of various kinds may lead to compliance with the agreement: fear of harm to continuing relations with the other party by breaking one's word, threats of termination of membership in trade associations,3 and other possible pressures.4 A contemporary description of the various reasons for going along with a legally unenforceable agreement is offered by a 1917 25 25

26


circular of the Credit Association of the Building Trades of New York: ... it often transpired that an actual delinquent on finding that his oppressive and unfair dealings were about to be exposed through the relentless investigations [of the association's Arbitration Committee], would at such stage almost invariably agree when represented at our hearings, to leave the decision of the case to the Committee. This willingness, besides being prompted by the natural feeling arising in men's minds when actually confronted by the influence of a Board of Conciliation, is increased on learning that arbitration will be decided by representative individuals in the industry who know many times more about building matters than men selected haphazard to serve as jurors in court cases. That the arbitrations are free from red tape and free from cost, also influences the agreement to abide thereby.5 The widespread presence of such bindingness not uncommonly leads to pressures to create State law enforcing the obligations against the occasional backslider who ignores the extralegal enforcement. It may be noted that to the extent the reform movement came from this source, it was truly an internal, grass-roots6 movement, not of "the people," but of the commercial interests using arbitration.7 Closely related is the second source of the reform movement, New York's history of institutional and legal reinforcement of arbitration. For example, in 1861 New York enacted "a law which made the decisions of the New York Chamber's Arbitration Committee binding and established them as bases for Judgment in a Court of Record."8 In 1874 New York established a "Court of Arbitration in connection with the Chamber. Under the law, the Governor appointed the arbitrator" and as clerk whomever the chamber had selected.9 This system functioned, but with increasing judicialization, for a number of years. There were, however, criticisms10 of the system and when the incumbent arbitrator died in 1900 the system died with him. Another example was conciliation and arbitration in the Municipal Court of the City of New York.11 Active legislative support of arbitration had long been an accustomed part of the New York scene, as demonstrated by New York's mature, comprehensive arbitration statute.12

rm The Beginning of Reform

27

Judicial Criticism, English Law, and Academic Silence A third source of the movement is to be found in the common law judges whose opinions criticized the defects of the common law system, sometimes excoriatingly so. At the same time they staunchly or cravenly, depending on one's viewpoint, upheld both stare decisis and common law arbitration principles in actual decision. A vivid late example is the opinion in United States Asphalt Ref. Co. v. Trinidad Lake Pet. Co. (S.D.N.Y. 1914)13 of Judge Charles M. Hough, who carefully picked apart all the reasons advanced for judicial refusals to give effect to executory arbitration agreements, found each totally without merit, then concluded that he was bound by Supreme Court precedent to refuse to stay the suits pending arbitration. A final source of the reform movement was English law,14 both judge-made and statutory. The lodestar of the former was the House of Lords decision in Scott v. Avery,15 which allowed parties effectively to agree that arbitration would be a condition precedent to the bringing of an action for breach of the contract containing the arbitration clause. The importance of this case to the reform movement is demonstrated by Julius Henry Cohen's extensive treatment in his attack on the American law of arbitration.16 Respecting the English statutory law, the reformers were in a bit of a quandary. Their basic position was that the common law courts, first the English and then the American, had simply erred in their understanding of the common law. The courts, rather than the legislatures, therefore had every obligation to correct the error, as according to Cohen, the English courts had done.17 Under this view of the English law, legislation was unnecessary to accomplish the main legal goal of the reformers. On the other hand, American judges were showing no signs of relenting, however critical they were of the status quo, as Judge Hough's decision in Asphalt Refining so clearly demonstrated. Moreover, the common law defects were often enshrined in state legislation, including that of New York. As will be seen, the reformers came, however reluctantly, to the conclusion that legislation was the route to be followed. And in this the English Arbitration Act of 188918 led the way respecting the key issue: irrevocability of agreements to arbitrate future disputes. Prideful academics might like to find, but will not find, a fifth

28


force at work: forward-thinking professional scholars writing critically of the defects of the common law arbitration system. Although the law reviews chimed in after the reform movement was well underway and its first successes achieved, neither law school faculty nor student editors can be accused of having been in the vanguard.19 The Evangelists From the foregoing it will be seen that the reform movement was not someone's flash inspiration, but a coalescing of forces long abuilding, especially in New York. Nevertheless, someone or some body had to start the movement as a movement. The someone evidently was Charles L. Bernheimer,20 who had been studying arbitration since the panic of 1907.21 The body was the Chamber of Commerce of the State of New York, the general counsel of which was Julius Henry Cohen, who became the second someone of the reform movement.22 In 1911 the chamber appointed a special committee on arbitration under Bernheimer's chairmanship;23 this committee became one of the main ball carriers of the reform movement. The committee's first step was to draw up new plans for the chamber's own conduct of arbitration.24 The result was that the chamber was soon leading from the strength of an organization successfully engaged in the arbitration business in the modern urban context. In 1914 the chamber was joined in its efforts by the New York State Bar Association, which appointed a Committee on the Prevention of Unnecessary Litigation.25 Also in 1914, the New York chamber learned of a proposal of Percy Werner of the Missouri bar to create voluntary tribunals to be manned by lawyers.26 The Quest At this point we should pause in the story and ask just what the reformers wanted. One thing is crystal clear, they wanted elimination of the rule of revocability of arbitration agreements relating to both existing and future disputes.27 I have been unable to find any direct contemporary proof of this statement for the early years,

The Beginning of Reform

29

say 1911 to 1915, but there is much indirect proof. First, we can begin to infer such an intention from some of the roots out of which the movement seems to have sprung. In 1916 the chairman of the Bar Association committee28 is quoted as saying that "one of the most beneficial results of the committee's deliberations is likely to be the discovery of some workable scheme of arbitration and conciliation as a means of preventing litigation."29 The earliest clear statement I have found among the reformers30 is written in 1918 as if Cohen had believed in this principle for a long time. Also, as will be seen, this is the theme on which the reformers have focused ever since. Another thing seems fairly clear, namely that the reformers saw the reform of arbitration as part of a broader package of legal simplification and responsiveness to commercial needs in general and avoidance of litigation in particular.31 For example, in 1916 the Chamber of Commerce of the State of New York adopted a set of "Rules for the Prevention of Unnecessary Litigation,"32 described as "a few common sense rules of business which experience has proved to be valuable in the prevention of unnecessary litigation."33 Although these included two or three pages on arbitration, the bulk of these "rules" was taken up with Prevention of Litigation at the Source (fourteen pages) relating to a wide range of matters,34 much of it devoted to what Professor Louis M. Brown calls preventive law.35 We must be careful here. Little of public record is available concerning this period. And it is speculative to draw inferences about the period from later expressions. One can, of course, see shifts during the early period, such as the change of name of the state bar committee in January 1917 from the Committee on the Prevention of Unnecessary Litigation to the Committee on Arbitration,36 but what these changes may have signified is no longer clear, if it ever was. Nonetheless, Charles Bernheimer's 1923 summary of the purposes of the proposed United States Arbitration Act probably provides some idea of the reformers' views in the earlier period: a. To reduce the cost to the consumer, without taking it out of the producer. b. To reduce the law's delay and consequently what amounts virtually to a denial of justice.

30


c. To save time, trouble and money to disputants, the law office, and the state. d. To preserve business friendships. e. It is voluntary. No one need agree to arbitrate unless it is his wish.37 The Reform Horse Is Spurred; It Jumps In 1915, just the year after the Chamber of Commerce and the state bar joined forces, Judge Hough, with his decision in Asphalt Ref. Co. v. Trinidad Lake Pet. Co. (S.D.N.Y. 1915),38 gave the forces of reform a powerful incentive toward legislative action. After that decision the reformers could view the courts only as permanently and mulishly preserving the revocability rule, although as late as 1918 Cohen still limited his plea to reform by the judiciary.39 The Asphalt Refining decision aroused not only the New York reformers, but also the London Court of Arbitration, concerned (without cause it may be said) that Americans could enforce awards against British subjects, but not the other way around.40 The reformers made good use of these communications from the center of the Empire.41 The state bar committee and the Chamber of Commerce committee commenced to work increasingly closely. By 1917 their efforts were those of cooperative riders of a bicycle built for two. The state bar committee in 1917 presented to the bar association the Chamber of Commerce Rules for the Prevention of Unnecessary Litigation. It also presented a proposed by-law and rules relating to arbitration for the state bar association itself, modeled on those of the New York Chamber of Commerce.42 The purpose of these was "making it easy for opposing lawyers to submit their clients' differences to another lawyer of their own selection whenever they and their clients shall think it best to do so."43 There was also increasing emphasis on the problem of revocability and future disputes. The state bar committee now became the Committee on Arbitration and was charged "to consider the advisability of legislation for the recognition and enforcement of agreements for future arbitration of controversies between the parties and if they deem

The Beginning of Reformm

31

such legislation advisable to prepare a bill for that purpose and present it to the legislature."44 In addition, the reformers took to print, the most ambitious contribution being provided in 1918 by Julius Henry Cohen when his book, Commercial Arbitration and the Law, was published by the well-known house of D. Appleton.45 In 1919 the state bar committee reported that it had become convinced that the doctrine of revocability was an anachronism and should be eliminated as soon as possible.46 Although the committee thought judicial reversal was the best course, it nevertheless presented to the state bar association a proposed arbitration bill.47 In 1920 the Chamber of Commerce committee combined with three state bar committees48 to draft the statute enacted that year in New York.49 Neopaganism Among the Illinois The 1917 Illinois Statute Before examining the New York statute produced by the reformers, it is desirable to look at events in Illinois, events having fateful, although ultimately nonfatal, consequences for the reform movement. About 1916 the Chicago Association of Credit Men had become active in promoting arbitration.50 Apparently on their own, in 1917 they induced the Illinois legislature to enact a revised arbitration law." This law retained many of the features of the 1873 act,52 which it repealed, but made a number of changes, two of which were extremely important. First, the 1917 law provided that unless a contrary intention was expressed in the submission agreement, statutory arbitration submissions were irrevocable.53 Since the statute applied only to existing controversies, this was not as sweeping as it might have been, but its effect was nonetheless significant; now all agreements relating to existing controversies, not just those made as rules of court, were irrevocable. Second, section 6 of the new law provided that arbitrators could on their own motion, and must at the request of a party, "submit any question of law arising in the course of the reference for the

32

Reformation of A merican A rbitration Law

opinion of the court" and that such opinion would bind the arbitrators in making the award. Similarly, they could on their own motion, and must at the request of a party, state their award "in the form of a conclusion of fact for the opinion of the court on the questions of law arising and such opinion shall finally conclude the proceeding." This provision was suggested to the credit men by Chief Justice Harry Olson of the Municipal Court of Chicago: Chief Justice Olson saw an opportunity for linking the court with arbitration in a way beneficial to both. Arbitration, with its expert triers of questions of fact, was seen to be positively superior to court procedure with its uninformed jurors and their reliance upon expert witnesses. The weak spot in arbitration appeared to be when mixed questions of law and fact were involved and recourse would need be had to a court if the questions of law were to be expertly disposed of. This difficulty has been met in a way in England, but Chief Justice Olson believed a more direct and simple cooperation could be worked out. So the revised act was drafted with this in view, and under it questions of law are readily submitted to a court having jurisdiction of the subject matter. He announced preparedness to assign ad hoc for prompt disposition a judge of special qualifications. Under this system the court works hand in hand with arbitrators and the system promises to result in a very complete and perfect service.54

Other changes made by the new act were: (1) statutory arbitration submissions no longer had to be sealed, a signed writing was now sufficient;55 (2) arbitrators were given the authority to issue subpoenas, enforceable by the court through attachment or contempt;56 (3) while the arbitrators gained the power to take depositions,57 their power to punish for contempt in their presence during hearings was omitted; (4) for some reason or other, fees, although continued for arbitrators and law officials, seem to have been discontinued for witnesses.58 The 1917 law failed to constitute a modern arbitration statute in two main respects.59 Most important, it did not apply to agreements to arbitrate future disputes. Moreover, while it duly restricted the court's freedom to review arbitrators' fact findings, it effectively stripped them of their power to apply the law (and, in large measure, to determine it).

The Beginning of Reform

33

The Reform View: No Step Forward; One Step Backward In the eyes of the reformers, failure to provide for enforcement of agreements to arbitrate future disputes tore out the heart of any putative reform statute. But section 6, with its shifting of determination and application of law from the arbitrator to the courts, was also anathema to the reformers. True, less is to be found in reform discussion of this issue than of revocability, but this reflects only a lesser need to raise the issue, not its lesser importance.60 American law, unlike law under the English Arbitration Act of 1889,61 already conferred broad power on the arbitrators to determine and apply the law;62 hence that aspect required little or no change to achieve the goals of the reformers. That making arbitration agreements irrevocable, especially for future disputes, constituted a vast extension of such arbitrator power to determine the law, did not, however, entirely escape notice. Harlan F. Stone, for example, although not focusing clearly on the precise issues raised by section 6, had marked reservations about the broad powers conferred on arbitrators by the New York Arbitration Law of 1920.63 The reformers could hardly have been happy with this Illinois law, coming as it did just when New York State's Chamber of Commerce and Bar Association were beginning to raise real steam for a modern arbitration law.64 Worse, the Chicagoans were very pleased with themselves and set out to proselytize their position. Judge Olson became the chairman of a new Central Committee to Promote Commercial Arbitration, which took over the work started by the Chicago Association of Credit Men.65 This Central Committee operated by sending explanations of the advantages of arbitration to trade associations and urged them to adopt a resolution favoring it. The very first suggested "Whereas" in its circular was: "the revised Arbitration Act of the State of Illinois provides a simple and practical method for adjudicating controversies arising in the course of business," and so forth.66 By August 1918, nine associations had followed, and the Journal of the American Judicature Society reported ominously (for the reformers), "The Central Committee is continuing its missionary work . . . "67

4 Reform Gathers Momentum

The Conversion of New York: What Hath God Wrought?: 1920 New York Before Reform To assess what the reformers achieved in New York, one must examine what was there before the 1920 act. As already mentioned, New York had long had a comprehensive arbitration statute contained in its Code of Civil Procedure.1 It provided, among other things, that parties could by a writing, duly acknowledged or proved, and certified, in like manner to a deed to be recorded, submit to arbitration any existing controversy that might be the subject of an action.2 The common law rule of revocability was modified to the limited extent that the submission could not be revoked after the allegations and proofs of the parties had been closed and the matter finally submitted to the arbitrators for decision.3 In submissions under the code, arbitrator unanimity was not required for an award to be effective; a majority would do unless the submission agreement provided otherwise.4 The parties could provide in the submission that a judgment of a court of record was to be rendered on any award made pursuant to the submission.5 Any party to the submission could apply for a court order confirming the award, which the court was required to issue, except for specified authority to vacate or modify the award.6 Judgment was entered on such orders,7 and the judgment was given the same effect as judgments in actions.8 34

Reform Gathers Momentum

35

The court was authorized to vacate the award on showing of such circumstances as corruption, partiality, specified kinds of procedural misconduct, and "where the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final, and definite award, upon the subject matter submitted, was not made."9 Where the court vacated the award and the time within which the submission required the award to be made had not expired, the court was given the discretion to direct a rehearing by the arbitrators.10 The court also had authority to modify or correct the award

i T T in specified circumstances.11The Code of Civil Procedure also dealt with procedural matters

such as time for hearing, adjournments, swearing of arbitrators, power of arbitrators to compel attendance of witnesses, fees, authentication of awards, costs, and appeals.12 In its final section, the code preserved common law arbitration, a very important matter in view of the formality required for submissions to qualify under the statute.13 The 1920 New York Act14

Readers familiar with current New York law of arbitration will recognize how much of it was brought forward from the statute governing long before the 1920 act was passed.15 What, then, did the 1920 act do? The most important change was that a written contract to settle a controversy thereafter arising was valid, enforceable, and irrevocable, save upon such grounds as exist at law or equity for the revocation of any contract.16 Similarly, validity, enforceability, and irrevocability were conferred on submissions of existing controversies complying with the Code of Civil Procedure. This led to the odd result that an informal, even unsigned, writing to arbitrate future controversies was valid, whereas even a signed writing to arbitrate an existing controversy, if not acknowledged, and so forth, like a deed, was not valid, enforceable, and irrevocable, except as a common law agreement.17 A related provision amended the Code of Civil Procedure18 to prevent death or appointment of a committee (for lunacy, etc.) from invalidating submissions occurring before death or appointment of the committee.19 It applied not only to submissions made

36


as prescribed in the new law, but to others as well,20 presumably informal writings (respecting existing controversies) and possibly oral submissions. But to have this effect, the submission was required to contain a stipulation authorizing the entry of judgment upon the award. Giving teeth to the provision for irrevocability was a new right to petition the courts for an order directing arbitration to proceed as provided in the contract or submission.21 This in turn was bolstered by the court's authority to appoint an arbitrator or arbitrators where a party failed to do so.22 Moreover, the courts were authorized to stay proceedings brought in violation of an arbitration agreement or submission complying with the Arbitration Law.23 The invalidation by Code of Civil Procedure §2385 of any provisions for "penalty, forfeiture, or damages" upon revocation of a submission to arbitration was repealed.24 Such provisions presumably were now to be governed thereafter by common law principles respecting liquidated damages, penalties, and forfeitures. Finally, it should be noted that Code of Civil Procedure §238625 was left intact, thereby presumably preserving common law arbitration in New York for agreements complying neither with the new law nor the code. Significance of the 1920 New York Act Earlier I have stressed the largely favorable nature of prereform American arbitration law, the absence of enforcement of agreements to arbitrate future disputes being the only general exception.26 My doing so should not, however, be allowed to obscure the immense significance of statutes providing for legal enforcement of such agreements. As an anonymous reviewer of a draft of this work said: [O]ne cannot overstate the significance of the single salutary reform which made possible the extension of arbitration beyond the trade associations which were its main breeding ground and led to its wholesale employment in standardized agreements of all kinds. This, in turn, raised a whole host of new questions regarding public policy limitations and one-sidedness which were not a problem when arbi-


37

tration was about two textile merchants arguing over the quality of the merchandize [sic].27

The 1920 New York Act and English Law Since English law was often to the forefront of the minds of the reformers, a word is in order about the relation between the New York act of 1920 and the English Arbitration Act of 1889.28 It is simply wrong to assert, as Wesley Sturges did, that the New York act (or those following it) were "similar to" the English act.29 Only those mesmerized by irrevocability would make such a statement. The New York act did indeed adopt and implement irrevocability as to both existing and future disputes, as did the English act.30 Nonetheless, after that the similarity ceases; there is no comparison between the details, or even some of the key principles, of these two acts. It is not feasible here to compare the two acts in detail, but among other things the following should be noted. The English act was a comprehensive statute consolidating and reforming the law of five statutes passed over a period of nearly two hundred years; the New York act was a largely single issue (irrevocability) statute forming an add-on to a more comprehensive statute. The English act made a complying agreement the equivalent of an order in court;31 the New York act did not. The English provisions for appointment of arbitrators32 were quite different from the New York provision. Like the 1917 Illinois statute,33 the English act contained an extremely important provision34 allowing arbitrators at any stage to put questions of law to the court, and empowering the court to direct the arbitrators to do so. The New York act, in contrast, had no such provision and left intact the Code of Civil Procedure provisions for merely limited judicial review. The English act was much more detailed respecting procedure than was the New York act, even when combined with the Code of Civil Procedure. In short, with the sole exception of irrevocability, the New York act was not patterned on the English act. In spite of, perhaps because of, the limited changes achieved by the New York act, there can be no question but that passage of the New York act on April 19, 1920, was the first great breakthrough for the arbitration reform movement. It had captured the greatest commercial and financial state of the Union.

38


Education of the Masses; Organization of the Mother Church: 1920-26 Organizing and Proselytizing Julius Henry Cohen's 1918 book35 may be viewed as the kickoff of a major campaign to educate the public —at least certain parts of the public —about arbitration. But the campaign went into high gear with the "rather drab event of enacting a modern arbitration law in 1920 in the state of New York."36 The passage of the statute led in 1922 to Moses H. Grossman's37 organizing of the Arbitration Society of America.38 It was this society that "put on an educational campaign that carried arbitration to the people in a new way throughout the country."39 Frances Kellor,40 a later arbitration reformer, describes the campaign: . . . [Arbitration made front page headlines in the press. It went out to luncheon and to dinner; receptions were held in its honor, and forums were dedicated to its exposition. It became the subject of conference, debate, and instruction. It frequented exclusive clubs and found its way into homes, churches, schools and theatres. It passed the exclusive portals of law offices, banks, and corporation board rooms. It came out of dry law books, where only the difficulties were recorded, and found a place in general as well as special periodicals, books, and pamphlets. Sometimes arbitration wore evening clothes; at other times it appeared in overalls, or in a professor's gown; but always it aroused curiosity and interest.41

During "Arbitration Week" in 1923, Charles L. Bernheimer "arranged a program in which more than fifty trade and commercial organizations participated."42 During the first eighteen months of its existence, the Arbitration Society distributed 158,000 pieces of "literature" at 1200 meetings, conferences, and so forth. 43 These activities did not escape criticism. Harlan F. Stone, then Dean of Columbia University Law School, commented in 1923: Zeal for the arbitration principle which has been hitherto devoted to securing the enactment of legislation is now being turned into other channels. A well developed propaganda is being directed toward inducing merchants to make the widest use of arbitration as the


39

simplest, the least expensive, the most expeditious and the most satisfactory method of disposing of controversies between business men. . . . There is in all this propaganda a very substantial element of well intentioned exaggeration and there is in consequence a very real danger that the benefits which may be hoped for from this useful reform will be seriously impaired by the reaction with inevitably follows exaggerated claims for the merits of any reform however useful and desirable it may be. Arbitration is not a universal panacea for the evils of litigation. . . . The time has come when in the promotion of the arbitration principle we should look realities in the face. If we wish to promote the cause of arbitration and make it a really useful device for avoiding, in suitable cases, the loss of time and money involved in litigation in the courts, we shall cease urging arbitration on merchants as a legal "cure-all." We shall frankly inform them that arbitration, like other methods of litigation, has its advantages and its disadvantages, and that he who does not make intelligent and discriminating use of it is likely to be disappointed in the choice of his remedy.44

Frances Kellor summarized her perceptions of the results of the society's activities during its four years of life from 1922 to 1926: . . . [It] substantially changed the pattern of arbitration. It brought arbitration out of its austere juridical arena into the limelight as an instrumentality which people themselves could use generally for the voluntary settlement of many kinds of differences. It made arbitration procedures readily accessible to the people through the establishment and operation of a commercial arbitration tribunal. It created a new leadership through panels of arbitrators and trade groups. It directed public attention to a hitherto drab and obscure subject. It flung a challenge of self-regulation to private enterprise. It opened the eyes of lawyers to a new practice in arbitration tribunals. It envisioned the dawn of a new profession by starting a panel of arbitrators and beginning their education. It brought arbitration to the people in a simple yet dramatic way and stimulated their faith in this age-old method of solving differences and maintaining friendships. It introduced into the American way of life a new institution for building and maintaining good faith, goodwill, and confidence in human relations.45

40


Rivalry Meanwhile, in 1925 the Chamber of Commerce of the State of New York had founded the American Arbitration Foundation, with Charles L. Bernheimer as president. Two observers, one, Frances Kellor, a contemporary and an arbitration reformer, the other, Jerold S. Auerbach, a later observer detached from the fray, provide two startlingly different, but not necessarily inconsistent, pictures of the relation between Grossman's Arbitration Society and Bernheimer's Arbitration Foundation. Kellor viewed the foundation as a challenge to the "new ideas and challenging program" of the society.46 "The more conservative purpose of the Foundation was to spread the use of arbitration through study and the dissemination of knowledge concerning it, to co-operate with other organizations, to co-ordinate law and arbitration practice, to improve arbitration law and to furnish advice and provide facilities and funds for the furtherance of the great causes of arbitration, mediation, and conciliation."47 She saw this as without public appeal and lacking the "democratic approach to the people" of the society and its efforts to build "a membership organization that would include many people and institutions, large and small."48 Auerbach, on the other hand, sees the relations between the society and the foundation largely in terms of the relation between arbitration and the legal system, particularly in terms of a struggle between "businessmen who preferred to exclude lawyers" and "lawyers who resented the diversion of disputes into non-legal channels." He sees Grossman and the society as champions of the legalistic approach49 and Bernheimer and the foundation as champions of "non-legal commercial arbitration," where "businessmen retained the power to resolve disputes according to trade practice rather than legal principle."50 Merger According to Auerbach, the disputants agreed, appropriately enough, to resolve their differences by arbitration. That is, the society and the foundation each chose three representatives, and the six in turn "selected Lucius R. Eastman, a businessman and


41

lawyer, as their chairman."51 It took them a year, but in 1926 they agreed to merge the society and the foundation into the American Arbitration Association. Although Lucius Eastman—the business-

man and lawyer —soon became the new association's president,52 Auerbach sees the "[c]onsolidation [as] an indisputable victory for bench and bar. Lawyers and judges were conspicuously present in the new Association. . . . The institutional framework for the legalization of commercial dispute settlement was securely in place."53 Picking Up Speed: 1920-25 The Evangelists Capture the A .B.A. Even before the New York act was passed, indeed drafted, the reformers had gone nationwide. In 1918, Charles Bernheimer appeared before the National Conference of Bar Associations urging the associations forming the conference to extend the principle of commercial arbitration. The conference was later reported to have made such a recommendation.54 It was, however, success in New York which became the occasion for the reformers to launch the reform campaign nationwide in a substantial way. At its 1920 annual meeting, the American Bar Association directed its Committee on Commerce, Trade and Commercial Law55 to consider and report at the next annual meeting "upon the further extension of the principle of commercial arbitration."56 The committee returned in 1921 with drafts of a Uniform State Act on Arbitration and a tentative draft of a federal act, Arbitration of Disputes in Admiralty and Interstate and Foreign Commerce.57 Both were patterned on the New York act, and hence did away with revocability with respect to both existing and future disputes. The association approved the Uniform State Act and its referral to the National Conference of Commissioners on Uniform State Laws.58 In 1922 the A.B.A. committee returned with revisions of both acts (and with a proposed treaty to be negotiated with foreign countries to make international commercial arbitration effective).59 The proposed acts were renamed the Uniform Act for Commercial Arbitration60 and the United States Arbitration Act,61 respectively. The committee treated these two proposed statutes as a package in

42


its report.62 It explained that there was "great satisfaction on the part of business men with the principles and procedure of the New York Law and that it is desired that these principles should be made effective in interstate commerce, intrastate commerce and foreign commerce."63 It went on to state: "It is highly desirable that the federal statute and the uniform state statute should dovetail and fit each with the other."64 Although the committee was prepared to go ahead with the United States Arbitration Act directly, a death had prevented sufficient consideration of the proposed Uniform Act for Commercial Arbitration by the Commissioners on Uniform State Laws. Accordingly the committee recommended approval of the United States act65 and reference of the Uniform Act to the commissioners.66 The association approved the committee's recommendations.67 The Conversion of New Jersey The reformers conducted their campaign on two other important fronts. One, to be treated in Chapters 7 through 9, led to the enactment of the United States Arbitration Act in 1925. The other was in state legislatures. Their initial move along the second line was geographically the easiest, across the Hudson. In 1922 a bill following the pattern of the A.B.A. committee's Uniform Act (and therefore the New York act) was submitted to the New Jersey legislature, where it passed the Assembly. It was, however, introduced too late in the session to be passed by the Senate.68 The following year the bill was reintroduced. The Committee on Legislation of the New Jersey State Bar Association reported the bill favorably to the association's Executive Committee on February 13, 1923.69 A special winter meeting of the association was held on March 3, 1923, evidently attended by not many more than 125 members.70 "Mr. Julius H. Cohen, of the New York Bar, was introduced . . . to speak concerning the results achieved through the Arbitration Law of New York State, and to answer the question of Judge Skinner, regarding the success of this statute in the State of New York. Mr. Cohen delivered a very interesting address."71 The legislative committee's recommendation was unanimously approved, possibly without discussion.72 The secretary was directed to inform the legislature of the approval and "to certify the exact vote."73 The


43

legislation was duly enacted, and New Jersey thereby became the second state with a modern arbitration statute. Partial Victory in Massachusetts The reformers now moved east to Massachusetts. The only accounts I have found of the action in the Bay State are the highly partisan comments of Joseph Francis O'Connell74 and the responses of Julius Henry Cohen played out on a later battleground.75 Piecing together what happened in Massachusetts on the basis of these heated discussions is not easy, although some things are clear. One fact is that O'Connell was initially a reform partisan. He was Chairman of the Committee of the National Conference of Commissioners on Uniform State Laws, which in 1923 unanimously recommended a uniform arbitration law patterned on the New York act. His committee's report referred to Cohen's book on commercial arbitration,76 as "a brief, yet comprehensive, discussion of the principles involved in this proposed Arbitration Act and the difficulties to be met in framing a law which will overcome the prejudices and precedents of the Courts." It went on to describe it as "a very complete and satisfactory discussion."77 Another fact is that O'Connell later switched sides, the final switch occurring perhaps as early as August 1923 when the Committee of the Whole of the National Conference of Commissioners on Uniform State Laws approved a draft uniform law excluding future disputes from its coverage. Unclear, however, is just how and why O'Connell dropped the reform cause. In 1925 he referred to having been "swept off my feet" by Cohen and Bernheimer the first year, but after talking with the rest of the conferees [Commissioners on Uniform State Laws] I have come back to my moorings."78 Another thing that seems clear is that some of the New York reformers played a promotional role relating to the act Massachusetts enacted in 1925. From the subsequent interchange between Cohen and O'Connell, it seems most likely that it was Judge Grossman and the Arbitration Society rather than Bernheimer, Cohen, and the American Arbitration Foundation that carried on this particular campaign. O'Connell's account in September 1925:

44

Reformation of American Arbitration Law They came up to Massachusetts two years ago. Judge Grossman announced at the Harvard Club, at a meeting that he had $40,000 to spend to put the bill through. Well, you can imagine when the legislature heard that there was $40,000 to put that bill through-it did not get through. Last year they came again. In the meantime they had gone down to the Chambers of Commerce and Boards of Trade in Milford and all the little towns around Massachusetts, and the State Board of Trade, and they talked to them about arbitration. They said; "You cannot do business unless you get this clause in." . . . They held a meeting, two or three meetings. It finally came to a hearing before the Judiciary Committee last February. I attended the meeting and I told the committee what the situation was. I told them that the [Commissioners on Uniform Laws] Committee on Arbitration, . . . was considering it, and that the matter ought to go over. The committee, after listening to the proponents of the act for a whole day, decided unanimously to have the bill withdrawn. Then they got busy, probably not Mr. Cohen, but nevertheless that organization in which he is very prominent, they got hold of Governor Fuller and they said, "Send this bill back"; and it was sent back. When a Governor gets interested in a thing, of course, naturally it will go through.79

Earlier in the discussion, Cohen denied being at the legislative hearing in Massachusetts or having a representative there,80 and went on: It was said on this floor that we had gone to Massachusetts and urged the passage of the Massachusetts law. I challenged that statement at once, because I knew that Mr. Hollis Bailey, who is a Commissioner on Uniform Laws, and is a member of our committee had not gone near the legislature of Massachusetts; and you heard the other commissioner from Massachusetts [O'Connell] say that he did go near them, and tried to persuade them not to do the thing they did. I know Mr. Piatt, another Commissioner on Uniform Laws, had not gone to Massachusetts. I know that Mr. Smith had not gone. I know that Mr. Pogue had not gone. I know, of course, that I had not gone.81

Cohen did not, however, challenge O'ConnelFs description above, made a few minutes later, of the conduct of Judge Gross-


45

man and others in propagandizing Massachusetts. Judging from the dialogue O'Connell seems to have confused the two groups of New Yorkers, and Cohen saw no need to disabuse him of his mistake. The reform effort in Massachusetts was only partially successful. Although the 1925 Massachusetts act was a modern statute covering agreements to arbitrate future disputes, it provided that, "Any question of law may, and upon the request of all parties shall, be referred by the arbitrator or arbitrators to the court to which the report is to be made."82 This was not as bad from the reformers standpoint as the Illinois provision,83 which allowed either party to demand submission of questions of law to the court and to have the award stated in the form of a conclusion of fact for submission to the court for its opinion on questions of law. It was, nonetheless, far from their ideal. The Strange Case of Oregon Earlier in 1925 an event had occurred in Oregon which has often been claimed as a victory by the reformers.84 But the Oregon statute enacted on February 24, 1925, by no means clearly made agreements to arbitrate future disputes enforceable. The key language provided only that: §1. All persons desiring to settle by arbitration any controversy, suit or quarrel, except such as respect the title to real estate, may submit their differences to the award or umpirage of any person or persons mutually selected. §2. Said agreement to arbitrate shall be in writing, signed by the parties, and may, at the option of the parties, be by bond in any sum, conditioned that the parties entering into said submission shall abide by the award. §3. If any suit or proceeding be brought upon any issue arising out of an agreement which contains a provision for arbitration of the same matter in controversy in such suit or proceeding, then, upon application, any judge of a court of record, upon being satisfied that the issue involved in such suit or proceeding is referrable to arbitration, shall abate the action so that arbitration may be had in accordance with the terms of the agreement; . . . 85

46


Section 3 clearly supports the reformer's claims to have captured Oregon in 1925, because it certainly seems to contemplate and provide for agreements to arbitrate future disputes. But the statute must be read against the background of judicial hostility (and legislative acquiescence in that hostility) to enforcing arbitration of future disputes. Read against that background, sections 1 and 2 are, deliberately or inadvertently, opaque. If this statute was intended to be a modern one, it is difficult to understand why section 1, establishing the validity, enforceability, and irrevocability of arbitration agreements, does not make that clear. Other leading statutes already had: the New York and New Jersey statutes, as well as the proposed reform statutes, which had then been in the national arenas of the A.B.A. and the National Conference of Commissioners on Uniform State Laws for several years. Oregon itself seems to have been puzzled about what it had done. Although I have found no judicial or law review comment in the period 1925 to 1929, an amendment of section 2 in the latter year suggests the existence of that puzzlement and an abortive effort to clarify. Section 2 as amended provided: §2. (a) Written Agreement. The parties themselves, or those persons who might lawfully have controlled a civil action in their behalf for the same subject-matter, must sign and acknowledge a written agreement, specifying particularly what demands are to be submitted, the names of the arbitrators and court by which the judgment on their award is to be rendered, and may, at the option of the parties, be by bond in any sum, conditioned that the parties entering into said submission shall abide by the award. (b) Remedy in Case of Default. A party aggrieved by the failure, neglect or refusal of another to perform under a contract or submission providing for arbitration, described in section 2 hereof, shall petition the circuit court, or a judge thereof, for an order directing that such arbitration proceed in the manner provided for in such contract or submission. . . . 86

The changes in subsection (a) certainly suggest that agreements to arbitrate future disputes were not intended to be enforceable, but subsection (b) especially the phrase "contract or submission" still leaves the matter in some doubt.87 It was not until 1931, the year after Professor Sturges's treatise was published, that Oregon clearly joined the ranks of the reformers.88


47

Converting Our Father in Washington: 1921-25 While the reformers were busy proselytizing the masses and beginning to convert state legislatures, they were also engaged in a vigorous four-year campaign to enact the United States Arbitration Act. The campaign achieved its objective when the USAA was passed in 1925.89 We shall examine this campaign and its outcome in detail in Chapters 7 through 9.

5 After Adversity, Reform Triumphs

Schism! Treachery: The Commissioners on Uniform State Laws: 1923-25 Early Actions of the Commissioners The picture of the years 1920 through 1925 has thus far been one of unmitigated success for the reformers, with the pioneering New York statute starting the period and the United States Arbitration Act ending it. We now go back a bit to consider the one real setback the reformers encountered. The foundations of this setback lay in the forces behind the 1917 Illinois rejection of irrevocability of agreements to arbitrate future disputes.1 Illinois was followed in 1923 by its neighbor to the north, Wisconsin, which copied the 1920 New York act, "excepting only those sections . . . which deal with written agreements to arbitrate future disputes."2 Worse news for the cause of reform came from the Commissioners on Uniform State Laws, whom we left in 1922 with a draft uniform law following the New York act referred to them by the American Bar Association.3 At first all seemed to go well. At the annual Conference of the Commissioners in August 1923, the Arbitration Committee (which the commissioners had established in 1921) referred a second tentative draft to the conference, following the lines of the A.B.A. draft. 4 This was accompanied by an enthusiastic committee report.5 The conference failed to accept the draft. Instead, acting as a 48

After Adversity, Reform Triumphs

49

Committee of the Whole,6 it reported out a different one excluding from its coverage future disputes.7 This eviscerated draft was sent to the Arbitration Committee for further consideration, and the president of the conference, Nathan William MacChesney,8 was asked to "make a report of progress to the American Bar Association."9 MacChesney promptly reported to the A.B.A. at its August 1923 annual meeting that the conference had considered the draft referred by the A.B.A. and "has drafted an Act which was debated, section by section, last week and to a large extent perfected," but had recommitted it to the conference committee "for further consideration so that the final draft as approved by the Conference might more nearly comply with the standard of legislation heretofore maintained by the Conference and be entirely free from errors and defects."10 He did not, however, mention that the commissioners had deleted future disputes, the reformers' keystone, from the coverage of the act. This was somewhat disingenuous under the circumstances, since the A.B.A. was asked to, and did, adopt the report and concur in the recommendations." But the omission could hardly have misled the reformers. Two commissioners who had attended the conference, W. H. H. Piatt and Hollis R. Bailey, were chairman and member, respectively, of the five-man A.B.A. Committee on Commerce, Trade and Commercial Law,12 and Piatt at least was present at the A.B.A. session in which Nathan MacChesney delivered his report.13 Year of Decision for the Commissioners: 1924 In 1924 the arbitration committee of the Conference of Commissioners submitted a third tentative draft retaining the exclusion of future disputes and adding the Illinois provision for submission of questions of law to the courts and for the award to be stated as a conclusion of fact upon demand of either party.14 In addition, a new section limited the appearance before arbitrators to the parties, regular employees of the parties, and lawyers.15 Another new provision required the arbitration agreement to "state the question or questions in controversy with sufficient definiteness to present one or more issues of questions upon which an award may be based."16 When the committee report with its third tentative draft of the

50


uniform act reached the commissioners for discussion and decision on July 1, 1924, the struggle began to heat. From the beginning, the discussion among the commissioners was couched in terms of New York and New Jersey against the rest of the country, and particularly against the Middle West. The Chamber of Commerce of Chicago and businessmen of the heartland were represented to be solidly in favor of the Illinois act and opposed to extending irrevocability to agreements relating to future disputes.17 A related concern was the belief that even in New York and New Jersey only a small group of interests favored the "New York" approach. This was emphasized later by the vote of the New York commissioners in favor of the uniform act.18 The expression of this concern in rather personal terms still suggests even in the dusty pages available to us some of the heat involved in the struggle. Joseph Francis O'Connell, who shepherded the committee report through the conference, remarked: It does seem that it would be wrong for us to impose upon this Conference the views of New York and New Jersey, that we know are the result of the activities of a small group. I have nothing but the highest respect in the world for Mr. Julius Henry Cohen. I regard him as a very able man, a very eloquent man, a very convincing man, and he has given a great deal of time and thought to this particular subject, but I fear he has addressed it entirely from the angle of his particular type of clients. I think that Mr. Bernheimer, in his campaign that he has waged vigourously and successfully, simply reflects the superior intelligence of Mr. Cohen, and that Judge Grossman is representing practically the same element in the business world that Mr. Cohen does. Now then, is that small group, with their desires for expedition, going to prevail against the fortysix states in this Union who feel that they have got the interests of all their population to safeguard and to look after."

Relationships with the A.B.A. were also an important consideration.20 But the view prevailed that the A.B.A. Committee on Commerce, Trade and Commercial Law did not speak for the A.B.A. and that the A.B.A. was not yet committed to the New York-New Jersey (and soon to be, federal) approach to arbitration.21 On the merits, concern was expressed —as it had been by Senator Walsh at hearings on the USAA the year before22 — about the adhesive aspects of arbitration contracts. The majority of the committee


51

was unconvinced by arguments that such agreements were freely entered. Once again O'Connell's comments are exemplary of the prevailing view on the committee: Under the New York Act you are called upon to agree in advance through a clause that is in the contract, most often in small type, that all controversies of any nature, kind or description are to be taken out of the courts and are to be submitted to an arbitrator, either named then or to be named later. It is felt by the great majority of the committee that this is wrong in principle, to call upon men to agree in advance to arbitrate any difficulties that might arise, particularly in view of the fact that that would be done in most instances without any realization on the part of the contracting parties as to what they were really doing. Of course, we all agree that men ought to know what they are doing when they are signing contracts, but we all know from a practical experience that the fine type of contracts whilst entirely binding, is seldom read, and we do feel that it is a giving up rights that the American people really regard as sacred and they shouldn't be called upon to do so.23

The issue of adhesion contracts and one-sidedness is treated more extensively in Chapter 6. It is appropriate to note here, however, that throughout their long campaigns, the reformers almost entirely ignored the adhesive argument.24 For example, in quoting O'Connell's foregoing comments about arbitration agreements in small print, Wesley Sturges appended this footnote: "It should not be overlooked that the statutes which embrace future-disputes clauses as well as agreements to arbitrate existing controversies are predicated upon a written agreement of the parties. They do not "compel" arbitration in absence of such agreement."25 Daniel is Eaten in the Lion's Den A highlight of the conference discussion was the appearance of Julius Henry Cohen himself, who gave an extensive talk largely along expected lines.26 Questions following his presentation revealed another concern of the commissioners, what we might call the "long arm" effect of the arbitration statutes. They were worried about people being hauled from coast to coast to participate involuntarily in arbitrations.27 Cohen denied such effect, to the skeptic

52


reception of at least one commissioner who thought that enactment of uniform arbitration laws would have precisely that result.28 Concern was also expressed about the loss of provisional and special remedies, such as injunctions, resulting from arbitration agreements. Cohen agreed that safeguards were needed in this respect, although he by no means conceded an absence of such safeguards under the New York statute.29 He thus expressed only mild concern about explicit treatment of such issues in the uniform act. In the upshot the conference adopted a provision authorizing the courts at any time before final determination of the award to take such steps as it deemed "necessary for the preservation of the property or for securing satisfaction of the award."30 The conference approved the Uniform Arbitration Act (1924) (UAA 1924)31 on July 2, 1924, by a vote of 23 to 6.32 The Commissioners Recapture the A.B. A. Seven days later, Nathan MacChesney presented the report of the commissioners to the A.B.A. This time he briefly described the difference between the proposed uniform law and the New York and New Jersey laws33 and moved that the A.B.A. concur in the recommendation of the Uniform Arbitration Act for enactment by the states. Julius Henry Cohen rose to a point of order that the Uniform Act could not be considered without having been printed and distributed thirty days in advance of the meeting as required by the A.B.A. Rules and By-Laws. He was sustained by the chair, and the act was then rereferred to the commissioners.34 Shortly thereafter in the same session, the A.B.A., on motion of the chairman of its Committee on Commerce, Trade and Commercial Law, reaffirmed its support of the New York-style federal arbitration act, then pending in Congress.35 That afternoon the Executive Committee of the Conference of Commissioners met and was advised of the A.B.A. action respecting the Uniform Act. The Executive Committee requested the Arbitration Committee to meet with Cohen (at his own expense) and those whom he suggested and to report to the Executive Committee at its midwinter meeting. Whatever negotiations occurred between the Arbitration Committee and Cohen changed no one's mind, and in February 1925 the Executive Committee sent the act back to the


53

Arbitration Committee to report again to the annual conference. Nathan MacChesney was requested to conduct a summit meeting with A.B.A. President Charles Evans Hughes to try to resolve the conflict between the work of the conference and that of the A.B.A.'s Committee on Commerce, Trade and Commercial Law.36 The Arbitration Committee remained steadfast, and reported the Uniform Act to the 1925 annual conference in the same form as in 1924.37 At the meeting, Joseph O'Connell described Cohen's success in blocking A.B.A. approval the year before38 and reviewed the issues again briefly. His colleague from Massachusetts, Hollis R. Bailey, made one more stab at pointing out —quite correctly— that by officially supporting the federal act, the A.B.A. —not just its committee — had already committed itself to arbitration acts covering future disputes.39 O'Connell then launched into a long and passionate speech, most of it an account of the methods by which Charles L. Bernheimer and Julius Henry Cohen, and to a lesser extent, Moses H. Grossman, had succeeded in New York, New Jersey, Congress, and Massachusetts.40 The conference then voted 30-5 to reaffirm the Uniform Act.41 The first skirmish at the A.B.A. came nine days later over a seemingly innocent resolution offered to the annual meeting by W. H. H. Piatt, Chairman of the Committee on Commerce, Trade and Commercial Law, to make "due acknowledgement to the commercial organizations throughout the United States for their splendid cooperation in support oP' the newly enacted federal arbitration act.42 MacChesney suggested that if the resolution was "to be taken as reaffirmation by this Association of the policy involved in that act" it should be put over until the discussion of the Uniform Act. Expressing the same view, O'Connell moved to lay the motion on the table; his motion was carried.43 This was a minor victory, but nonetheless a signal in the wind. The next day, MacChesney submitted UAA (1924) to the A.B.A. annual meeting for its approval.44 Once again he was faced with the threat of a point of order from Cohen, but this time Cohen refrained from actually raising it, even though the chairman indicated that he would sustain the objection.45 An extended and somewhat acrimonious discussion took place, starting with a discursive treatment of the history of the federal and uniform acts by Cohen, interrupted periodically by O'Connell

54


on points of privilege and with complaints about the length of time Cohen was taking. This was followed by a shorter presentation, again with little new in it, by O'Connell, interrupted this time by W. H. H. Piatt for personal privilege. One member, W. H. Washington, from Tennessee, remarked on "the smoke and fury of the battle we have witnessed here."46 An older member, John Hinkley of Maryland, expressed his belief "that this is one of the most momentous debates that this Association has ever had presented to it," and then went on to make an impassioned plea not to oust the courts of jurisdiction.47 Efforts were made to refer UAA (1924) to the commissioners or to the Executive Committee of the A.B.A.48 MacChesney moved to lay the pending motion to rerefer on the table.49 The point of order mentioned at the start raised its head and disappeared again.50 The motion to lay the rereferral on the table carried. Then the dam broke. MacChesney renewed his original motion for approval of the act; it was seconded; many voted aye; many voted nay; a division was called, and 175 ayes recorded, 26 noes.51 The A.B.A. had approved the nonmodern UAA (1924) proposed by the commissioners. This day, as it turned out, was the high-water mark of the antireform movement, although, as in many prolonged struggles, that was not apparent for some years.52 The Evangelists Become the Established Church and Consolidate Their Position: 1925-91 The Reformers Pull Ahead of the Anti-Reformers in the States With the two most important citadels, New York and the United States, captured along with New Jersey and Massachusetts, the reformers were freed to concentrate their attention on other states. At first it was a neck-in-neck race with the anti-reform Commissioners on Uniform State Laws. The reformers captured California and Pennsylvania in 1927.53 But the commissioners' UAA (1924) was adopted in Nevada in 1925 and in Utah, Wyoming, and North Carolina in 1927.54 These were, however, not only the first, but also the last enactments of UAA (1924).55 Oregon, as we have seen,


55

was claimed by the reformers as of 1925, but was not actually in that camp for certain until 1931. By that time the reform movement had picked up Louisiana, 1928; Arizona, Connecticut, New Hampshire, and Rhode Island, 1929; and Ohio and Wisconsin, 1931.56 Thus, in 1931 the score by states was Reformers 13, Commissioners 4. Modern arbitration law was solidly entrenched and has never been dislodged since.57 Slowdown and Revival in Reform Legislative reform came to a halt during the 1930s. Nor did the courts rush to the rescue in those states not having adopted modern arbitration statutes; common law arbitration remained much as it had been before. Nineteen-forty-one saw what may have looked like the beginning of a modest revival on the legislative front when Michigan enacted a modern act, followed in 1943 by Washington.58 But that was that, and through 1956 no more states joined those with modern arbitration statutes. Two low-key, but nonetheless important, events in the early 1940s paved the way for a revival of arbitration reform. In 1942 the AAA published a "Draft for a State Arbitration Act,"59 although "in view of the war situation, no further action was taken."60 The next year the Commissioners on Uniform State Laws withdrew the much scorned UAA (1924) from its list of approved uniform laws.61 Both events were important preludes to the most important development in the revival of reform: the final capitulation of the Commissioners on Uniform State Laws, who in 1955 adopted a modern Uniform Arbitration Act (UAA 1955). A decade after tabling its wartime proposal, undeterred by a mere police action in Korea, a distinguished AAA subcommittee brought forth a revision of the 1942 AAA draft to serve "as a basis for discussions with Bar Association Committees and other interested bodies in various states in order to create more general interest in the improvement of the respective state arbitration laws."62 These drafts, patterned on the by-then much amended New York act, were to be of "major assistance in the preparation of the [first Tentative Draft of a Uniform Arbitration Act]."63 Meanwhile, the National Conference of Commissioners on Uni-

56


form State Laws had in 1951 established a committee, chaired by Maynard E. Pirsig,64 to prepare a draft Uniform Arbitration Act.65 In 1954 the first draft was presented to the conference.66 Both during preparation of the draft and after its presentation, suggestions came from the AAA, Wesley Sturges, and Soia Mentschikoff.67 The draft was also subject to scrutiny by attorneys representing labor unions, employees, business firms, management groups, and trade associations.68 After revision the commissioners adopted the Uniform Arbitration Act on August 20, 1955.69 President Joe C. Barrett of Arkansas presented the act to the conference for approval to the 1955 A.B.A. meeting. In sharp contrast to the tumultuous debates over UAA (1924) thirty years before,70 the A.B.A. approved the reformer's UAA (1955)71 with no discussion.72 One last small flurry of controversy occurred the following year concerning an amendment to UAA §12, the main purpose of which was to delete a provision explicitly allowing judicial review of arbitrator decisions if contrary to public policy. The conference approved the amendment, as did the A.B.A. after an attempt was made to defer discussion until a later meeting.73 The Long Haul: Picking Off the States The Uniform Arbitration Act (UAA 1955) proved to be a powerful weapon in the final push of the reformers in the states. Minnesota adopted it in 1957; Wyoming followed in 1959. In 1960, Massachusetts, which already had a modern statute, enacted UAA (1955), thereby doing away with the rights of parties to Massachusetts arbitrations to take questions of law from the arbitrators.74 In 1961, Illinois, Nathan William MacChesney's old bastion of antireform, capitulated and adopted UAA (1955). By the end of the 1960s, nine more states had joined the modern ranks by enacting UAA (1955), and one, Florida, had enacted a modern non-UAA statute.75 These additions, together with the admission of Hawaii as a state,76 brought the total of modern arbitration states to twenty-eight, more than half the total and including all the major commercial and financial states except Delaware. During the 1970s eight more states, including Delaware, fell in line by adopting UAA (1955), thus bringing to thirty-six the states


57

with modern arbitration acts.77 At the present time forty-seven states have adopted modern arbitration statutes, a majority the UAA.78 Thus only three states—Alabama, Mississippi,79 and West Virginia —have yet to adopt modern general arbitration statutes. Labor Arbitration: King of the Mountain The history of labor arbitration, which had and has a life of its own in many ways distinct from that of commercial arbitration, is untreated in this book. Nevertheless, it requires noting that the immense progress of labor arbitration during and after the New Deal years undoubtedly played a significant role in the success of the movement to reform commercial arbitration. By 1960 the arbitrator of labor grievances had long since become the king of the collective bargaining relation as it had developed under the National Labor Relations Act.80 The official coronation came that year when the Supreme Court bestowed the crown in the form of three cases decided on the same day.81 These cases established that arbitration is the favored method of dispute resolution in labor relations and that any doubt respecting arbitrability of particular disputes will be resolved in its favor. Just as no modern arbitration statute has yet been repealed without replacement by another modern statute, so too the dominance of the labor arbitrator remains intact.82 Indeed, current National Labor Relations Board decisions to extend greater deference to arbitrators respecting various unfair labor practices83 have recently added new jewels to that crown.84 The legal establishment of a strong public policy favoring labor arbitration rubbed off on commercial arbitration. In United Steelworkers v. Warrior & Gulf Nav. Co. (U.S. I960),85 Mr. Justice Whittaker, dissenting, attempted to use commercial cases reflecting a grudging approach to arbitration to stem the tide in favor of liberal approaches to labor arbitration. He failed. And in failing, he may also have contributed to the demise of stringent approaches to commercial arbitration itself. It was he, after all, who first treated as interchangeable the law of commercial arbitration and law of labor arbitration, at the very time the Court was liberalizing the latter. At any rate, the years since 1960 have certainly seen a

58


general judicial extension of the strong proarbitration approach in labor cases to commercial arbitration law, particularly under the USAA.86 Triumph of the American Arbitration Association One of the most important developments in the arbitration saga has been that of the AAA, which following the lines of the headings of this book, might well be called the St. Peter's of the American arbitration world. From its well supported, but small, beginnings in the 1920s, it has grown to be a major factor in the dispute resolution system of this country. The AAA has thirty-five offices,87 located in virtually every major center in the country, and panels of over 60,000 arbitrators.88 Its fees in 1990 were $32.1 million,89 a figure not including fees paid arbitrators.90 From 1983 to 1990 the number of cases filed with the AAA rose from 39,000 to over 60,000.91 The 13,603 commercial cases filed in 1990 involved claims and counterclaims amounting to $2.25 billion.92 In addition, the AAA carries on a wide range of education and training programs, as well as widespread promotional efforts. Tomorrow the World! Evangelism Triumphs after Long Struggles In 1922 the reformers had completed their tripartite plan—uniform act, federal act, and international treaty—by submitting a model treaty to the A.B.A. through the Committee on Commerce, Trade and Commercial law.93 Although the A.B.A. approved the treaty unanimously,94 it was to be nearly fifty years before the goal of American participation in an international arbitration treaty was achieved. In 1970 Congress implemented the International Arbitration Convention. The tale of this saga appears in Chapter 13.

6 Countercurrents: Neopaganism Refuses to Die

Public Policy Defenses Against Arbitration We have already seen in action both simple resistance to change and active countercurrents to the reform movement. The former was manifested both by the long years of effort required for the early reform victories and by the almost complete dearth of new enactments of modern arbitration statutes from 1931 through 1956. The strongest of the active countercurrents we have seen was that leading from the 1917 Illinois anti-reform act to the nonmodern1 UAA (1924) and to the enactment of UAA (1924) in a number of states in the 1920s. This chapter focuses on active countercurrents, rather than on simple resistance to change or mere inertia manifested by courts and legislatures. It should be noted, however, that the increasing legalization2 and lawyerization of arbitration, accompanying the arbitration reform movement,3 which continues to this day, has doubtless been a significant factor in the elimination of resistance by the legal profession as such to modern arbitration. Two main, closely related countercurrents may be identified. One, the macro countercurrent, is founded on the belief that arbitration can be an improper means by which business escapes public regulation. The other, the micro countercurrent, is a narrow aspect of that belief relating to one-sidedness in the making (and perfor59

60


mance) of arbitration agreements. These defenses, particularly the first, are often referred to as the public policy defense against the use of arbitration. A third countercurrent, thus far out of the mainstream, is found, particularly in the last decade or so, in writings of various kinds based on a variety of radical premises and addressed to alternative dispute resolution generally.4 The beliefs underlying the two main public policy defense countercurrents may very well have played a role in earlier common law hostility to unexecuted arbitration agreements, a hostility that was greater respecting agreements to arbitrate future disputes. But generally speaking, whatever policies were in fact being implemented by such concepts as ouster of jurisdiction were seldom articulated by the courts. Julius Henry Cohen, who had studied common law arbitration extensively, expressed his views that the underlying reason for the common law approach was concern about one-sidedness: But the fundamental reason for it, when you come to dig into the history of it —the real fundamental cause was that at the time this rule was made people were not able to take care of themselves in making contracts, and the stronger men would take advantage of the weaker, and the courts had to come in and protect them. And the courts said, "If you let the people sign away their rights, the powerful people will come in and take away the rights of the weaker ones." And that still is true to a certain extent. A judge told me recently —one who is in sympathy with this measure and who approves it, but in the privacy of his own chambers he told me recently—"Cohen, you understand what the difficulty in this matter is; when England is in possession of shipping, you can understand why our people do not want to go over there and arbitrate their differences over there."5

It may be noted that the receptivity of the courts to enforcing awards while refusing to enforce executory arbitration agreements suggests relatively little concern about the public regulation problem generally, but a great deal of concern about one-sidedness. (Once a dispute has arisen a subsequent agreement to arbitrate is likely to reflect a genuine view of each party that its interests will be best served by arbitration—something that cannot be said about many predispute agreements.)

Countercurrents

61

Although Cohen focused on one-sidedness, both the subsequent countercurrents are reflected in a 1904 prereform case in Georgia: The mere executory agreement to submit [to arbitration] is generally revocable, otherwise nothing would be easier than for the more astute party to oust the courts of jurisdiction. By first making the contract, and then declaring who should construe it, the strong could oppress the weak, and in effect so nullify the law as to secure the enforcement of contracts usurious, illegal, immoral, or contrary to public policy.6

In view of the general silence of the common law courts about the "real" reasons for the common law hostility to executory arbitration agreements, it would not do to try to infer too much about what were their underlying reasons.7 This caution is also mandated by the courts' application of such abstract principles as ouster of jurisdiction in many cases where neither the public regulation argument8 nor the one-sidedness argument9 would have been very persuasive. Turning to the reform era, one of the countercurrents, concern about one-sidedness, probably surfaced early in the reform movement, at any rate, no later than 1923.'° I have, however, found little early trace of the public regulation concern.11 This is hardly surprising; the 1920s were far from propitious times to argue against the reformers on the basis of a need to regulate business. Moreover, the debates were largely among businessmen and business lawyers, people unlikely to oppose reform on such grounds. Far more likely to appeal to such people were the freedom of contract sentiments expressed by Cohen: Whatever course [the parties] saw fit to adopt was no matter of public concern, and affects no question of public policy, and if they saw fit to make an agreement, otherwise valid, that they would forbear to pursue their remedy by action in the courts of this state, there is no public policy which renders that agreement invalid.12

Public Regulation of Business Initial Critiques The first critical forerunners of the regulation argument focused on excessive legalization of arbitration13 and an alleged paradox in the "legal enforcement of voluntary proceedings."14 But it was "in

62


the full flush of New Deal liberalism" that the critics "launched a frontal assault against [arbitration] as a bastion of business power insulated from social responsibility and contrary to the public interest."15 The problem, freshly perceived by New Dealers for whom corporate business was the enemy, was . . . the immunity [arbitration] provided business from public regulation. To them, arbitration symbolized the deficiencies of the laissez-faire economy; law, constantly criticized by liberals since the turn of the century for retarding progress, was now rediscovered as an instrument of reform that protected the public interest against private rule-making. . . . Combining broad rhetorical strokes with tightly reasoned policy analysis, Phillips16 attacked "business propagandists" who had transformed an available legal tool for settling disputes into "a fetish" and a "magic nostrum" for curing legal ills. Statutory arbitration, he suggested, was the product of "a somewhat bewildered legislature [acting] at the high-powered lobbying behest of sincere, but nonetheless erroneous, business philosophers." ... A public system of courts was a fundamental social necessity in a democratic society: "there alone the public . . . can find protection." Phillips defended the "socialized orderly process of the law" against "the laissez-faire individualism of lay arbitration." Law —standardized, public, and organic — expressed social policy; arbitration, which shielded trade practices from public scrutiny and permitted powerful interests to insulate their disciplinary procedures, substituted private will for social control.17

Sporadic attacks continued, influenced, according to Jerome Auerbach, by observation of "[t]he growth of German business cartels, and their complicity with the Nazi regime."18 The next critic mentioned by Auerbach was Heinrich Kronstein, whose article Business Arbitration—Instrument of Private Government,19 draws on European experience as well as American in expressing concern about arbitration.20 Almost as if to emphasize the dangers, during this period at least one court held an employee bound by an agreement requiring arbitration of claims arising under a regulatory statute, the Fair Labor Standards Act (FLSA). The court said: [W]e see nothing in the wording of the Fair Labor Standards Act which precludes arbitration of claims arising under it. No doubt it

Countercurrents

63

creates rights which make a basis of a claim by an employee against an employer who violates it. So does any contract. A claim under the Act and claim based on a contract, —each is based on a legal right which the claimant asserts against someone else. Arbitration is one way by which such right can be availed of to secure rights under the Fair Labor Standards Act just as well as a right arising out of contract or imposed by law as a consequence of a tort.21

The court showed no awareness whatever of the dangers to regulatory legislation from enforceable predispute arbitration agreements. The issues raised by Phillips and Kronstein barely reappeared in 1952 in just one of the many articles in a wide-ranging symposium on arbitration in Law and Contemporary Problems. On the last page of an article largely oriented toward private autonomy in establishing binding arbitration, Kenneth Carlston very briefly summarized the Phillips and Kronstein views. He immediately returned, however, to the need for businessmen and lawyers to take into account specified "realities" in order to achieve "the full potentialities of the arbitration process in commerce."22 This mild mention of possible concern was far outweighed in the symposium by an article sympathetic to self-regulation in the securities industry23 and overwhelmed by the majority of articles in which modern arbitration was simply a given.24 The Courts Begin to Side with the Critics: Wilko v. Swan Limited, but nonetheless important, judicial recognition of concerns similar to those of Phillips and Kronstein came the year following the symposium in the important Supreme Court case of Wilko v. Swan (U.S. 1953).25 There the Court held that a customer of a brokerage house was entitled to litigate his claim for fraud under the Securities Act of 1933, in spite of an agrement to arbitrate future disputes contained in the margin agreement.26 The opinion aims mainly at one-sidedness. The Court, however, also expresses a more general concern about the ability of arbitrators to ignore the law.27 This concern is closer to the public regulation concern. (The two tend naturally to merge where the issue is fraud, as in Wilko.)


64

It was two 1968 antitrust cases that, fifteen years after Wilko, first articulated clearly and extensively the regulatory concern about arbitration. Both the Second Circuit, in American Safety Equip. Corp. v. J. P. Maguire & Co. (2d Cir. 1968),28 and the New York Court of Appeals, in Aimcee Wholesale Corp. v. Tomar Prods., Inc. (N.Y. 1968),29 held that public policy precludes enforcement of agreements to arbitrate future disputes involving antitrust claims and defenses. Although the American Safety opinion raises the problem of one-sidedness as well as of regulatory policy, the New York decision is based only on the latter.30 Stewart Sterk has nicely, if a bit simply, summarized the regulatory countercurrent in terms of these and subsequent antitrust cases: Arbitrators cannot be expected to sacrifice the most equitable resolution of the dispute between the parties in favor of the economic needs of society as expressed in the antitrust laws. This is not because arbitrators are any less capable or unbiased than judges or because they have fewer resources at their disposal, but because the task of arbitration is inconsistent with the purposes and functions of the antitrust laws. Arbitrators are entrusted with the responsibility of working justice between the parties as it appears to them and without explaining their conclusions. Antitrust laws, by contrast, have little to do with justice between the parties. Thus, there is a choice to be made. Either arbitrators should be permitted to resolve disputes that implicate antitrust issues as they do other disputes — unbound by rules of law and at the possible sacrifice of antitrust policies —or they must be prohibited entirely from arbitrating such disputes. There is no middle ground consistent with the arbitration process as it has developed in this country.31

The principles as enunciated by the courts in the antitrust cases apply to other regulatory areas as well, or at least they did until recent Supreme Court decisions to the contrary.32 For example, Sterk dealt with the following: family law, antitrust law, patent law, securities law, ERISA claims, usury, liquidated and punitive damages, bankruptcy, and other areas.33 Kronstein Returns

A decade after Wilko, Heinrich Kronstein returned to the fray with a long article, Arbitration is Power,34 in which he summarized the situation as of 1963:

Countercurrents

65

[Arbitral systems organized and administered by private groups within our society have grown up under our legal framework; these groups, by steps at first imperceptible, or rather tolerated, under the tugs and pulls of an oligopolistic and pluralistic society, and then inexorably, because their acquired strength met only passive opposition, formulated rules of their own having the same binding force as those enacted by legislatures or formulated by courts. The arbitrators have deemed themselves competent to decide their own jurisdiction and the legality of the underlying agreement, have extended the coverage of the arbitration clause, and have generally assumed a quasi-judicial posture with attendant immunities from any look-in by judicial authorities, congressional committees and administrative agencies. Finally, this entire process of rule-making, acquisition of jurisdiction and extension of coverage has joined with modern domestic and international rules of conflict of laws to enable the private power groups to select the law most favorable to their interests on validity, interpretation and execution of the contractual promises.35

It may be noted that Kronstein distinguished sharply between traditional arbitration and institutional arbitration. The former concerns "occasional disputes between individuals or corporations doing business in much the same markets," with arbitrators selected for their expertise and good sense and as needed for a particular dispute, the awards not being precedent.36 Kronstein asserted that traditional arbitration can justifiably be placed in a framework of an exclusive "monopoly of rule making by legislators and ruleinterpretation by courts [which] takes into account the mores of the people in all the regulation of their behavior."37 Institutional arbitration differs from traditional arbitration through the introduction of institutions, such as trade or arbitration associations, which administer the arbitration, often with themselves as the arbitrator. The substantive rules, procedures, and tribunals of such associations totally or partially transform arbitration into lawmaking of the kind Kronstein describes.38 Thunder on the Labor Front

The public policy defense has been most successful against collective bargaining arbitration. In Alexander v. Gardner Denver Co. (U.S. 1974)39 an employee covered by a collective bargaining agree-

66


ment claimed to have been fired on racial grounds. The union processed his grievance through arbitration, but the arbitrator found that the employee had been fired for good cause. The employee brought a suit under the Civil Rights Act of 1964. The Supreme Court held that the adverse arbitral decision did not bar the suit. (It may be noted, however, that although the Court denied full preclusive effect to the award, the award was not a total nullity respecting the statutory claim. The Court held that judicial deference to the award "must be determined in the court's discretion with regard to the facts and circumstances of each case.")40 Alexander has been followed in two other Supreme Court decisions, one in 1981 and one in 1984, extending the principle respectively to claims under the FLSA41 and to civil rights claims under 42U.S.C. §1983.42 The Court has stressed three factors in these cases: (1) Labor arbitrators are expected to follow the language of the collective bargaining agreement even though it conflicts with statutory law.43 (2) In collective bargaining arbitration there is a risk that the "interests of the individual employee may be subordinated to the collective interest of all employees in the bargaining unit."44 (3) The Court has expressed concern abut the capacity of arbitration to deal adequately with the statutory rights at stake. Arbitration is an informal procedure and not the equivalent of adjudication in courts respecting either fact-finding or keeping of a complete record. Further, the arbitrator's role is limited to effecting the intention of the parties rather than effecting the requirements of enacted legislation. The "specialized competence of arbitrators pertains primarily to the law of the shop, not the law of the land."45 Only the second of these concerns clearly distinguishes non-collective bargaining arbitration governed by the USAA from collective bargaining arbitration governed by the Labor Management Relations Act. Nonetheless, as will be seen below, the Court has now rejected Wilko v. Swan (U.S. 1953)46 and with it most of the arguments the Court used in the collective bargaining cases starting with Alexander.'1'1 It has not, however, overruled them.48

Countercurrents

67

Arbitration and the Left So far as I have found, commercial arbitration escaped being singled out for attack during the late 1960s and early 1970s when so much of the American legal system was subjected to attack from the radical left. The radicals apparently had bigger and more conspicuous game in mind. At any rate, I have found no one picking up and running with Kronstein's criticisms, which have been cited in law reviews only rarely.49 This remains the case with criticism from the left—radical or nonradical—today. Although marked concern about informal justice, including negotiation,50 has been expressed," arbitration has not been singled out for any particular concern. Indeed it seems to have aroused less concern than some other forms of alternative dispute resolution.52 Arbitration does not, of course, escape criticism, but it is just one item among more global concerns, as the following comment of de Sousa Santos suggests: Many disputes that are intended to be processed by the new informal settings share two characteristics: There are structural differences in social power of the parties, and they occur repeatedly. Landlordtenant and merchant-consumer disputes are examples. In such cases mediation or arbitration becomes repressive because the setting lacks coercive power to neutralize the power differences between the parties. Repressive mediation leads to repressive consensus, which, I submit, will more and more characterize the exercise of capitalist state power.53

The macro regulatory political criticism may thus be seen to have expanded to broader vistas than those of Kronstein. But another thread of the regulatory concern, illustrated by the Wilko case54 and its progeny, has narrowed until it can be expressed as follows: [A]n agreement to arbitrate should not be enforced when the statute or case law principle at issue has aims other than promoting justice between the parties. . . . [PJublic policy should prevent enforcement of arbitration agreements when the dispute involves statutes or other legal rules designed to achieve ends other than doing justice between the parties to a dispute. . . . Only when the dispute involves a statute or legal rule with a ... purpose, focusing on interests other than those of the parties to the dispute, is arbitration inappropriate.55

68


The marked difference between these approaches reflects the difference between those such as de Sousa Santos who question the liberal (capitalist) system and those such as Sterk who start from its premises. But, as will be seen shortly, the specific problem of one-sidedness and repression concerning de Sousa Santos is also a concern of Sterk. One-sidedness in the Making of Arbitration Agreements As noted earlier, the concern about one-sidedness in agreeing to arbitrate future disputes arose early in the reform movement. This is not surprising, if, as may have been the case, it was an important factor behind the common law hostility to executory arbitration agreements. Recognition of problems of one-sidedness by the reformers themselves, however, went no further than their standard view that agreements to arbitrate should be treated just like other contractual agreements. Thus their 1920 New York act provided that arbitration agreements "shall be valid, enforcible and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract."56 Their 1925 USAA had similar language.57 Arbitration agreements were thus burdened with whatever protections against one-sidedness that law and equity provided contracts in general, but no more. Early twentieth century American contract law and equity are far from renowned for the protections they afforded against onesidedness. Nonetheless, such principles as fraud, duress, undue influence, and capacity were significant and direct restraints on unfettered freedom of contract. In addition, covert protection was often afforded by rules relating to consideration and mutuality, and through even more covert techniques such as interpretation. All of these were available to deal with the problems seen by antireform advocates. Later, principles in general contract law, such as unconscionability and limitations on the effectiveness of contracts of adhesion,58 were developed and became potential or actual protections against one-sidedness in arbitration agreements. Professor Sterk has defined the one-sidedness issue in terms of classes of people who are peculiarly subject to imposition by a class of which the other party to an arbitration agreement is a member.59

Countercurrents

69

The "susceptibility to imposition may be the product of unequal bargaining power, or of unequal transaction costs that make it likely that one party will draft an agreement that the other will sign without first questioning or reviewing the agreement's arbitration clause."60 This is a modern way of looking at the matter, but nonetheless pertinent. Concerns about the imposition of arbitration agreements on persons either unaware of them or unable, or at least unlikely, to object to them has produced a wide range of limitations on the availability of arbitration beyond the limits afforded by general contract law. The origins of all these lie in legislation, either explicitly or by judicial inference. Probably the most common form of limitation is exclusion of particular kinds of contracts or disputes from the general arbitration act, without adopting a special modern arbitration act dealing with the subject. Of the forty-seven states with modern arbitration statutes, one or more has excluded at least one of the following classes of contracts or disputes: employer-employee, collective bargaining, medical malpractice or suits between doctors and patients, personal injury, insurance, title or other real estate claims, consumer contracts,61 leases, loans, contracts of adhesion, unconscionability, workmen's compensation, constitutional and civil rights,62 agreements to require state residents to submit to arbitration outside the state. A second type of limitation takes the form of additional formal requirements for the creation of a binding arbitration agreement beyond the writing (but no signature) requirement of the standard reform statute such as USAA.63 These additional requirements have included the following: (1) a statement adjacent to or above the space provided for signatures in ten-point capital letters, "THIS CONTRACT CONTAINS A BINDING ARBITRATION AGREEMENT WHICH MAY BE ENFORCED BY THE PARTIES;"64 (2) notice that the contract is subject to arbitration must be typed in underlined capital letters or rubber-stamped prominently, on the first page of the contract;65 (3) a specified notice in ten-point bold capital letters (or eight-point if in red); this notice includes extensive description of the rights to a court or jury trial, to discovery, and to appeal, which are surrendered by agreeing to arbitration, a statement about the bindingness of the arbitration

70


agreement, and a statement of voluntariness and of having read the provision, all to appear immediately before the signature line.66 Perhaps the most extensive formal requirements are those in customer-broker contracts in the securities industry. These Securities Exchange Commission (SEC) regulations are of particular interest concerning one-sidedness since they constitute a sophisticated view of what is necessary to counter one-sidedness. Predispute arbitration agreements between brokers and customers must meet requirements as follows: Both the clause and the following statements must be highlighted; arbitration is final and binding; parties are waiving judicial remedies, including the right to jury trial; prearbitration discovery is generally less than and different from judicial discovery; the award need not include factual findings or legal reasoning and appeals from arbitrator rulings are strictly limited; the arbitration panel will typically include arbitrators affiliated with the securities industry. A statement that the agreement contains an arbitration clause and indicating its page and paragraph location must be highlighted immediately before the signature line, and must be separately initialed by the customer. A copy of the agreement must be given the customer and receipt acknowledged on the agreement or by separate document. The agreement may not contain conditions limiting or contradicting rules of any selfregulatory organization (e.g., exchanges), limiting the ability of a party to file a claim, or the ability of arbitrators to make any award (e.g., punitive damages).67 It should be noted that the effective protection against onesidedness offered by formal requirements is limited by the power positions in which the party so protected finds him, her, or itself. While contracts of adhesion may sometimes be more resistible than people think,68 certainly in many instances there is simply no chance of avoiding their terms except by refraining from entering any transaction at all with the other party. In many circumstances this may mean refraining from entering that type of transaction with anyone. For example, securities brokers must be registered with exchanges to carry on their profession, and exchanges require arbitration of disputes between brokerage houses and their broker employees.69 Without an arbitration agreement, there is no employment as a securities broker with anyone. The third type of limitation is derived not from arbitration stat-

Cot/« tercurren ts

71

utes, but from other statutes designed to protect particular classes of persons or persons engaged in particular activities in which they are dependent on others. The grandparent case of this type is Wilko v. Swan (U.S. 1953), already discussed in connection with the public regulation concern.70 But as will be seen below, all the grandparent's descendants seem to be as dead as is the grandparent itself. The California statute in Southland Corp. v. Keating (U.S. 1984),71 is an example of a statute interpreted by the state court as prohibiting binding arbitration clauses, in that instance in franchise contracts. Since, however, it was held invalid under the Supremacy Clause and the USAA, the California statute and other state statutes of this nature are now valid only respecting agreements not involving commerce —few and far between.72 In sum, the state legislatures and administrative agencies such as the SEC have demonstrated considerable concern about the potential misuse of binding arbitration agreements. The state legislatures have done this often in the very process of approving modern general arbitration statutes. The Countercurrents Are Damned and Dammed: 1974-91 The foregoing suggests a picture of considerable legislative and judicial concern about the power of arbitration and a need to limit it in various ways. A combination of two developments, however, has smashed this picture. One is the Supreme Court's general rejection of the public policy and one-sidedness limitations in cases governed by the USAA. This progression, which has virtually eliminated both limitations under the USAA and even raised questions respecting its continuing viability in collective bargaining arbitration, is treated in the remainder of this chapter. The other development is the Supreme Court's nationalization of American arbitration law whereby the USAA, rather than state law, now governs most arbitration in America. The progression of this nationalization is treated in Chapter 11 and its consequences in Chapter 12. This extension of USAA coverage, coupled with the Supreme Court's rejection of the public policy and one-sidedness limitations, has largely wiped out those limitations in American non-collective bargaining arbitration.

72


International Context Overrides Wilko Doctrine The erosion in the Supreme Court of what may be summarized as the "public policy" limitation on the use of arbitration began with Scherk v. Alberto-Culver Co. (U.S. 1974),73 where the Court, in a 5-4 decision, first carved out an exception to the Wilko v. Swan (U.S. 1953)74 principle. Scherk involved a claim under the Securities Exchange Act of 1934.75 The plaintiff was an American company that purchased three German and Liechtenstein enterprises, along with their trademarks, from a German citizen. The contract was negotiated in the United States, England, and Germany, signed in Austria, and closed in Switzerland. The contract provided that arbitration would take place in Paris under the rules of the International Chamber of Commerce. In ordering the case to proceed to arbitration, the Court distinguished Wilko on the following grounds: American federal securities laws clearly governed Wilko, whereas uncertainty about the applicable law existed in Scherk, both at the time the agreement was made and at the time of the decision in the case.76 In such circumstances a provision specifying a forum is "an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction."77 Such a clause also avoids the possibility of a dispute being submitted to a forum hostile to "one of the parties or unfamiliar with the problem area involved."78 In addition, it prevents "unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages."79 "An agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause that posits not only the situs but also the procedure to be used in resolving the dispute."80 Quoting The Bremen v. Zapata Off-Shore Co. (U.S. 1972),81 the Court upheld this specialized forum-selection clause: "We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts."82 In 1985 the Court extended the Scherk principle in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (U.S. 1985),83 a case involving claims under the Sherman Act and Automobile Dealers' Day in Court Act. (Although the Supreme Court had never

Countercurrents

73

addressed the applicability of the public policy defense to antitrust cases, a leading court of appeals case, American Safety Equip. Corp. v. J. P. Maguire & Co. (2d Cir. 1968),84 had done so and was widely thought to reflect prevailing law.) Soler, the automobile dealer asserting the claims in Mitsubishi, had entered into a dealership contract with CISA, a Swiss corporation, itself a joint venture between Chrysler, an American corporation, and Mitsubishi, a Japanese corporation. The dealer also entered a sales procedure agreement with both CISA and Mitsubishi. The claimant was a Puerto Rico corporation, the automobile dealership established by the agreement was located in Puerto Rico, and the cars purchased under the supply agreement were to be delivered there. The dealership contract contained no arbitration clause; the sales procedure agreement contained an arbitration clause governing specified classes of disputes between Soler and Mitsubishi, but not between Soler and CISA. The facts of Mitsubishi are distinguishable from those in Scherk in two respects. First, the whole relationship in Mitsubishi was far more American than that in Scherk. Second, unlike Scherk, no question arose whether American legislation under which the claims arose governed the relationship. No one disputed, or could possibly successfully have disputed, that American antitrust law governed the relationship. The decision in favor of arbitration thus represented a considerable extension of the Scherk principle.85 State Wilko-type Limitations Go Down the Drain Ten years after Scherk the Supreme Court decided Southland Corp. v. Keating (U.S. 1984)86 where, among other things, the Court upheld arbitration under a state franchise law to which the state court had applied the Wilko principle as a matter of state law. Thus by implication the Supreme Court clearly rejected any general principle that certain types of regulatory claims are inherently unsuitable for arbitration. Wilko Eroded, then Overruled A year after Southland, and even before Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (U.S. 1985),87 Dean Witter Reynolds, Inc. v. Byrd (U.S. 1985)88 raised some question about the Supreme

74


Court's continuing allegiance to Wilko on the domestic scene. There a customer had sued his broker for alleged violations of the federal Securities Exchange Act of 1934 and of state law. Dean Witter did not challenge the nonarbitrability of the federal claims, but sought to have the state claims severed and referred to arbitration. Since many of the disputed factual questions were pertinent to both federal and state claims, the preclusive effect of an arbitral decision on the state claims might very well effectively decide the federal claims.89 Because of this threat to the Wilko principles, the lower courts refused to order arbitration of the state claims. The Supreme Court reversed. It avoided the necessity to challenge Wilko directly by minimizing the potential preclusive effect of arbitration awards, saying "that the preclusive effect of arbitration proceedings is significantly less well settled than the lower court opinions might suggest."90 In fact, said the Court, "it is far from certain that arbitration proceedings will have any preclusive effect on the litigation of nonarbitrable federal claims." It may be noted that the Court said only that the law of awardpreclusion was unsettled and that it was not certain that there would be preclusive effect respecting the nonarbitrable federal claims. It thus allowed the possibility of arbitral preclusion of a claim nonarbitrable under Wilko. This is more serious than may at first appear, because the Court's description of the law of arbitral preclusion is very weak indeed.91 Among other things, the Court ignored that awards are subject to summary confirmation under the USAA; that the effect of such confirmation is a judgment; and that such judgment "shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it was entered."92 Three months after Byrd, the Court decided Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (U.S. 1985).93 There, as noted earlier, the Court extended the international exception to Wilko to a contract to be performed in the United States and clearly governed by American antitrust laws. More important to the development of domestic law, however, the Court in Mitsubishi attacked Wilko's basic public policy foundation. Since Wilko had involved securities laws and Mitsubishi involved antitrust laws, the attack was not direct, but that made it no less devastating.

Countercurrents

75

The Court first set out the several arguments94 of the court of appeals in American Safety Equip. Corp. v. J. P. Maguire & Co. (2d Cir. 1968),95 which had extended the Wilko doctrine to antitrust cases. First, private parties play a pivotal role in aiding governmental enforcement of the antitrust laws by means of the private action for treble damages. Second, "the strong possibility that contracts which generate antitrust disputes may be contracts of adhesion militates against automatic forum determination by contract." Third, antitrust issues, prone to complication, require sophisticated legal and economic analysis, and thus are "ill-adapted to strengths of the arbitral process, i.e., expedition, minimal requirements of written rationale, simplicity, resort to basic concepts of common sense and simple equity." Finally, just as "issues of war and peace are too important to be vested in the generals, . . . decisions as to antitrust regulation of business are too important to be lodged in arbitrators chosen from the business community — particularly those from a foreign community that has had no experience with or exposure to our law and values."96 The Court rejected the first argument, saying that "[S]o long as the prospective litigant may effectively vindicate its statutory cause of action in the arbitral forum, the [antitrust] statute will continue to serve both its remedial and deterrent function."97 The Court had already concluded that the litigant could do so, having already rejected the other arguments. The Court rejected the second argument without addressing the adhesion point directly, saying that the "mere appearance of an antitrust dispute does not alone warrant invalidation of the selected forum on the undemonstrated assumption that the arbitration clause is tainted."98 The Court stated only that: A party resisting arbitration of course may attack directly the validity of the agreement to arbitrate. . . . Moreover, the party may attempt to make a showing that would warrant setting aside the forum-selection clause —that the agreement was "[a]ffected by fraud, undue influence, or overweening bargaining power"; that "enforcement would be unreasonable and unjust"; or that proceedings "in the contractual forum will be so gravely difficult and inconvenient that [the resisting party] will for all practical purposes be deprived of his day in court."99

76


The third argument, that antitrust cases were too complex for arbitration was also rejected. Among other factors, the Court noted that the subject matter of the dispute may be taken in account in the appointment of arbitrators and that the parties or arbitrators could use experts. In rejecting the final argument, the Court rephrased it in a manner emphasizing what is the true core of the public policy defense— that arbitrators will not sufficiently enforce public policy: "[W]e also reject the proposition that an arbitration panel will pose too great a danger of innate hostility to the constraints upon business conduct that antitrust law imposes."100 Mitsubishi's manhandling of American Safety, and indirectly of Wilko, even though in theory limited to the international scene,101 in fact rang Wilko's death knell. The case died hard, however, its execution requiring two more trips to the Supreme Court. The axe came within a whisker in Shearson/American Express, Inc. v. McMahon (U.S. 1987).102 In McMahon the Court upheld enforcement of arbitration of claims arising under both the Securities Exchange Act of 1934 and the Racketeering Influenced and Corrupt Organizations Act (RICO). In doing so, it unblushingly transferred the Mitsubishi arguments from the international context to the national context. It explicitly refrained, however, from overruling Wilko, thereby leaving Securities Act of 1933 Act claims dangling in a breeze of uncertainty.103 That thread was cut two years later in Rodriguez de Quijas v. Shearson/American Exp., Inc. (U.S. 1989).104 The latest Supreme Court word on the public policy defense is Gilmer v. Interstate/Johnson Lane Corp. (U.S. 1991),105 involving a claim by a broker under the Age Discrimination in Employment Act. The Court held that the arbitration was governed by the USAA.106 It also held that ADEA claims are arbitrable under the USAA, rejecting the following arguments: arbitration panels will be biased, limited discovery in arbitration will make proof of violation difficult, lack of a written opinion will result "in a lack of public knowledge of employers' discriminatory policies, an inability to obtain effective appellate review, and a stifling of the development of the law,"107 alleged inability of the arbitrators to grant broad equitable relief and provide for class actions, and unequal bargaining power between employers and employees.

Countercurrents

77

Of particular importance is the Court's rejection of the argument that Alexander v. Gardner Denver Co. (U.S. 1974)108 and its progeny preclude arbitration of employment discrimination claims where the USAA governs. The Court distinguished those collective bargaining cases on three grounds. First, according to the Court, the employees in Alexander had not, via the collective bargaining agreement, agreed to arbitrate statutory claims, only contractual claims. Thus the arbitrators were not authorized to resolve the statutory claims. Second, in collective bargaining arbitration, the union represents the employee, thereby giving rise to a "tension between collective representation and individual statutory rights, a concern not applicable to" Gilmer.109 Finally, the collective bargaining cases "were not decided under the FAA [USAA], which, . . . reflects a 'liberal federal policy favoring arbitration agreements.'"110 The Court also rejected explicitly the view expressed in Alexander, that "arbitration was inferior to the judicial process for resolving statutory claims."111 Mention should also be made of the noticeable absence in Gilmer of any reference to the following argument the Court made in Barrentine v. Arkansas-Best Freight Sys. Inc. (U.S. 1981) for refusing to give preclusive effect to arbitral decisions relating to the FLSA: Because the "specialized competence of arbitrators pertains primarily to the law of the shop, and not the law of the land," . . . many arbitrators may not be conversant with the public law considerations underlying the FLSA. FLSA claims typically involve complex mixed questions of fact and law — e.g., what constitutes the "regular rate," the "work-week," or "principal" rather than "preliminary or postliminary activities." These statutory questions must be resolved in light of volumes of legislative history and over four decades of legal interpretation and administrative rulings. Although an arbitrator may be competent to resolve many preliminary factual questions, such as whether the employee "punched in" when he said he did, he may lack the competence to decide the ultimate legal issue whether an employee's right to a minimum wage or overtime pay under the statute has been violated."2

Evidently the Court has abandoned this argument even in the collective bargaining area in the face of its determination in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (U.S. 1985)113 that com-

78


plicated issues of American antitrust law in an international context were not beyond the capacity of arbitrators governed by the USAA. Gilmer has removed any last shred of doubt that only the most explicit of congressional language will lead to the Court's giving effect to the public policy defense in cases governed by the USAA. Moreover, the case suggests that the rule in Alexander and the other collective bargaining cases is also in danger. After all, the third reason given by the Court for distinguishing Alexander— pro-arbitration policy—is just as applicable to collective bargaining arbitration as it is to USAA arbitration.114 The first reason —that collective bargaining arbitration is limited to contract rights —can be eliminated by collective bargaining agreements providing for arbitration of statutory claims. Moreover, the first reason is weak to start with since it is based on a failure generally to give normal preclusive effect to arbitral determinations.115 Only the Court's second reason for distinguishing collective bargaining arbitration from USAA individual contract arbitration—the possible sacrifice of individual rights in favor of collective interests — stands on solid ground. Whether that will suffice to withstand the Court's propensity for sacrificing the public policy defense remains to be seen. One-sidedness in the Federal Courts The Supreme Court has given only lip service to concerns about one-sidedness respecting the creation of arbitration agreements. Gilmer v. Interstate/Johnson Lane Corp. (U.S. 1991),116 is illustrative. There the Court quoted Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (U.S. 1985):117 "Of course, courts should remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract.'"118 The Court held that Gilmer, an experienced businessman, had not been coerced, that is, not subjected to "overweening economic power . . . into agreeing to the arbitration clause in his registration application." It was, of course, impossible for Gilmer to engage in his profession of broker without registering with an exchange, and there is no provision in exchange rules for register-

Countercurrents

79

ing without an arbitration clause. The decision thus suggests that it will be a rare case indeed where the argument of unequal bargaining power will prevail.119 Damned and Dammed, Not Extinguished The title of this section is not "The Countercurrents are Extinguished," but "The Countercurrents are Damned and Dammed." There seems little doubt that the public policy concerns expressed in the previous section will resurface one way or another. Powerful interests will certainly avail themselves of the arbitration route to what they hope will be an arbitral dulling of federal and state regulation. It is quite inconceivable that politicians and the governmental apparat will sit by indefinitely and watch what they are likely to perceive as a serious arbitral dulling of their regulatory structures. Indeed, we already have a breaching of the dam holding back these Countercurrents in the securities field in the form of SEC intervention in arbitration in the securities industry.120 Nor should one assume that the Supreme Court itself may not one day resurrect the public policy limitation on the use of arbitration. Such a day seems very remote, however, given the present constitution of the Court. Review of Part I Before moving on to the story of the enactment of the USAA and its later transformation from a statute governing procedure in federal courts to a regulatory statute superseding state law, a short review of Part I may be in order. Prior to the arbitration reform movement, arbitration was a common and accepted method of dealing with disputes in the United States, particularly in large urban centers. At that time the United States had a well-developed law of arbitration, some of it statutory and some of it common law. There were, however, gaps in this law, gaps limiting the effectiveness of arbitration insofar as it depended upon legal enforcement. The most serious of these was the general unavailability of enforcement of executory agreements to arbitrate future disputes.

80


Under the leadership of the reform movement, the past seventy years have seen the widespread approval of arbitration statutes which fill these gaps. They have also seen the emergence of two serious concerns and of at least limited legal recognition of those concerns. One relates to the abdication of public regulation likely to result from arbitration, especially under binding agreements to arbitrate future disputes. The other relates to one-sidedness in the use of arbitration provisions. The conflict between the general acceptance of arbitration and the more limited but nonetheless important concerns is one, but only one, of the central arenas of conflict arising from the transformation of the USAA mentioned above and treated in Part II.

II Nationalization of American Arbitration Law


7 The USAA: The Campaign

Part I described the rise of the modern state-federal system of arbitration law. It mentioned, but without detail, perhaps the most important event in that rise, the 1925 enactment of the United States Arbitration Act (USAA).1 We come now to a detailed account of that enactment, which will be followed by the story of what has happened to the USAA since then. The story of the USAA is two stories, not one. The first story is that of the essence of its first three or four decades. During this first incarnation the USAA was a procedural statute applicable only in federal courts. In this period, what might be called USAA-1 was a part of a truly federal-state system of arbitration law. The second story, the second life, of the USAA is that of the past three decades. In this, the life of USAA-2, the act has become a national regulatory statute, superseding state law under the Supremacy Clause of the federal Constitution. It thus governs not only federal courts, including where state law would otherwise govern under Erie RR. v. Tompkins (U.S. 1938),2 but also state courts. Like all second lives, the story of USAA-23 lies deep in its first life, most obviously (with the benefit of hindsight) in cases like Erie and Bernhardt v. Polygraphic Co. of America (U.S. 1956),4 but even more importantly, in the events of the birth of USAA-1. These early events are the subject of this and the next two chapters. 83

84

Nationalization of American Arbitration Law

Initiating the Campaign As early as 1918 the reformers started to focus on the need for a federal arbitration act.5 In 1920, just four months after the initial success in New York, the American Bar Association directed a committee to report on further extension of the principle of commercial arbitration.6 In 1921 the committee produced a tentative draft of a federal act,7 patterned on the New York statute. This draft would have produced a less than comprehensive act. As noted in Chapter 4,8 the New York statute had been enacted against the background of the New York Code of Civil Procedure. That code had for many years contained provisions —now incorrectly associated only with so-called modern arbitration statutes — providing for such matters as confirmation of awards, grounds for vacating or modifying awards, and witnesses and fees. But in federal law, there was no arbitration statute comparable to the New York Code of Civil Procedure. Thus, had the 1921 A.B.A. draft of the USAA been enacted, the federal act would have lacked much we now expect to find in arbitration statutes. Such matters would, presumably, have been governed in federal courts by the federal common law.9 The efforts of the reformers were stimulated by two important 1921 cases. One was the New York Court of Appeals decision in Berkovitz v. Arbib & Houlberg, Inc. (N.Y. 1921)10 upholding the 1920 New York act against a range of constitutional attacks. This reform victory was, however, Pyrrhic. The court's grounds for upholding the New York act were that it was procedural and remedial, not substantive. This analysis laid the groundwork for defeat in the federal courts. The new blow was soon landed, once again in an admiralty case of the United States District Court for the Southern District of New York. In Atlantic Fruit Co. v. Red Cross Line (S.D.N.Y. 1921),11 that court refused to stay proceedings pending arbitration, rejecting the argument that it should apply the new New York act. "Arbitration statutes or judicial recognition of the enforceability of such provisions," said the court, "do not confer a substantive right, but a remedy for the enforcement of the right which is created by the agreement of the parties. . . . [I]t is not within the

USAA: The Campaign

85

power of the state to regulate the procedure and practice of a federal court of admiralty."12 It was Berkovitz that the district court cited13 for its decision that arbitration acts are procedural and remedial, not substantive. The District Court decision in Atlantic Fruit threw cold water on whatever hopes the reformers may have had for a judicial modernization of federal arbitration law.14 It thus became apparent to the reformers that carrying out their plan for a federal arbitration act was essential if modern arbitration law was to be available in federal as well as in state courts. In any event, however, they had already started down the legislative route: the first tentative draft of a proposed federal act was submitted to the American Bar Association annual meeting about three weeks before the decision. On September 1, 1921, Francis B. James, chairman of the Commerce, Trade and Commercial Law Committee reported to the annual A.B.A. meeting: "The committee believes that the administration of justice can be advanced first by having Federal Statutes and Uniform State Statutes on the subject of arbitration enacted. . . . "15 The long written report of the committee included drafts of both a uniform and a federal statute, although neither was submitted to the A.B.A. for its approval at this time.16 The 1921 USAA Draft Arbitration Provisions This first draft of the USAA by Julius Henry Cohen17 covered the same subjects as the New York Arbitration Law of 1920 and, with one exception, in a virtually identical manner. Most fundamentally, both provided that agreements to settle controversies thereafter arising, as well as already existing, were "valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract."18 The exception is USAA 1921 Draft §2, which appears to allow agreements to arbitrate future disputes to be made orally,19 whereas the New York law required them to be written to be enforceable.20 The other sections of both acts provided for stay of judicial proceedings brought in violation of an enforceable arbitration agreement,21 for judicial remedies

86


for default in performing an arbitration agreement,22 for judicial appointment of arbitrators where needed,23 and that applications made under the act be treated as motions.24 The very close relation between the USAA 1921 draft and the 1920 New York law is demonstrated by their incompleteness. Both lacked all the provisions —now often erroneously identified only with modern arbitration statutes25 — found in the New York Code of Civil Procedure before 1920,26 such as those dealing with confirmation of awards, provisions for vacating or modifying awards, and witnesses and fees. Federal Provisions As a proposed federal act, the 1921 USAA draft had to and did contain provisions concerning its federal nature. It thus must be understood both as a modern arbitration statute as such and as a peculiarly federal act. This mixture, necessarily followed in successive drafts, has had unforeseen consequences for the interpretation of the USAA. The courts have sometimes interpreted the provisions added to deal with federal issues to affect the substance of provisions dealing with arbitration per se. The major difference between the New York Arbitration Law of 1920 and the USAA 1921 draft are these many additional provisions reflecting the federal nature of the latter. USAA 1921 draft § 1 defines "maritime transaction" with a list of transaction types27 and "any other matters in foreign or interstate commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction." It then defines "commerce" in a standard manner.28 These provisions were the definitional base of section 2, the fundamental section making enforceable arbitration agreements in "any maritime transaction or any transaction involving commerce." Section 3 provides for stays by "the courts of the United States" related to suits or proceedings brought in such courts. Petitions to enforce arbitration agreements under section 4 could be brought in "the District Court of the United States which, save for such contract or submission, would have jurisdiction under the Judicial Code at law, in equity or in admiralty of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such contract

USAA: The Campaign

87

or submission." Section 5 provided that "the district court" shall designate arbitrators if the parties fail to do so. Two sections, 7 and 8, concern, respectively, diversity and admiralty jurisdiction and, hence, have no counterparts in New York law. Section 7 enlarged diversity jurisdiction by modifying the determination of the jurisdictional amount. Instead of the amount in controversy, the amount was the sum or value of "the contract or submission out of which such controversy arises."29 Section 8 preserves the historical right to start matters within the admiralty jurisdiction by in rem proceedings.30 Comment The 1921 USAA draft is of interest now mainly because of its omissions, rather than its affirmative content. It was, like the New York 1920 act, a very incomplete arbitration statute. But, whereas in New York the Code of Civil Procedure continued after the 1920 law to supply the rest of what is needed for a complete arbitration statute, no comparable federal statute existed. Had the 1921 draft been the law enacted by Congress, the vital underpinnings of its narrow, albeit vital, changes would, unless the Supreme Court had changed the law then prevailing in the federal courts,31 necessarily have been the common law of arbitration as developed in those courts. The 1922 USAA Draft In 1922 the committee returned to the A.B.A. with a new draft, this time a comprehensive arbitration act.32 This draft left section 1 as before, modified section 2 so that agreements to arbitrate both future and present controversies must be in writing, and left sections 3 through 8 largely as before, except for renumbering sections 7 and 8 as sections 8 and 9. Significant changes do, however, appear in the 1922 USAA draft. Provision was made for witnesses, fees, and summonses (§7). The so-called entry of judgment provision (§10),33 which also provides for seeking confirmation of awards, was added. Section 11 set out grounds for vacating awards, and section 12 provided for modification of awards. Section 13

88


dealt with procedures to be followed in applying sections 11 and 12; section 14 provided that upon confirmation of awards judgment might be entered, a judgment having the same effect as other judgments (§16), including appealability (§17). The additional coverage naturally also required further references to the courts that would be doing the things called for by the new sections. With one exception such additional references are to the "United States court in and for the district within which such award was made" (§§10, 11, 12), or to "the court," where "the" refers to the United States court already mentioned. The exception is in section 10, which allows the parties to specify a court in which judgment shall be entered on the award. Nothing in the text indicates whether this means both state and federal courts or only federal courts. With the 1922 draft, the A.B.A.'s "United States Arbitration Act"34 became a complete and integrated modern arbitration statute. It was not the first such piece of work, that honor evidently going to the Uniform State Act on Arbitration (which it very closely parallels) initially submitted to the A.B.A. by the committee in 1921, but then withdrawn and resubmitted at the same time as the 1922 USAA. The committee's recommendation of A.B.A. approval of the USAA 1922 draft35 was passed without dissent.36 The reformers were now ready to go to Washington. In Congress: The 1922 Bill The A.B.A.'s 1922 USAA draft was introduced in Congress in December 1922 by Senator Sterling in the Senate and Congressman Mills in the House.37 Each bill was referred to the respective committee on the judiciary. Extensive lobbying took place, particularly by Charles L. Bernheimer, Julius Henry Cohen, and W. H. H. Piatt, chairman of the A.B.A. committee.38 A subcommittee of the Senate Judiciary Committee held a hearing in January 1923.39 Charles L. Bernheimer (who was not a lawyer) was the first witness to testify before the subcommittee: This bill follows the lines of the New York arbitration law, applying it to the fields wherein there is Federal jurisdiction. These fields are

USAA: The Campaign

89

in admiralty and in foreign and interstate commerce. The Federal courts, even in the district of New York, have refused to apply the New York State law in admiralty cases. The fundamental conception underlying the law is to make arbitration agreements valid, irrevocable, and enforceable. The commercial bodies of the country have been urging the adoption of this principle of legislation throughout the country, and their point of view has now been accepted by the American Bar Association. In the report of the committee of that association, it is said: " * * * the adoption of * * * the Federal statute and the uniform State statute will put the United States in the forefront in this procedural reform. It will raise the standards of commercial ethics. It will reduce litigation. It will enable business men to settle their disputes expeditiously and economically, and will reduce the congestion in the Federal and State courts. In pressing forward this improvement in the law, the association will align itself with the best economic and commercial thought of the country, and will do much to overcome the criticism of'law's delay'".40

Bernheimer then went briefly through the content of the sections of the statute. Later in his testimony, describing the handling of disputes in New York, he said: Where they are involved as to New York State jurisdiction pure and simple, we press for arbitration, and we can get it because there is no difficulty about it; but the moment the Hudson River separates us, over in New Jersey, and when it is a Jersey case against a New York case, we can not do so.41

W. H. H. Piatt followed as a witness, summarizing briefly the history of the proposed bill in the A.B.A. Replying to an inquiry from Senator Walsh, Piatt stated that there had been two lines of argument against the bill in the A.B.A. "One was that it invaded the province of the courts and set up another system of jurisprudence or adjudication of commerce."42 The other was "that it created professional arbitrators and fellows that would take jobs away from lawyers."43 He stated flatly that those were the only arguments he had heard against the bill. Piatt also responded to a complaint from the head of the Seamen's Union, which was concerned that it would lead to compelling of arbitration between the stevedores and their employers.44 He said:

90

Nationalization of American Arbitration Law Now, it was not the intention of the bill to have any such effect as that. It was not the intention of this bill to make an industrial arbitration in any sense; and so I suggest that in as far as the [A.B.A.] committee is concerned, if your honorable committee should feel that there is any danger of that, they should add to the bill the following language, "but nothing herein contained shall apply to seamen or any class of workers in interstate and foreign commerce." It is not intended that this shall be an act referring to labor disputes at all.45

Senator Walsh then expressed concern about what we might now call the adhesive aspects of arbitration contracts. Having said that he saw no reason "why, when two men voluntarily agree to submit their controversy to arbitration, they should not be compelled to have it decided that way," he went on: The trouble about the matter is that a great many of these contracts that are entered into are really not voluntarily [sic] things at all. Take an insurance policy; there is a blank in it. You can take that or you can leave it. The agent has no power at all to decide it. Either you can make that contract or you can not make any contract. It is the same with a good many contracts of employment. A man says, "These are our terms. All right, take it or leave it." Well, there is nothing for the man to do except to sign it; and then he surrenders his right to have his case tried by the court, and has to have it tried before a tribunal in which he has no confidence at all.46

Piatt responded that it was not the intention of the bill to cover insurance cases.47 Senator Walsh continued to express concern about this problem, giving other examples — freight contracts and construction contracts — and pressing Piatt on the point. Piatt apparently conceded the need to do something about the problem.48 The subject of section 8 came before the committee in the form of a letter from a constituent of Senator Sterling, who read his comment: "Under section 8 of the bill jurisdiction is given regardless of the amount in controversy. I fear that the practical result of this provision will be to impose upon the district courts a burden of litigation in addition to that with which those courts are already practically overwhelmed."49 Following this, the committee then turned to the other bill before it, S. 4213, a Bill Relating to Sales and Contracts to Sell in Interstate Commerce. Also an A.B.A. bill, it was patterned on the Uni-

USAA: The Campaign

91

form Sales Act, then in effect in twenty-five of the forty-eight states. Much of the two pages of the brief discussion of this bill focuses on concerns about conflicts between the federal law and the law in the twenty-three states that had not enacted the Uniform Sales Act.50 Professor Samuel Williston's Brief in Support of S. 4213" deals extensively with these arguments, including the constitutionality of the bill, which applied to a sale or contract to sell if it expressly or impliedly provided that the goods shall be transported from a foreign country to one of the states, or from one of the states to or through another state or foreign country.52 (The significance of the contrast between this reaction to the Sales Act and the absence of any comparable reaction to the USAA draft is discussed in Chapter 9.) Following the discussion of the proposed federal sales act, Senator Sterling raised a number of small drafting problems in the USAA draft and suggested corrections.53 The hearing then closed. There was no hearing in the House and the bills were never reported out of the committees because of the lateness of the session.54 Back to the A.B.A.: 1923 In August the A.B.A. committee reported to the A.B.A. annual meeting that "owing to the lateness of the session and the pressure of other important business, the [USAA 1922 draft] bill was not reported by the committees," but that "Senator Sterling and Congressman Mills both promise hearty cooperation in pressing the bill to passage in the next Congress."55 With its August 1923 report, the A.B.A. committee also produced a new draft reflecting changes resulting from the reception of the USAA 1922 draft in Washington.56 The only substantive change was the addition to section 1 of the words: "but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."57 The committee also corrected the drafting blemishes that had been called to its attention by Senator Sterling.58 The A.B.A. approved this 1923 draft. 59 This 1923 USAA draft was destined to become the USAA, with only modest changes on its way through Congress.60

8 The USAA: Enactment

Hearings: January 1924 We, the People Armed with American Bar Association's approval of the 1923 USAA draft, 1 the A.B.A. committee returned to the fray. After Senator Sterling and Congressman Mills resubmitted the new A.B.A. draft in December,2 a joint hearing was held on January 9, 1924, by subcommittees of the two committees on the judiciary, Senator Sterling presiding.3 Julius Henry Cohen was added as heavy hitter to the roster of Bernheimer, James, and Piatt. Appearing on behalf of the bill also were Charles I. Stengle, a New York congressman, Senator Kendrick from Wyoming,4 and ten representatives of organizations of various kinds, including chambers of commerce, trade associations, the Arbitration Society, and the powerful American Farm Bureau Federation. Charles Bernheimer submitted a list of sixtyseven commercial organizations endorsing the proposed act. The committee also received a number of favorable letters from various organizations, as well as one from Herbert Hoover, then Secretary of Commerce. Hoover referred to "the urgent need" for the act, asserting that, because of the "clogging of our courts . . . the emergency exists for prompt action."5 No one appeared or, evidently, even wired or wrote, opposing the bill.6 92

USA A: Enactment

93

Senator Sterling opened the hearing with the statement, The hearing is upon S. 1005 and H.R. 646, being bills to make valid and enforceable written provisions or agreements for arbitration of disputes arising out of contracts, maritime transactions, or commerce among the State or Territories or with foreign nations.7 . . . This is practically the same bill that was before the Congress at the last session. . . . With some slight changes this bill, S. 1005, is the same.8

The testimony and interchange were quite similar to those at the hearing in 1923, except in two respects. There was more emphasis on the interstate nature of the act, to which we shall return below, and none of the subcommittee members expressed the kinds of doubts Senator Walsh had expressed the year before.9 Both Piatt and Cohen continued to assert that there was no opposition to the bill.10 Strictly speaking this was correct, but the opposition to the first draft of the proposed uniform law surfacing in August 1923 had certainly constituted opposition to the principle of future disputes coverage. This was, of course, a key part of the A.B.A.'s federal act. Nevertheless, the statements were justified retrospectively in August 1924 when the A.B.A. reaffirmed its support of the federal act, with no opposition on the floor.11 Charles L. Bernheimer: Leadoff Batter The first witness referring to the interstate aspects of the bill was Charles L. Bernheimer, who, in listing methods "by which to meet trade disputes" referred to arbitration having "legal sanction, whereby arbitration once agreed upon must be seen through, so that the parties can not, as they can in the most of our States and certainly in connection with interstate business, back out at the last moment when they see the case is going against them."12 Senator Sterling responded, "What you have in mind is that this proposed legislation relates to contracts arising in interstate commerce."13 Bernheimer replied, "Yes; entirely. The farmer who will sell his carload of potatoes, from Wyoming, to a dealer in the state of New Jersey, for instance. . . . " He then returned to his discussion of the workings of arbitration in his experience.

94


Julius Henry Cohen: Heavy Hitter Julius Henry Cohen was the next witness to discuss the interstate aspects: What does this bill do? It destroys the anachronism in the law. The very first sentence says if a man signs a contract for arbitration, it shall be irrevocable. It changes the law. Why do we do that in the Federal courts? We have it in New York State; the chamber of commerce and the other commercial bodies got together and got it through in New York. You have got it in New Jersey. The New Jersey Bar Association and the business men there got together and had it passed last year. Why do you have to have it in the Federal law? There are several reasons. First of all, it was held that a State statute was not binding in admiralty, even in the Federal courts. Judge Mack was most sympathetic, but he has had to follow the Federal law in admiralty. So in the case of the American Red Cross against the Fruit Co.14 he held — we filed a brief as amicus curiae —and he held that this statute did not help out when it came into the Federal court. And the Federal court will not be bound by any State statute. This is in three segments: The first is to get a State statute, and then to get a Federal law to cover interstate and foreign commerce and admiralty, and, third, to get a treaty with foreign countries. . . . But the great field of business — why are these merchants and these fruit shippers and those who are represented here, why are they for this? Because of interstate business. And you know that commerce is mostly interstate now. So that this is a great tonic that is needed to strengthen this patient in the field of commercial activity, because when business men know that they do not have to get a lawyer in California to enforce a case that does not involve more than four or five hundred dollars they will do more business.15

Cohen set out some of the provisions in New York law that have been incorporated in the federal bills and then went on: That is what we have done. But it can not be done under our constitutional form of government and cover the great fields of commerce until you gentlemen do it, in the exercise of your power to confer jurisdiction on the Federal courts. The theory on which you do this is that you have the right to tell the Federal courts how to proceed. And you say to the judge, "You used to hold that these things were not good; now they are good. You used to say you did not have

USAA: Enactment

95

jurisdiction; now you have jurisdiction." That is all there is to it. The language is such as to make it clear. That polishing work has been done for two years. The bill has been approved twice by the American Bar Association; not a word of dissension anywhere.16 Representative Hickey then asked Cohen where the arbitration would be held if the parties had not agreed to location, to which he replied that the court to which application was made would direct the location. The following exchange then took place: HICKEY: And the application would be made to the court where the party asking for the arbitration resides? COHEN: You would have to get jurisdiction just as you do now in a Federal court; by personal service. HICKEY: Where the defendant lives? COHEN: Where the defendant lives. That would mean practically that you have to go to the jurisdiction where the defendant is, or wait until he comes into your jurisdiction so that process may be served upon him. The process is exactly the same as in civil procedure in the Federal courts.17 After Cohen finished his testimony, Senator Sterling also responded to Representative Hickey's query by reading from section

10:

If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made. . . .

and If the adverse party is a resident of the district within which the award was made, such service shall be made upon the adverse party or his attorney as prescribed by law for service of notice of motion in an action in the same court.18 Opposition Anyone? After the appearance of Francis B. James, and Senator Sterling's reading into the record of a large number of letters and other endorsements of the bills, the following colloquy took place between Representative Dyer and Senator Sterling:

96

Nationalization of American Arbitration Law DYER: Is there anybody who has indicated any opposition in writing, or otherwise? CHAIRMAN: No; I knew of no real opposition when the bill was before the Senate subcommittee at the last session. DYER: There is no question of the authority of Congress to legislate on this subject as provided in the bill, is there? CHAIRMAN: I do not think there is. DYER: The authority and jurisdiction is ample? CHAIRMAN: Yes."

Alexander Rose: Cleanup Man Alexander Rose of the Arbitration Society of America, New York City, appeared next. After extensive discussion of the merits of arbitration Rose went on: We have a weakness in our system of arbitration. We need, and we must have the cooperation of the Federal courts. We must have the cooperation of the Federal statute, because while the dispute is a domestic one, we can well dispose of it. But when a merchant in New York sells his merchandise to some one in a foreign jurisdiction, his arbitration law is defeated, not so much by the fact that the thing is not specific enough, but by the course of events; by the logic of the situation. He can not get jurisdiction in a foreign State, and if he does get jurisdiction, the law of that foreign State may be different from the law here and may not be recognized as we have it here. It may be impossible to reduce it to a judgment in that State. He may not have the power to summon witnesses there. In short, he needs the aid of the Federal law in such cases, where interstate commerce is affected and where commerce with foreign nations is involved, or the subjects of foreign nations. . . . Now, there is this also to be said: There is one excellent result to be achieved in the enactment of this bill, apart from the enactment itself; it will set a standard throughout the United States. There are many States which have no arbitration law. We have one in New York and one in New Jersey. So far as I know, I think there is now pending in some Western States a bill to have an arbitration statute substantially the same as in New York. The other States have no statutes whatever. In the others there is common-law arbitration. There is a good deal of confusion in the law on this subject. The difference between common law and statutory arbitration is largely unknown. The legal profession themselves are largely ignorant of

USAA: Enactment

97

the subject of arbitration and its benefits, because it has fallen so largely into disuse. And the enactment of this law, extending its effect all over the United States, will have an effect upon the cause of that much-desired thing — uniform legislation on a subject of this character. I have no doubt all of the States would pattern after it

Cohen Brings His Pen to the Batter's Box The subcommittee hearing closed with the submission of a substantial brief by Cohen, which is appended to the transcript of the hearing. This brief is one of the most important aspects of the legislative history of the USAA. If there were ever any doubt about congressional understanding as to what it was doing respecting the applicability of the act, this brief would remove that doubt. While this would be a natural place to include extensive excerpts from the brief, doing so would result in considerable repetition in Chapter 9, which analyzes the legislative history. For that reason, it is treated there rather than here. House Judiciary Committee Report: Fast Work The House Judiciary Committee moved quickly, issuing a favorable report on January 24, 1924, only fifteen days after the hearing before the joint subcommittee.21 The report, after making plain that the bill originated with and was drafted by the A.B.A., stated that there was no opposition to the bill before the committee, discussed briefly the constitutional basis for the bill, summarized the arguments in favor of the bill, and recommended its adoption. Of particular importance are the parts of the report relating, directly or indirectly, to whether the proposed act was to be applicable only in federal courts or in both federal and state courts: The purpose of this bill is to make valid and enforcible agreements for arbitration contained in contracts involving interstate commerce or within the jurisdiction or admiralty, or which may be the subject of litigation in the Federal courts. It was drafted by a committee of the American Bar Association and is sponsored by that association and by a large number of trade bodies whose representatives ap-

98

Nationalization of American Arbitration Law peared before the committee on the hearing. There was no opposition to the bill before the committee. The matter is properly the subject of Federal action. Whether an agreement for arbitration shall be enforced or not is a question of procedure to be determined by the law court in which the proceeding is brought and not one of substantive law to be determined by the law of the forum in which the contract is made. Before such contracts could be enforced in the Federal courts, therefore, this law is essential. The bill declares that such agreements shall be recognized and enforced by the courts of the United States. The remedy is founded also upon the Federal control over interstate commerce and over admiralty. The control over interstate commerce reaches not only the actual physical interstate shipment of goods but also contracts relating to interstate commerce . . . The need for the law arises from an anachronism of our American law. . . . The bill declares simply that such agreements for arbitration shall be enforced, and provides a procedure in the Federal courts for their enforcement. . . . To secure jurisdiction for arbitration, however, service of process must be made personally, so that there is no danger that a defendant, having an honest defense, will be called upon to defend his case at a distance under a disadvantage. The proceeding will be commenced practically as any action is now commenced in the Federal courts.22

On the Floor of the House: February 1924 On February 5, 1924, two weeks after the report, H.R. 646 was placed on the Consent Calendar by Representative Graham, who summarized its provisions briefly, largely in terms of what it did not do: ... It does not involve any new principle of law except to provide a simple method by which the parties may be brought before the court in order to give enforcement to that which they have already agreed to. It does not affect any contract that has not the agreement in it to arbitrate, and only gives the opportunity after personal service of asking the parties to come in and carry through, in good faith, what they have agreed to do. It does nothing more than that. It creates no new legislation, grants no new rights, except a remedy to enforce an agreement in commercial contracts and in admiralty contracts.23

USA A: Enactment

99

In response to the question, "In what way does it affect the present understanding of the situation as between nations?" Graham responded, "It does not affect that at all. It only affects contracts relating to interstate subjects and contracts in admiralty."24 Objection was raised to such a long bill's being placed on the consent calendar and it was removed. Communications to Congress after the House Report On February 20, 1924, the member of the A.B.A. committee in charge of arbitration matters sent to the chairmen of the judiciary committees of the Senate and the House the following telegram: The decision by the United States Supreme Court handed down on Monday in Atlantic Fruit Company against Red Cross25 had an important bearing on the proposed United States Arbitration Law Senate one thousand and five House Representatives six forty six prepared by the American Bar Association. The United States Supreme Court holds that in an admiralty case arising in New York the New York arbitration statute is applicable and the remedy available. The decision goes a long way toward reversing the ancient error of revocability in arbitration agreements and would seem to remove the last vestige of doubt concerning the value of the public policy of making such agreements valid and enforceable. It gives added point to the necessity of putting all the federal courts on a parity of jurisdiction and furnishing a ready and inexpensive method of securing relief. I urge on behalf of the Committee on Commerce Trade and Commercial Law of the American Bar Association that you read the opinion.26

Copies of this night letter were also sent to all members of the Senate and House committees, as well as the press. On March 7, 1924, Piatt wrote the chairman and members of the Senate Judiciary Committee responding to various suggestions from Senator Walsh for amendments. Only the discussion of section 8 is pertinent to whether the USAA was intended to apply solely to the federal courts: Your suggestion that Section 8 be deleted so as to preserve the limitation on the jurisdiction of the federal courts, where the basis of

100

Nationalization of American Arbitration Law jurisdiction is diversity of citizenship, namely, that the controversy shall involve, exclusive of interest and costs, the sum of $3000, seems to us to deprive the smaller claimants in arbitration cases of the opportunity to resort to the courts, which it would seem is desirable they should have, as well as those involved in larger matters. We are, however, aware that there is considerable reluctance on the part of Congress to increase the jurisdiction of the federal courts, and if it be the view of your committee at this time that it is undesirable to include in the provisions, controversies involving less than $3000, we should be willing to approve of a limitation of $1000, and we trust that this will meet with your concurrence.27

Senate Committee Report: May 1924 On May 14, 1924, the Senate Judiciary Committee, adopting the reformers' arguments, reported the bill favorably, subject, however to some amendments.28 The report states the purpose of the bill simply by repeating section 2 verbatim, goes on to repeat the standard history of the common law of arbitration, discusses the need for change, and summarizes the sections of the bill. Most of the amendments were merely clarifying or relatively minor. Two were of some significance: (1) a proviso in section 4 that court-ordered arbitration hearings and proceedings were to be "within the district in which the petition for an order directing such arbitration is filed;"29(2) the deletion of section 8, which had greatly reduced the significance of the jurisdictional amount requirement in cases based on diversity of citizenship.30 There is no discussion of the amendments in the report, nor does the discussion throw any light on whether Congress intended state courts to be bound by the statute. The Final Touches: Victory! The House bill came to the floor, again on the Consent Calendar, on June 6, 1924. The following is Congressman Mills's entire explanation of the bill: "This bill provides that where there are commercial contracts and there is disagreement under the contract, the

USAA: Enactment

101

court can [en] force an arbitration agreement in the same way as other portions of the contract."31 Congressman Dyer added, "The result of such a bill will to be do away with a lot of expensive litigation."32 Three objections being required to block treating the bill on the Consent Calendar, and none being registered, the Clerk read the bill, "the bill was ordered to be engrossed and read a third time, was read the third time, and passed."33 The Senate bill first came to the floor on December 30, 1924, where it was explained briefly by Senator Walsh, who appears to have become a convert. Out of courtesy for an absent senator who had registered his opposition, the bill was not, however, considered.34 On January 31, 1925, the Senate bill was back again and was first considered by the Senate as a Committee of the Whole.35 The amendments recommended by the Judiciary Committee were agreed without discussion.36 Senator Caraway raised the only substantive question, namely, whether the amendment "touching the question as to where the arbitration shall take place" was in the bill.37 It was. The Senate then inserted the Senate version into the House bill, had the bill read a third time, and passed it without discussion.38 The Senate amendments came before the House on February 4, 1925. Brief and general inquiry was made whether the amendments introduced substantial changes and about the identity of the proponents of the bills.39 Upon being assured that there were no substantial differences,40 the House unanimously passed the Senate amendments with virtually no discussion.41 President Coolidge signed the new act on February 12, 1925, although it was (and is) applicable only to contracts made after January 1, 1926.42

9 The USAA: Analysis of Legislative History

The Bills Which Became the USAA: Structure The A.B.A. bill submitted to Congress in 1923 set out a comprehensive integrated modern arbitration law containing everything needed for a complete system of arbitration,1 other than the basic contract law necessarily underlying any such system.2 This was true of both the federal and the arbitration aspects of the proposed acts.3 The structure of each is revealing of the exclusively federal nature of the USAA. Basic Principles Sections 1 and 2 establish the kinds of transactions covered by the act, limiting them to subjects over which the federal government unquestionably had substantive constitutional power: commerce and maritime matters. In addition, section 2 establishes the basic principle of full enforceability of arbitration agreements, whether of present or future disputes. Core Implementation of Basic Principles Sections 3 and 4 are the key sections implementing the enforceability principle: Section 3 stays litigation pending arbitration; Section 102

USA A: A nalysis of Legislative History

103

4 specifically enforces agreements to arbitrate. Although both are explicitly limited to federal courts, they differ in an important respect. While section 4 contains a jurisdictional provision, section 3 does not. The reason for this lies in the nature of the remedy. No need would exist to stay litigation under section 3 if the federal court lacked jurisdiction, since in such event the suit would be dismissed for lack of jurisdiction. But the jurisdiction of a federal court granting specific performance of an arbitration agreement must be set out somewhere, which section 4 does.4 Supplemental Implementation of Basic Principles Sections 5 and 6 both supplement sections 2 and 4 by providing for judicial appointment of arbitrators where required. They therefore contain nothing relating to jurisdiction —already provided in section 4 —and their references to courts are to "the court," meaning the federal court referred to in section 4. Section 7 further supplements the section 2 principle by conferring powers on the arbitrators to summon witnesses, and so forth. Reinforcing those arbitrator powers are judicial powers to enforce arbitrator subpoenas. Section 7 is keyed back to the prior sections by limiting its terms to "arbitrators selected either as prescribed in this act or otherwise."5 Once again its terms are limited to federal courts. Section 7 also contains a jurisdictional provision: the arbitrators can call for this judicial assistance from any district court in whose district they are sitting. Section 106 also implemented the section 2 principle by providing for confirmation of awards by court order. (At common law it was necessary to bring an action Qr a suit in equity on the award.) This section, too, refers to courts and is the only section in the bills arguably referring to state (or foreign) courts as well as federal courts: §10. If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agreement of the parties,


104

then such application may be made to the United States court in and for the district within which such award was made. . . .

Read literally, a court "so specified" could be a state or foreign court rather than a federal court. Whether the parties could, by specifying a nonfederal court, extend the application of the USAA to state courts pursuant to this section is unclear from the language of the section. On the one hand, their being able to do so is inconsistent with all the rest of the terms of the statute limiting it to federal courts. On the other hand, the intrusion of federal law on existing state law in such a case would have been relatively minor. The section pertains only to confirmation of awards, merely a simpler way of securing the judgments the state courts habitually gave anyway under state statutes or common law or both.7 But, however this ambiguity might be resolved, there is nothing in the section to suggest an intention of either the A.B.A. or Congress that the USAA was to apply generally in state courts.8 Other supplemental sections include section 14,9 providing that upon granting an order confirming, modifying, or correcting an award, judgment could be entered thereon. Under section 1510 this judgment had the same effect as and could be enforced in the same way as if it had been rendered in an action. Regulatory Provisions Sections 11 and 12" constitute limitations on the basic principle enunciated in section 2 in the form of specified grounds for vacation and modification of arbitration awards. They do not, however, constitute a significant departure from common law or statutory arbitration as it existed before modern arbitration statutes. The A.B.A. and Congress might have adopted the USAA without such sections12 and simply relied on the common law. Instead this somewhat tidier solution was adopted. (Section 1313 provides procedures for sections 11 and 12.) These regulatory provisions necessarily also refer to courts, and the courts referred to are federal.14 Miscellaneous Provisions Two jurisdictional provisions, sections 815 and 916 provide further information about the federal nature of these bills.

USAA: Analysis of Legislative History

105

Section 8 diluted the requirement of the jurisdictional amount (then $3000) in diversity cases pertaining to the act. Although it was deleted before enactment of the USAA, its initial inclusion reflects the intention of the A.B.A. (and of Congress) that the USAA be applicable only in federal court. The provision would have been largely unnecessary if the act governed state as well as federal courts. That the A.B.A. so understood section 8 is made manifest by a letter following the 1924 hearings'7 from Mr. Piatt to Senator Walsh. This letter dealt with, among other things, the Senator's proposal to delete section 8. Doing so, according to Mr. Piatt, "seems to us to deprive the smaller claimants in arbitration cases of the opportunity to resort to the courts, which it would seem is desirable they should have, as well as those involved in larger matters."18 This shows without question that Piatt understood that the USAA would govern only in federal court. If it were going to govern the state as well as the federal courts, the deletion of section 8 would not deprive smaller claimants of "the opportunity to resort to the courts." It would have deprived them only of the opportunity to resort to the federal courts. The objection in the letter to deletion of section 8 thus makes sense only if the USAA was understood to be applicable only in the federal, not in the state, courts.19 Section 920 shows that even where Congress used the generic term "the court" it intended to limit the term to the federal court. This section provides for starting arbitration proceedings in admiralty by filing a libel and seizing the vessel or other property of the other party. "The court" then has jurisdiction. This phrase necessarily meant the federal court. Only federal courts sit in proceedings justiciable "in admiralty."21 And only federal courts entertain proceedings commenced by "libel and seizure of the vessel or other property of the other party according to the usual course of admiralty proceedings."22 Procedures for motions for orders confirming, modifying, or correcting awards are set out in section 15.23 Appeals from orders or judgments were provided for in sections 14 and 16.24 An Integrated Statute The structure of the USAA reveals an unquestionably integrated, unitary statute, consisting of core provisions and provisions supple-

106


menting them. In particular, any idea that section 2 is somehow independent of the remaining sections, that it creates its own system of independent regulation separate from the remaining sections is a historical absurdity.25 The language in section 2 that written arbitration agreements "shall be valid, irrevocable and enforceable" is lifted directly from the New York Arbitration Law of 1920.26 Any starting point of historical analysis must, therefore, be the New York act. In that act the language served several purposes: (1) It was the coat hook on which to hang two things. One was a formal coat, since only arbitration agreements meeting the formal requirement of writing were "valid, enforcible and irrevocable." The second was the substantive coat of validity, enforceability, and irrevocability, the pockets of which contained all the sections following section 2 implementing those substantive principles. (2) It was the foundation for the limitation "save upon such grounds as exist at law or in equity for the revocation of any contract." (3) And finally, or perhaps first in the minds of the reformers, it laid to rest for good any idea that arbitration agreements were somehow or other tainted kinds of contracts.27 In interpreting the USAA, perhaps more important is what the language "shall be valid, enforcible and irrevocable" in the New York act did not mean. It certainly did not mean that the act created any substantive law beyond the procedural limitations in the sections following in the act. In particular, given the universal understanding of the procedural, remedial, forum-based nature of arbitration law, it most emphatically did not mean that complying New York arbitration agreements had acquired a new substantive content binding courts of jurisdictions other than New York. Had there been any doubt of this it was laid to rest in 1921 by the New York Court of Appeals in Berkovitz v. Arbib & Houlberg (Inc.) (N.Y. 1921).28 This opinion was appended to the report of the 1923 hearing on the USAA;29 there can thus be little doubt that the committee knew of it. There is thus no foundation for a belief that the A.B.A. and Congress had any intention of enacting anything but an integrated statute, either applicable in its entirety to any given proceeding in any given court or not at all. This fact gives particular significance to the constant reference to federal courts throughout the


107

act. Either the A.B.A. and Congress were being extraordinarily dense in failing to recognize that those references should be to all courts, or they meant exactly what they said when they referred only to federal courts. In the latter case, given that they were enacting an integrated statute, they must also have meant sections 1 and 2 to be applicable only in federal courts, in spite of the generality of the language of those two sections when viewed discretely. It may also be noted that none of the modern arbitration statutes extant at the time of enactment of the USAA included a section making agreements to arbitrate valid, irrevocable, and enforceable, without including provisions like sections 3 and 4 and numerous other provisions of the kind found in the 1922 and 1923 bills. Nor did any simply include the procedural sections without the substantive equivalent of USAA §2. This was true of the 1920 New York arbitration act,30 all the A.B.A. drafts of the USAA, the early efforts at a uniform arbitration act, and the New Jersey law of 1923. Nor has any modern arbitration act since then done so. Any reading of the USAA leading to substantive and procedural parts with differing applicability creates a monstrosity found nowhere else in the world of American arbitration.31 Given the origin of the phrase "valid, irrevocable and enforceable," only the strongest evidence could justify a conclusion that Congress meant that phrase in section 2 to create substantive law somehow separate from the sections following. Before turning to see if such evidence can be found in the hearings, an introduction to the context in which Congress considered the USAA bill is in order. The All-Important Context Rubber-stamped Legislation As will be seen, the role of Congress in enacting the USAA was the limited one of making a few modest changes in what the A.B.A. presented to it and, finally, of putting its stamp of approval on the bar association's product.32 That this was the A.B.A.'s product is acknowledged explicitly in the legislative history: SENATOR STERLING: I just read over this bill [the USAA] again hastily this morning. I was concerned over the phraseology of the bill. I do not think that the bill is as carefully drawn as your sales bill.33

108

Nationalization of American Arbitration Law MR. JAMES: Professor Williston did not draft that. Julius Henry Cohen did it, primarily. SENATOR STERLING: You say, "shall be valid, enforceable, and irrevocable." . . . Then you use this language:. . . . You should say. . . . Then^ow say in line 18 on page 3 of the bill: . . . 34

The point is also vividly illustrated by a remark of two early commentators: "It is ... remarkable how so important and far reaching legislation can emerge from Congress with such a dearth of intelligent discussion."35 There was, however, plenty of "intelligent discussion"; it just happened to occur in the A.B.A. and its committees, rather than in Congress. What is remarkable — if it is remarkable—is that Congress enacted such important legislation with none of its committees engaging in almost any "intelligent discussion." The "intention of Congress" to be sought in interpreting such legislation cannot be quite the same as it is respecting legislation Congress itself has crafted. When Congress itself crafts legislation, the search is to ascertain what it understood itself to be crafting. When it simply enacts legislation presented to it, the proper question is how Congress understood what was presented and upon which it put its stamp of approval. To seek an independent intention in such cases is to seek something that never existed, even in the somewhat ethereal world of legislative intention. Similarly, to the extent that the idea of congressional purpose is an appropriate subject of inquiry, Congress's purpose in such legislation of adhesion is entirely derivative from the purpose of those presenting the legislation to Congress. In such cases, where the language of the statute is unclear, if we wish to ascertain Congress's intention and purpose, our focal point must be what Congress understood to be the goals of those presenting the fully drafted statute. In the absence of convincing evidence of a different or of additional congressional intentions or purposes, it is the sheerest fiction in these circumstances for a court to find one.36 These are not, of course, hard and fast distinctions, but parts of a continuum. This continuum ranges from a pure rubber stamp of legislative approval following presentation of the privately drafted bill on the one hand to legislation entirely crafted by a legislator or legislative committee with no external input on the other. The USAA is —perhaps unusually so for a major piece of legislation—


109

very close to the rubber stamp model. The role of the congressional committees was almost entirely that of finding out what the proposed bill did, why its proponents favored it, and if anyone opposed it. There were few exceptions to this pattern, the major ones being the elimination of "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,"37 and the elimination of section 8 diluting the jurisdictional amount in arbitration cases in federal court under diversity jurisdiction. In the Beginning Was the Reform Movement Thus, in one sense any study of the legislative history of the USAA necessarily begins with the reform movement. The USAA can be understood only as an artifact of that movement —as the product, not of Congress itself, but of the reformers working through the A.B.A. Nonetheless, it is congressional understanding and purpose we seek, and things unknown to Congress in 1925, even though known to the reformers at the time and to us now, are not directly pertinent to our search. The following analysis of the legislative history is, therefore, confined to a conventional legislative history limited to the existing law, bills, committee hearings, reports, and floor debate (such as it was) starting with the introduction of the first bill in Congress in 1922.38 The Legal Background Perhaps the most important single factor in understanding congressional intention respecting the USAA is the legal background against which the USAA was presented to Congress. And the most important fact in the legal background was the universal understanding in the period from 1922 to 1925 that the enforcement and nonenforcement of arbitration agreements and awards, particularly specific enforcement of arbitration agreements, were matters of remedy. In that day, before Erie39 had complicated such matters, remedial issues of this kind were indisputably within the exclusive province of the court in which enforcement was sought, the forum court. Moreover, the federal courts plainly were hellbent on sticking to the proposition that state arbitration statutes were not sub-

110


stantive law, and hence not binding on the federal courts. This was their position, whether in admiralty or in diversity cases, and whether or not interstate commerce was involved. In interpreting a statute it is normally assumed that the legislature is aware of the existing law prior to enactment of the statute. In this instance, however, it is unnecessary to rely on such an assumption. There is ample evidence that Congress in 1922 to 1925 was fully aware of the legal rule that arbitration was a remedial matter within the exclusive authority of the forum court. It was, indeed, precisely this fact upon which the A.B.A. based the case for enactment of its USAA. The forum-remedial nature of arbitration is implicit in the testimony of Charles Bernheimer respecting the federal courts in the 1923 committee hearing.40 In addition, the New York Court of Appeals opinion in Berkovitz v. Arbib & Houlberg41 is appended to the 1923 hearing report.42 In upholding the applicability of the 1920 New York law to preexisting contracts, Chief Judge Cardozo wrote the following: The common-law limitation upon the enforcement of promises to arbitrate is part of the law of remedies. . . . The rule to be applied is the rule of the forum. Both in this court and elsewhere, the law has been so declared. Arbitration is a form of procedure whereby differences may be settled. It is not a definition of the rights and wrongs out of which differences grow. . . . 43

It may be noted that the three senators on the Senate subcommittee conducting the 1923 hearing were the same senators who served on the joint Senate-House subcommittee conducting the 1924 hearings leading to enactment of the USAA.44 In the 1924 hearings the testimony of Julius Henry Cohen repeated the forum-remedial nature of arbitration and applied it explicitly to the proposed act.45 This theme was also expounded extensively in Cohen's brief submitted at the 1924 committee hearings: A Federal statute providing for the enforcement of arbitration agreements does relate solely to procedure of the Federal courts. ... To be sure whether or not a contract exists is a question of the substantive law of the jurisdiction wherein the contract was made. But whether or not an arbitration agreement is to be enforced is a question of the law of procedure and is determined by the law of the jurisdiction wherein the remedy is sought.


111

That the enforcement of arbitration contracts is within the law of procedure as distinguished from substantive law is well settled by the decisions of our courts. [Citation of several federal and three New York cases.] The rule is succinctly stated in the Meacham case,46 supra; "An agreement that all differences arising under a contract shall be submitted to arbitration relates to the law of remedies, and the law that governs remedies is the law of the forum." Neither is it true that such a statute, when it declares arbitration agreements to be valid, declares their existence as a matter of substantive law. The courts have always recognized that such agreements have existed but have refused to enforce them. . . . While the courts refused to enforce arbitration agreements specifically, they recognized their existence because they gave another remedy. From the earliest times it was held that for a breach of arbitration agreement the aggrieved party was en titled to damages. [Citations.] . . . 47 As we have already shown and as the Berkovitz case, . . . declares again, the question of the enforcement relates to the law of remedies and not to substantive tow.48

If there were any doubt left that Congress understood this point it is laid to rest by the report of the House Judiciary Committee, which explicitly states: "Whether an agreement of arbitration shall be enforced or not is a question of procedure to be determined by the law court in which the proceeding is brought and not one of substantive law to be determined by the law of the forum in which the contract is made."49 In sum, faced with this unquestioned rule of law, Congress could have intended the USAA to apply outside the federal courts only if it had also intended to overrule a well-understood, well-established, and well-accepted allocation of powers among courts generally and between the state courts and the federal courts particularly. That Congress had power to do so and might have done so is not the question. The question is, did it? The Hearings: What Was Said and What Was Not Said What Was Said (and Written) Throughout both the 1923 and 1924 hearings, the A.B.A. and its friends made plain that it intended its proposed act to apply only in the federal courts. For example, Alexander Rose testified:

112

Nationalization of American Arbitration Law There is one excellent result to be achieved in the enactment of this bill, apart from the enactment itself; it will set a standard throughout the United States. There are many States which have no arbitration law. . . . [T]he enactment of this law, extending its effect all over the United States, will have an effect upon the cause of that muchdesired thing —uniform legislation on a subject of this character. I have no doubt all of the States would pattern after it.50

Thus Rose saw two effects of the USAA, legal and moral. It may be noted that the moral effect on state law he describes would have been moot if the USAA superseded state law in state courts under the Supremacy Clause. The most important testimony on this point is that of Julius Henry Cohen at the 1924 hearings, made both orally and in his brief. It is unnecessary to repeat all that has been set out in Chapter 8 from his testimony, but the following language particularly stands out: But [developing modern arbitration law] can not be done under our constitutional form of government and cover the great fields of commerce until you gentlemen do it, in the exercise of your power to confer jurisdiction on the Federal courts. The theory on which you do this is that you have the right to tell the Federal courts how to proceed.51 Similarly in his brief Cohen said of the A.B.A.'s bill: The Federal courts are given jurisdiction to enforce such agreements whenever under the Judicial Code they would normally have jurisdiction of a controversy between the parties. . . . First, any suit commenced in a Federal court upon an issue referable to arbitration may be stayed until arbitration is had. . . . 52 It has been suggested that the proposed law depends for its validity upon the exercise of the interstate-commerce and admiralty powers of Congress. This is not the fact. The statute as drawn establishes a procedure in the Federal courts for the enforcement of arbitration agreements. It rests upon the constitutional provision by which Congress is authorized to establish and control inferior Federal courts. So far as congressional acts relate to the procedure in the Federal courts, they are clearly within the congressional power. . . . A Federal statute providing for the enforcement of arbitration

USA A: A nalysis of Legislative History

113

agreements does relate solely to procedure of the Federal courts. It is no infringement upon the right of each State to decide for itself what contracts shall or shall not exist under its laws. To be sure whether or not a contract exists is a question of the substantive law of the jurisdiction wherein the contract was made. But whether or not an arbitration agreement is to be enforced is a question of the law of procedure and is determined by the law of the jurisdiction wherein the remedy is sought. . . . " The primary purpose of the statute is to make enforcible in the Federal courts such agreements for arbitration, and for this purpose Congress rests solely upon its power to prescribe the jurisdiction and duties of the Federal courts. . . . 54 Nor can it be said that the Congress of the United States, directing its own courts no longer to recognize this anachronism in the law, would infringe upon the provinces or prerogatives of the States. As we have already shown and as the Berkovitz case, supra, declares again, the question of the enforcement relates to the law of remedies and not to substantive law. The rule must be changed for the jurisdiction in which the agreement is sought to be enforced, and a change in the jurisdiction in which it was made is of no effect. Every one of the States in the Union might declare such agreement to be valid and enforcable [sic], and still in the Federal courts it would remain void and uneforcable [sic] unless the Supreme Court of the United States felt at liberty itself to reverse a rult [sic] recognized for centuries. This, in the absence of a congressional declaration, it has so far felt itself unable to do. . . . 55 There is no less reason to believe that the Federal courts will give equally sincere support [as the New York courts give the New York statute] in the application of a similar Federal statute. . . . 56 Further indication that the statute was intended to be limited to federal courts is found in Cohen's brief following the foregoing quotation where he says, "It is desired only that the Federal Government shall declare the validity of arbitration agreements in the field where necessarily it is supreme and where without this action no remedial action by the States ever can be effected."51 The only "field" where Congress was supreme and the State could not provide for the effective enforceability of arbitration agreements was that of cases in federal courts.58 The States at that time had unquestioned power to allow their own courts to enforce arbitration agreements, whether such agreements involved interstate commerce or

not.

114


At one point in his brief Cohen does mention the power of Congress to require state courts to enforce arbitration agreements: So far as the present law [the proposed USAA] declares simply the policy of recognizing and enforcing arbitration agreements in the Federal courts it does not encroach upon the province of the individual States. It seems probable, however, that Congress has ample power to declare that all arbitration agreements connected with interstate commerce or admiralty transactions shall be recognized as valid and enforcible even by the State courts. In both cases the Federal power is supreme. Congress may act at its will, and having acted, no law or regulation of a State inconsistent with the congressional act can be given any force or effect even in the courts of the State itself. They are as much bound to carry out the provisions of such a Federal statute as though it was an act of their own legislature. . . . 59

The first sentence of this paragraph taken by itself contains a slight ambiguity.60 This may be attributable to Cohen's undoubted wish in his heart of hearts to see arbitration agreements enforceable everywhere. Nonetheless, taken in context he is simply noting that Congress probably could require state courts to enforce arbitration agreements in interstate commerce or admiralty, not that this proposed statute does so.61 This is made clear in the paragraphs following, particularly where he says: Even if, however, it should be held that Congress has no power to declare generally that in all contracts relating to interstate commerce arbitration agreements shall be valid, the present statute is not materially affected. The primary purpose of the statute is to make enforcible in the Federal courts such agreements for arbitration, and for this purpose Congress rests solely upon its power to prescribe the jurisdiction and duties of the Federal courts.62

Cohen's most colorful disclaimer of any intention to have the USAA govern in state courts is, "There is no disposition therefore by means of the Federal bludgeon to force an individual State into an unwilling submission to arbitration enforcement."63 Had there ever been any doubt —there was not — concerning the limitation of the USAA to the federal courts, Cohen's brief certainly would have removed it.


115

No Opposition: The Dogs Which Didn't Bark A final important fact revealed by the hearings is in Sherlock Holmes's category of The Dog Which Didn't Bark. There was no opposition to the USAA. In both 1923 and 1924 the witnesses were at pains to stress, and the committees at pains to confirm, the complete lack of opposition to the proposed federal legislation.64 This lack of opposition is explicable only if everyone aware of the proposed legislation—which included, inter alia, all members of

the A.B.A. who bothered to read their mail — understood it to be limited to the federal courts. To understand the importance of the absence of opposition it is helpful to put ourselves back into the context of 1925. At that time, the entire infrastructure of interstate contract law and of commercial law was state, not federal, law. Moreover, in 1925 that state infrastructure had not yet been eroded, penetrated, and overlaid by the massive New Deal and post-New Deal expansion of federal government regulation of the economy so affecting our present conceptions of federal-state relations. An integral part of that essential state infrastructure for interstate commerce included the state judicial systems, including most certainly their remedial techniques. At that time, granting or failing to grant specific performance of arbitration agreements was universally recognized as a matter of remedy and the business of the forum court. A mandatory federal requirement that the state courts grant such specific performance in cases involving interstate commerce would have been a major and extraordinary expansion of federal power. It would hardly have started another Civil War, but it would certainly have been enough to cause an immense stir in legislative and legal circles.65 This was particularly so in 1925, when only three of the forty-eight states had modern arbitration statutes. In the other forty-five states, a USAA superseding state law would have overruled well-established existing state remedial law in state courts. The integrated nature of the USAA becomes of importance in understanding that it would have been viewed in 1925 as a massive interference with state law had it been intended to apply in state courts. As already noted, Congress clearly understood that all sections of the act would apply wherever any of it applied. Taken

116


together the USAA is not simply the rule of "substantive" law in section 2 that arbitration agreements "shall be valid, irrevocable, and enforceable," but a complete modern arbitration statute, much of it devoted to procedural matters. These procedural matters range from major provisions for stays,66 orders to arbitrate,67 handling disputes over the existence of an arbitration agreement,68 appointment of arbitrators,69 and confirmations of awards70 to such procedural details as the amount of witness fees71 and papers to be filed with motions.72 Even today after Southland Corp. v. Keating (U.S. 1984),73 the Court has yet to have the courage to say that all those sections govern state courts; it is still dillydallying about the issue.74 The magnitude of imposition of federal law on the state courts if the A.B.A. and Congress had, contrary to fact, intended the USAA to apply in state courts may be seen in the wide range and seriousness of the problems discussed below75 concerning the impact of Southland. It is quite inconceivable that such a bill could have sailed through either the A.B.A. or Congress with no opposition on this score. This was, after all 1921 to 1925, hardly an era of great enthusiasm for the expansion of federal power.76 Thus the fact that there was no opposition to the USAA reinforces what all the rest of the evidence makes patent: the USAA was intended to be applicable only in the federal courts; this fact was thoroughly understand by everyone in 1925. That the dogs could and did bark about such issues involving other legislation is illustrated by the handling of the proposed federal sales act before the subcommittee in the 1923 hearing and the reaction of the subcommittee to it. (Discussion of the arbitration act immediately preceded and followed the brief treatment accorded the sales act.)77 In contrast to its presentation of the arbitration bill, the A.B.A. representative stressed how many states had enacted the uniform sales act, upon which the proposed federal sales act was based. Senator Walsh in turn stressed how many had not and the duality of law that would be created for such states if sales in interstate commerce were treated differently from intrastate sales.78 A senator so concerned about that problem respecting the sales act would hardly have sat back and said nothing on the identical subject respecting the arbitration act if he had thought for an instant that the latter was to govern state courts. This is particularly true of a senator


117

who only a short while earlier had shown considerable concern about some aspects of the substance of the proposed act.79 In sum, the hearings confirm what is already clear from the prior background and the bills themselves: the proposed USAA was intended to apply only in federal courts. It was never intended to create substantive federal regulatory law superseding state law under the Supremacy Clause of the federal Constitution. This is clear both from the explicit testimony of the proponents and from the absence of opposition to the bills, which had been thoroughly publicized throughout the legal profession. The House Judiciary Committee Report The first committee report, that of the House Judiciary Committee, plainly states: Whether an agreement for arbitration shall be enforced or not is a question of procedure to be determined by the law court in which the proceeding is brought and not one of substantive law to be determined by the law of the forum in which the contract is made. Before such contracts could be enforced in the Federal courts, therefore, this law is essential. The bill declares that such agreements shall be recognized and enforced by the courts of the United States.80

This statement is entirely consistent with everything that had gone before limiting the proposed law to the federal courts. It is also consistent with the sentences immediately following in the report, "The remedy is founded also upon the Federal control over interstate commerce and over admiralty. The control over interstate commerce reaches not only the actual physical interstate shipment of goods but also contracts relating to interstate commerce."81 Both standing alone and in context these sentences simply set out an additional source of congressional power to direct federal courts to enforce arbitration agreements. They say nothing whatever about the content of the bill: "The remedy" necessarily refers to that described in the preceding sentence, enforcement in Federal courts. Only the most fevered imagination could rewrite the first of the two sentences just quoted to read, "The bill also extends the remedy to state courts, an extension founded upon the Federal

118


control over interstate commerce and admiralty, which is also a second constitutional foundation for the remedy the bill provides in the Federal courts." Yet that is how the sentence must be read to extend the USAA beyond the federal courts. A similarly heightened imagination would be required to expand a later sentence in the report to extend the bill to state courts: "The bill declares simply that such agreements for arbitration shall be enforced, and provides a procedure in the Federal courts for their enforcement."82 One sentence, the very first in the report, on its face seems at first to suggest that state courts are covered by the bill: "The purpose of this bill is to make valid and enforcible agreements for arbitration contained in contracts involving interstate commerce or within the jurisdiction or [sic] admiralty, or which may be the subject of litigation in the Federal courts."83 The emphasized word "or" is quite plainly and simply a clerical or typographical mistake. The intention of the writers of the Report was one of addition, not of alternative. This conclusion is supported by a number of facts. First, if "or" really means or, the USAA would govern arbitration agreements in intrastate transactions whenever they were made "the subject of litigation in the Federal courts." That is plainly and simply wrong. Any such intention by the committee would have contradicted the explicit terms in sections 1 and 2 limiting their application to interstate commerce and maritime transactions. This is something that no one has ever had the effrontery to suggest.84 It should not be thought that the applicability of the USAA to intrastate transactions would have been a matter of insignificance in 1925. The litigation of intrastate transactions in diversity suits in federal courts was a common occurrence in the 1920s, given the Supreme Court's restrictive interpretation of the commerce clause.85 It should be noted that the sentence in question has been read in yet another way, a nonsensical one. This reading must, however, be treated because the reader is the Supreme Court of the United States.86 The Court concluded that the writers of the report meant in the first clause of the sentence that section 2 would govern all transactions in interstate commerce, although the second clause did not make the act applicable to transactions in intrastate commerce in federal courts.87 In other words, for one purpose it held the


119

word "or" to mean "or in the alternative," and for another to mean "and which in addition." The foregoing reading is not a literal one, which would have led to section 2 coverage of intrastate transactions in violation of its terms and overruling of Bernhardt v. Polygraphic Co. of America, Inc. (U.S. 1956).88 Nor is it an exploratory one, which would have dug behind the ambiguity to the genuine intention of the committee. It is purely and simply an inaccurate reading. As such it led to conclusions having no foundation whatever in reality either in terms of objective expression or in terms of real intention.89 The second factor leading to the conclusion that the use of this "or" was simply a clerical or typographical error is contextual. Even putting aside the difficulties just discussed, reading the word "or" in the report so as to make the USAA supersede state law in state courts is at odds with all the rest of the legislative history already described. The word "or" is, in other words, contextually nonsensical. This is precisely the kind of situation in which courts ignore the literal words of statutes in favor of what the legislature must have really meant.90 The same principle would apply a fortiori to legislative committee reports, themselves less authoritative in general than legislation itself. Finally, although not probative in itself, the presence in the report of other similar clerical or typographical errors reflects the danger of reading the report literally at all costs. In the very same sentence in question another unquestionable error appears in the phrase: "within the jurisdiction or admiralty." This, of course, makes no sense, and must mean "within the jurisdiction of admiralty." If there can be one such error, there can be more than one. Later Communications to Congress Two communications from the A.B.A. committee following the House report once again make clear the intentions of all concerned that the USAA would apply only in the federal courts. The first of these was the telegram on February 20, 1924, to the chairmen of the judiciary committees of the Senate and the House, copied later to all the committee members by letter.91 This letter, referring to the relation between the proposed USAA and the Supreme Court's

120


decision just handed down in Red Cross Line v. Atlantic Fruit Company (U.S. 1924),92 says: "It gives added point to the necessity of putting all the federal courts on a parity of jurisdiction and furnishing a ready and inexpensive method of securing relief."93 The other A.B.A. communication was Piatt's letter of March 7, 1924, to Senator Walsh, which among other things, questioned the Senator's proposal to delete section 8 providing for a diluted jurisdictional amount in diversity cases. It has already been pointed out that this objection makes sense only if the USAA was understood to be applicable solely in federal, not in state, courts. The Senate Report As already indicated,94 the report of the Senate Judiciary Committee casts no additional light on whether Congress intended the USAA to apply in the state courts. On The Floor of Congress In the discussions, such as they were, on the House and Senate floors, what was said casts virtually no additional light on the question of applicability in state courts. But what was not said casts a great deal of light on that issue. The lack of comment strongly implies that the bill was well understood to do nothing of a revolutionary nature, such as regulating remedies and detailed procedures in the state courts. The significance of this silence is affirmed by the downplaying remarks of Representative Graham. These culminated in the sentence: "It creates no new legislation, grants no new rights, except a remedy to enforce an agreement in commercial contracts and in admiralty contracts."95 This is not the kind of language any congressmen could have understood as meaning, "Respecting arbitration in interstate commerce, we are about to overthrow a fundamental principle of federal-state relations by regulating in an extended and detailed manner procedure in state courts." Had the language been so understood, it is most unlikely that the bill would have passed either house, and inconceivable that no one in either house would have dissented.


121

This completes the analysis of the legislative history of the USAA. It more than justifies the statement of Justice O'Connor in Southland Corp. v. Keating (U.S. 1984), "One rarely finds a legislative history as unambiguous as the FAA's."96 There is no serious ambiguity here. In Chapter 11,1 shall return to a remarkably different version of the USAA's legislative history in the opinion of Chief Justice Burger in Southland.

10 The USAA: Interpreted as Congress Intended

Commentaries: 1925-38 The most important and the earliest of the commentaries on the new USAA came straight from the horse's mouth the very next month after its passage. This was the A.B.A. Committee on Commerce, Trade and Commercial Law, writing in the March 1925 issue of the A.B.A. Journal.1 The committee first rang the church bells to celebrate its triumph, then presented a brief history of the act and a summary of its provisions. There followed a section headed "Legal Justification," which was lifted almost verbatim from Julius Henry Cohen's brief submitted to the joint subcommittee.2 Since this language and its plain purport that the USAA governed only in federal courts has already been discussed,3 it is unnecessary to repeat the analysis here. This commentary on the USAA —about as official a commentary as one could find —also contained a discussion of the proposed Uniform Arbitration Act (UAA 1924), which, unlike the USAA, did not make agreements to arbitrate future disputes enforceable.4 This discussion is enlightening respecting the USAA. The pertinent part of the argument goes as follows: "[H]ow can the legislative situation be uniform in the States, if there is a different policy in the case of contracts involving intrastate commerce from that now made national in the case of contracts involving interstate com122

USAA: Interpreted as Congress Intended

123

merce?"5 So far the quotation appears to suggest that the new USAA is indeed a regulatory statute governing state courts. What immediately follows, however, makes plain that this is not the case: And why should merchants whose claims being under $3,0006 must apply to state courts for relief, meet a situation where, if the claim is against a non-resident and involves interstate commerce, the contract for arbitration is valid; but, though it be $10,000, if it be against a fellow resident or involve only intrastate commerce, it is invalid and revocable?7

There could be no clearer indication than this that the very committee which instigated the bill and was entirely responsible for Congress's understanding of it, knew that the USAA governed only in federal courts. Two months later, another principal, Charles L. Bernheimer, published a small article extolling the new act.8 Bernheimer, a nonlawyer, had trouble, as in fact did some of the lawyers, with that difficult word "jurisdiction." In the article he states that the law applied the principles of the New York act "to the fields wherein there is federal jurisdiction. These fields are in admiralty and in foreign and interstate commerce."9 But any possible implication that these jurisdictional fields extend beyond the federal courts disappears when he later says: "Under this new law, . . . the federal courts are given jurisdiction to enforce agreements for arbitration or submissions. . . . Jurisdiction exists in those cases in which the federal courts would normally, under the Judicial Code, have jurisdiction of a controversy between the parties."10 Six months after the USAA was enacted, Hollis R. Bailey, a staunch reform supporter, was attempting at the National Conference of Commissioners on Uniform State Laws to convince his fellow commissioners to undo the nonmodern Uniform Arbitration Act they had approved in 1924." In doing so he revealed his unquestioned understanding that the USAA governed only in federal court: You are going to ask the American Bar Association, having committed itself to [the modern New Jersey] form of arbitration, which has been, furthermore adopted by the United States Congress since the 12th of February 1925, and has been the law governing the federal

124

Nationalization of American Arbitration Law courts, you are going to ask the American Bar Association to approve a state law entirely different, from what it has approved for the federal law of the land.12

Jesse A. Miller of Iowa, who supported the nonmodern uniform act, responded: One of the Commissioners [Bailey] said that he doubted whether the American Bar Association would reverse itself. There is no occasion for the American Bar Association to reverse itself. It didn't pass on this act or any act that is applicable to the states. All it had before it was an act [USAA] which applied to a few limited subjects where the federal courts would have control. . . . 1 3

No one disputed Bailey or Miller respecting the applicability of the USAA. I have been unable to find so much as a hint in the extended discussion of the commissioners that any of them14 thought the USAA governed in state courts, a conclusion that would have had major impact on their deliberations. In January 1926, Julius Henry Cohen took to print in a coauthored article15 reflecting his clear understanding that the USAA did not govern state courts. Lamenting the failure of Congress to retain the section from the earlier drafts that had eliminated the jurisdictional amount requirement, the authors said, "most arbitration disputes involve small amounts, and lacking state statutes, the Federal law ought to cover them."16 If, as the Supreme Court later held in Southland Corp. v. Keating (U.S. 1984),17 the USAA governed in state courts, then, of course, the federal law did cover these small claims. Later in the article, Cohen and Dayton simply parroted Cohen's brief to the joint committee18 (without attribution), indeed so literally that at one point they refer to the USAA as "the proposed law."19 Again, since that brief, with its clear purport that the USAA governed only in federal courts, has already been discussed,20 it is unnecessary to repeat the analysis here.21 In the years following enactment of the USAA, I have come across only one work, a 1929 student note, which even considered the possibility that it might govern in state courts. The note promptly rejected the idea:


125

The argument might be made, in a case . . . before a court of a state which had adopted the less inclusive act,22 that Congress, in the exercise of its regulatory powers, intended that the provisions of the federal law should govern rights in the state courts, under the "Supreme law of the land" provision of the Constitution. This, it would seem, is adequately met by arguing that the subsequent sections of the act show the sanctions which Congress intended to further the new policy: the act taken as a whole is directed to the federal courts only.23

The first treatise on American arbitration law appeared in 1930, five years after the enactment of the USAA.24 Its author, Wesley Sturges, was an ardent arbitration reformer, as may readily be seen in his 1927 article25 excoriating the old Uniform Arbitration Law.26 Chapter 17 of the treatise, entitled Arbitrations and Awards under the Rules of the Conflict of Laws, contains a Part II, entitled Relation of State and Federal Jurisdictions. This part in turn consists of three sections: (1) §479 Effect of State Arbitration Statutes in the Federal Courts, (2) §480 Effect of State Arbitration Statutes in the State Courts when Matters within the Jurisdiction of the Federal Courts are Involved — Removal of Causes, and (3) §481, dealing with operation of the USAA in the territories, and so forth. Section 480 treats the most favorable situation possible for arguing that the USAA governs the state courts: when a party had, but did not exercise the right, to remove the case to federal court.27 Had the case been removed, the USAA clearly would have governed. Even here Sturges concludes: It seems clear that a state court may enforce its own arbitration statute, although the matter in controversy falls within the concurrent jurisdiction of the state and federal courts. Thus, if an arbitration agreement qualifies under the arbitration statute of a state and the proper state court acquires jurisdiction of the parties, there can be little doubt that such court can enforce the state statute although the federal courts might have been invoked to take cognizance of the cause in issue.28

Having so concluded, Sturges found it unnecessary even to discuss the possibility that the USAA might be applicable in cases unremovable to federal courts.29

126


Probably the most comprehensive study of the USAA in its early years is Baum and Pressman's 1930-31 article.30 It was written at a time when there were still only five reported cases dealing with the act, only one of which had reached a court of appeals.31 In discussing what they deemed to be an unfortunate limitation of the subject matter of the act, the authors wrote: Federal legislation must point to some constitutional grant for its validity. Two bases have been suggested for the arbitration statute: (1) the unrestricted power of Congress to provide for the rules and procedure of the inferior federal courts; and (2) the federal power to regulate interstate commerce and admiralty transactions. The early discussion before the American Bar Association accepted the first ground as the true test, but still used some unfortunate and confusing language. Congressional discussion did not squarely raise this problem. But in view of the prevalent notions that arbitration legislation affects merely the remedy or procedural aspects and not substance, the basis of the legislation seems clear. Several writers have endorsed this view, some emphatically so.32

Baum and Pressman use this conclusion to argue for a broad subject matter coverage of the USAA in the federal courts. Baum and Pressman evidently favored, with some limitations, legislation extending the USAA enforcement provisions to the state courts: It was early settled that where the regulations of interstate commerce or admiralty transactions or subject matter incidental thereto are constitutionally valid, states must abide with such. Further, if in the exercise of such power, rights are created, these must be enforced in state courts if the machinery be available. Thus specific enforcement of arbitration contracts embracing the correct subject matter, being ordered by Congress within its constitutional powers, would be forced on state courts, providing proper facilities exist. Such legislation has been warmly recommended in order to secure greater commercial security in the effectiveness of arbitration agreements and uniformity for the same subject matter though some agreements cannot come into the federal courts due to absence of jurisdictional requirements.33

Baum and Pressman did not, however, let their desires affect their understanding of history. They steadfastly denied that the USAA as enacted so provided:


127

2. Enforcement of the Federal Act in the State Courts. [PJroblems concerning distribution of judicial power would be raised if the federal act is invoked in a state court. No such attempt has been made. The entire history and tenor of the recent statute does not purport to extend its teeth to state proceedings, though covering the subject matter within Section 1 of the Act.34

The original reformers also spoke again late in 1931, in an amicus brief by Cohen and Dayton filed on behalf of the Chamber of Commerce of the State of New York and the American Arbitration Association.35 This brief is treated fully in the section below dealing with early federal cases. Suffice it here simply to note that Cohen's view that the USAA did not govern in state courts had not changed. In 1938, Samuel Williston and George Jarvis Thompson produced the great revised edition of Williston's treatise on contracts.36 The revised chapter on arbitration took into account the enactment of the USAA subsequent to the first edition of the treatise in 1920. Williston, who had been writing on arbitration at least since his 1893 revision of Parsons on Contracts,37 was unequivocal that the USAA applied only in federal courts, "Inasmuch as arbitration acts are deemed procedural, the United States Act applies only to the federal courts, but it can be frequently invoked, despite the fact that the state wherein the arbitration is sought to be enforced still follows the rigid common-law rules regarding revocability."38 In sum, just as one would have predicted from any careful analysis of the legislative history of the USAA, the early commentators, including those who had been intimately involved in promoting its enactment, never questioned that the basic provisions of the act governed only in the federal courts. State Cases: Twenty Years of Silence, Then a Few Murmurs: 1926-59 This section concerns another instance of The Dogs Which Didn't Bark. The most striking thing of all is the absence of state cases concerning the USAA from its enactment until 1959. Twenty years elapsed after the enactment before any reported state case can be found39 in which a state court seems even to have thought of apply-

128


ing the USAA. Five more years were to elapse before another recorded attempt appeared, and that one failed. Yet another five elapsed before the third effort, an apparent failure. The years 1958 and 1959 produced two more reported state cases, which went in opposite directions. Thus thirty-four years after its enactment, the USAA had yielded a grand total of only five reported cases in which efforts had been made to have it applied in state courts. Before considering the significance of this silence respecting an act later held to have been intended from the start to establish federal substantive law governing in state as well as federal courts, an examination of the five cases that did arise is in order. As will be seen, not one of the cases held the USAA unequivocally to govern state courts. Of the five, two definitely, and one probably, held that it did not; one held that the USAA governed where the parties so intended; and one held that the court could acquire jurisdiction by reason of its designation as a confirming court under USAA §9, but then applied state law in reviewing the award. FIRST CASE, 1945

The honor of first place goes to a lower state court case, French v. Petrinovic (N.Y. App. Term 1945).40 There the court apparently applied the USAA to a dispute about the amount of an arbitrator's fee in a maritime dispute on the ground that the parties had agreed to its application.41 SECOND CASE, 1950

We must move from a lower New York court to Nebraska to find our second case, Wilson & Co. v. Fremont Cake & Meal Co. (Neb. 1950).42 Here Fremont argued that the USAA was "applicable and should be enforced in the state courts"43 and that the failure of the lower court to apply it resulted in prejudicial error. The court, without discussion of the conflict of law question, applied Nebraska law in reviewing the actions of the lower court, Nebraska law being in unquestionable conflict with the USAA.44 The case had already been in federal court, which had, of course, applied the USAA. There can, as a result, be no question that the state court was unaware of what it was doing.


129

The Wilson case, then, provides a striking example of an arbitration agreement clearly enforceable under the USAA, as so ruled in a federal court, but nonetheless not enforced due to the application of state law. THIRD CASE, 1955

The third reported state court case, Parsons & Whittemore, Inc. v. Rederiaktiebolaget Nordstjernan (N.Y. App. Term 1955),45 lends even less support to the argument that the USAA applies in state court. The agreement in the case provided that arbitration was to be made pursuant to the USAA. When an action was brought for damages in the New York trial court, the defendant moved to stay pending arbitration under New York law, which the lower court denied. The Appellate Term applied the USAA, but the Appellate Division refused to consider whether a federal court would apply the USAA.46 Instead it stated that it was merely staying the action to preserve the status quo while the parties sought a ruling in federal court. This was, in essence, a denial that the USAA governed in state court because if it did the court presumably would have decided the disputed commerce and maritime transactions questions for itself. FOURTH CASE, 1958

The arbitration agreement in In re Omnium Freighting Corp. (N.Y. Sup. Ct. 1958)47 provided for judgment on the award in both federal court and "any other court of competent jurisdiction in accordance with the Arbitration Acts."48 The court used this provision to uphold its jurisdiction of the case, but applied the New York arbitration statute, not the USAA, in reviewing (and upholding) the award. FIFTH CASE, 1959

In Deep South Oil Co. v. Texas Gas Corp. (Tex. Civ. App. 1959)49 the court refused to apply USAA §2 because it was uncertain whether the law of this section would be applied in the absence of invoking the procedural clauses of the Act [sections 3 and 4], for some federal courts have held the Arbitration Act entirely remedial as contended by Deep South, citing In re Wisconsin Central

130

Nationalization of American Arbitration Law Ry. Co., D.C., 74 F. Supp. 85 and Parry v. Bache, 5 Cir., 125 F.2d 493, and others have held Sec. 2 creates substantive rights as contended by Texas Gas, citing Standard Magnesium Corp. v. Fuchs, 10Cir.,251F.2d455. 50

Since Texas is in the Fifth Circuit, the court decided to follow its holding that the USAA is a procedural statute, and hence not governing in state courts. Thus we come to the end of the first thirty-four years of the USAA in state courts. The importance of the lack of action in the state courts in the period 1925 to 1958 is immense. Even as late as 1958 a full two-thirds of the American states had yet to enact modern arbitration acts.51 Nor had the courts modernized state law of arbitration judicially.52 Thus, insofar as enforcement of executory arbitration agreements was concerned—the hallmark of the modern arbitration statute —an immense disparity existed between the law of this two-thirds majority of the states and that prevailing in federal courts under the USAA. This disparity was particularly apparent respecting agreements to arbitrate future disputes. If the bench and bar had understood the USAA to supersede state law in state courts, the picture certainly would have been different. Any reasonably competent counsel wishing to enforce an interstate executory arbitration agreement in any of the majority of states lacking a modern arbitration act would have utilized the USAA to do so.53 Yet for twenty years one looks in vain for so much as a single reported case in which the argument was even advanced, much less accepted. And another twenty years produce only a handful. Only two possibilities exist: almost universal incompetence of the bar (and bench) or universal recognition that the USAA had nothing to do with proceedings in state courts. Deep South, the last of the five state cases, is the first reported state case found considering the question of USAA applicability in state courts by referring to federal cases. At the time of its decision, developments had been and were taking place in the federal courts that were ultimately to take this question out of the hands of the state courts.54 We can, therefore, as of 1958 largely abandon the state court arena and turn to the early federal cases.


131

Federal Cases: 1925-38 The 1942 U.S.C.A. annotation summarizes about forty Title 9" cases, all those the publishers deemed important enough to mention in the first sixteen years of the active life of USAA. None throws even the slightest direct light on whether the USAA was meant to govern in state court. Such indirect light they throw favors or at least is not inconsistent with the idea that the USAA was not intended to govern in state courts. The most important of these cases was Marine Transit Corp. v. Dreyfus (U.S. 1932),56 where the constitutionality of the USAA was challenged. Everything in the case leans toward an interpretation of the USAA rendering it inapplicable in state courts. Nothing leans the other direction. In rejecting the contention that the act deprived the federal courts of their judicial power, the court founded its decision on Red Cross Line v. Atlantic Fruit Co. (U.S. 1924),57 the case decided shortly before the USAA was enacted: In Red Cross Line v. Atlantic Fruit Co. . . . this Court pointed out that in admiralty "agreements to submit controversies to arbitration are valid," and that "reference of maritime controversies to arbitration has long been common practice." "An executory agreement," said the court, "may be made a rule of court" and the "substantive right created by an agreement to submit disputes to arbitration is recognized as a perfect obligation." The question, then, is one merely as to the power of the Congress to afford a remedy in admiralty to enforce such an obligation. It was because the question was one of remedy only, that this Court decided that a State, by virtue of the clause saving to suitors "the right to a common law remedy," had the power "to confer upon its courts the authority to compel parties within its jurisdiction to specifically perform an agreement for arbitration, which is valid by the general maritime law, as well as by the law of the State." . . . "[The Constitution] does not direct that the court shall proceed according to ancient and established forms, or shall adopt any other form or mode of practice. ... In admiralty and maritime cases there is no such limitation as to the mode of proceeding, and Congress may therefore . . . modify the practice of court in any other respect that it deems more conducive to the administration of justice."58

132


Thus in Marine Transit the Supreme Court assessed the USAA in the same procedural-remedial terms that had governed arbitration law before and at the time it was enacted. In those days before Erie RR. v. Tompkins (U.S. 1938),59 this reaffirmation carried with it an absence of any idea that the act governed state courts.60 The Marine Transit case is of special interest because Julius Henry Cohen and Kenneth Dayton submitted an amicus brief on behalf of the New York Chamber of Commerce,61 a brief still repeating the procedural theme: The elaborate review of authority in the majority opinion in [Red Cross Line] recognizes the entire validity of arbitration agreements even prior to the statute, the fact that the only difficulty in their practical effectuation was a procedural one, going solely to the remedy and not affecting substantive right. . . . The Arbitration Act is purely procedural in its nature. . . . The statute declares (Sec. 2) that an agreement is valid, but this particular declaration is surplusage, because the agreement always was valid. The declaration creates no new substantive right. Beyond that, the statute merely provides a new and effective means for enforcing the agreement.62

The Cohen and Dayton brief goes on to the familiar proposition that the act rests upon two independent bases, "the power of Congress to prescribe procedural matters for the federal courts" and its admiralty and commerce powers. It does not, however, argue that this extends the act beyond the federal courts.63 Rather, it makes two different arguments. First, the amici argue that section 3 and those following are applicable to all arbitration agreements coming into the federal court whether or not in admiralty or foreign commerce. The brief states boldly, but incorrectly, "This is clear from the provisions of the act itself, from its history, and from the report of the House Committee relating to the bill."64 In fact, this brief is the first time that this argument can be found. The practical concern advanced by Cohen and Dayton was a product of the rule of Swift v. Tyson (U.S. 1842),65 as yet unmodified by Erie RR. v. Tompkins (U.S. 1938)66 and Bernhardt v. Polygraphic Co. of America, Inc. (U.S. 1956).67 In a case involving intrastate commerce between citizens of two states having modern statutes, removal of the case from state to federal court would result in nonenforcement of the agree-


133

ment. That this was a real fear is illustrated by a number of cases subsequently doing just that.68 The second Cohen and Dayton argument results from the need to explain the existence of USAA §2 in light of their earlier arguments, which had cast section 2 as surplusage. The historically correct explanation is necessarily ignored69 in favor of raising the (real) problem of suits over contracts in commerce between citizens of the same state without a modern arbitration statute. According to the protagonists, the function of section 2 is to create federal jurisdiction for such cases.70 At this point the brief becomes very confusing, using a variety of inconsistent pieces of the legislative history.71 It is unnecessary, however, to explore this because the whole argument is entirely founded on the assumption, unquestioned by Cohen and Dayton, that unless the case gets into the federal court, the USAA will not govern the state court. Just as Marine Transit Corp. v. Dreyfus (U.S. 1932)72 leans against any idea that the USAA is applicable in state courts, so do the earliest lower court cases, when it is possible to tell if they lean at all.73 Later, in a considered dictum, Judge Learned Hand interpreted the new act as not creating federal jurisdiction,74 which, of course, a substantive act binding the state courts under the Supremacy Clause, would have done. The only other pre-Erie cases found in the lower federal courts casting even indirect light on the question of the applicability of the USAA in state courts are the four cases dealing with the second point in the Cohen and Dayton brief in Marine Transit,75 the applicability of the USAA to intrastate contracts in federal court. Three took the view that the act did not encompass such intrcrstate contracts at all; the fourth took a more limited position that at least one USAA section did govern in such cases.76

11 The USAA: As Amended by the Supreme Court

From Erie to Bernhardt: 1938-56 In 1938 the Supreme Court handed down its landmark decision in Erie RR. v. Tompkins (U.S. 1938)1 overruling Swift v. Tyson (U.S. 1842)2 and requiring federal courts to apply state substantive law in diversity of citizenship cases, rather than federal common law. This notable case, however, gave every appearance of being a nonevent in the history of the USAA. The USAA was a statute aimed at governing the procedure in federal courts, not the substantive law those courts applied.3 The act did not therefore depend upon the continuing validity of Swift. Moreover, Erie constituted a reduction rather than an increase in federal power. It thus appeared at first, if anyone bothered to think about it, that Erie would have no effect on the USAA. In diversity cases concerning transactions not involving commerce, the USAA was generally thought to be inapplicable by its terms.4 In diversity cases concerning transactions involving commerce, the USAA appeared undoubtedly to be applicable. And indeed, initially nothing seemed to have happened. In the decade following Erie at least three federal courts treated the USAA in the old, accustomed ways. The court in Parry v. Bache (5th Cir. 1942)5 said that the federal action "being remedial, controls the procedure in the federal court." That same year a district 134

USAA: As Amended by the Supreme Court

135

court in Pennsylvania repeated the proposition that the act applied only where the interstate requirements of section 2 were met.6 Five years later the court in In re Wisconsin Cent. Ry. (D. Minn. 1947)7 made plain its assumption that the federal act did not apply in state courts. After deciding that it had no jurisdiction of the case, thereby silently rejecting the proposition that the USAA creates federal jurisdiction, the court notes that the state court might enforce the arbitration clause under the Minnesota Arbitration Statute. Nonetheless, Erie let loose forces that were to transform the USAA from the procedural statute Congress had enacted thirteen years before into a substantive statute greatly reducing the powers of the states. One of these forces was a revised notion of what differentiated substance from procedure—the outcome determination test of Guaranty Trust Co. v. York (U.S. 1945).8 This notion was later to cause the transfer of the USAA from the procedural side of the law, where Congress had put it in 1925, to the substantive side where Congress had most decidedly not put it. The consequences for the USAA went far beyond anything to do with diversity cases. Another force was the dominance of a judicial abhorrence not only of forum shopping, but of the possibility that the outcome of similar cases might differ because they were brought in different courts, even where forum-shopping was impossible. The first straw in the wind indicating that a change might be occurring flew by in 1943 with a case apparently unconcerned with any Erie issues, Donahue v. Susquehanna Collieries Co. (3d Cir. 1943).9 In Donahue the lower court had refused a stay under USAA §3 where it had found the contract not to involve commerce under section 2.'° The Court of Appeals reversed, relying heavily on the title of the USAA11 and held that federal courts may stay litigation pursuant to section 3 even in cases not covered by section 2.12 The decision was not one of first impression, as it followed Judge Hand's views in Shanferoke Coal & Supply Corp. v. Westchester Service Corp. (2nd Cir. 1934).13 Shanferoke, however, had stood alone, the few other early cases on the point being contrary.14 Donahue, however, was soon followed by a number of other cases to the same effect.15 These cases went beyond original congressional intention in enacting the USAA, because they applied some of its provisions to

136


arbitration in intrastate transactions.16 They did not, however, in any way expand application of the USAA beyond federal courts so as to apply in state courts. They were, nonetheless, an expansion of federal power, and they exacerbated the problem of different decisions depending upon which court heard a case.17 Their precise holdings were to be, in effect, overruled by Bernhardt v. Polygraphic Co. of America (U.S. 1956),18 respecting cases arising under diversity jurisdiction. As will be seen, however, Bernhardt, which held that state arbitration law governed intrastate contracts in diversity cases, had the ironic effect of leading to the transformation of the USAA into a substantive regulatory statute superseding state law. In the very year of the Bernhardt decision, the Sixth Circuit used language forewarning of the future nationalization of American arbitration law. In Local 19, Warehouse Union v. Buckeye Cotton Oil Co. (6th Cir. 1956)19 the court said, "In seeking to secure arbitration agreed upon plaintiff here has rights and remedies created by the Federal Act and not by any state. Hence state law does not control. . . . " The Gathering Storm: Erie Begins to Bite: From Bernhardt Through Prima Paint: 1956-67 Although Erie was decided in 1938, it was not until 1956 that, at least in the Supreme Court, it began to affect the USAA. In that year the court held in Bernhardt v. Polygraphic Co. of America (U.S. 1956),20 that the USAA did not govern in diversity of citizenship cases in the absence of interstate commerce.21 In doing so, it also rejected Judge Hand's dictum in Shanferoke Coal & Supply Corp. v. Westchester Service Corp. (2d Cir. 1934)22 that USAA section 4 was applicable whether or not the contract was within section 2, that is, whether or not the contract involved commerce. It reached this result by applying the Guaranty Trust Co. v. York (U.S. 1945)23 outcome test.24 The Court did not, however, adopt Mr. Justice Frankfurter's concurring position that the USAA be held inapplicable in all diversity cases.25 Ironically, the Bernhardt limitation on federal power laid the groundwork for the supersession of state arbitration laws by the USAA, as well as the reintroduction of the piecemeal application

USAA: As Amended by the Supreme Court

137

of the act. By holding arbitration to be "substantive" under the outcome test, the Court greatly increased the chances that the provisions of the USAA would be held substantive in the full-blown regulatory sense that would lead to invocation of the Supremacy Clause. Three years after Bernhardt, two lower courts took quite different approaches to these questions. The Sixth Circuit, not unexpectedly in view of its prior comments,26 held in American Airlines, Inc. v. Louisville & Jefferson County Air Bd. (6th Cir. 1959),27 that section 2 was "enacted in the exercise of Congress' plenary power over interstate commerce" and therefore supersedes contrary state laws making arbitration provisions unenforceable. The court was, however, unwilling to go the whole way and expressed doubt whether the state court would have to apply the USAA. Since the court required that a declaratory judgment proceeding be brought in state court to determine a related issue of state law,28 it was concerned that the state court might, even after a finding that the agreement was intra vires, refuse to enforce it. Accordingly, the court ordered the district court to retain the case while the declaratory judgment was sought. Thus the Sixth Circuit continued to adhere to the old principle that the USAA was applicable only in federal court. Unlike the Sixth, the Second Circuit went the whole way in Robert Lawrence Co., Inc. v. Devonshire Fabrics, Inc. (2d Cir. 1959),29 where the substantive issue was alleged fraud in the inducement of the contract containing the arbitration clause. Was this a question the arbitrator could resolve, or must it be decided by a court? If the latter, the court would either find against the claimant on the contract on the ground that the contract was induced by fraud, or order the claim on the contract to arbitration if there was no fraud. The contract was governed by New York law. New York, the state that had fathered modern arbitration,30 had a more up-to-date modern arbitration statute than the USAA. New York did not, however, refer questions of fraud in the inducement of contract containing arbitration agreements to arbitrators. The Second Circuit interpreted the USAA as requiring such questions to be referred to the arbitrators where the arbitration clause was broad enough by its terms to encompass such a dispute. Thus, the USAA and the New York statute were in conflict. In an opinion by Judge Medina, the court resolved the conflict

138


on the following basis: "We think it is reasonably clear that the Congress intended by the Arbitration Act to create a new body of federal substantive law affecting the validity and interpretation of arbitration agreements. . . . [This is] national law equally applicable in state or federal courts."31 Thus was the stage set for Prima Paint Corp. v. Flood & Conklin Mfg. Co. (U.S. 1967),32 the Supreme Court's next major foray into this area of the law. The case involved two separate agreements, Prima Paint's purchase of Flood & Conklin's paint business and a consulting agreement, containing an arbitration clause, made three weeks later. In federal court Prima Paint sought rescission of the consulting contract on the ground of alleged fraud in its inducement and an injunction against arbitration. Flood & Conklin moved to have the litigation stayed pending arbitration. The Court held that the consulting agreement was a transaction involving commerce. It therefore applied the USAA, which it interpreted as requiring that the dispute respecting fraud must be referred to arbitration.33 In adopting the foregoing course of action, the Court in Prima Paint eliminated any doubt that the USAA governs diversity cases in the federal courts where the arbitration agreement is a transaction in interstate commerce. The Court's basis of decision made it logically inescapable that the USAA governs in state courts as well, and the Court all but said so. It refrained, however, from any dictum to this effect.34 The long war of the reformers to nationalize American arbitration law seemed to have been won. Because of the Supreme Court's unwillingness to express clearly what it had done, however, a slight question lingered respecting the applicability of the USAA in the state courts. Nationalization Triumphs: From Prima Paint to Southland and Beyond: 1967-91 The Struggle in the States It is far from inaccurate to say that few knew what had hit them when Prima Paint was decided. For a long time countless arbitrations were conducted and litigated on the undiscussed and unstated

US A A: As A mended by the Supreme Court

139

assumption that state law governed, when it almost certainly did not.35 A few state courts addressed the issues after Prima Paint and still applied state law.36 The last of these37 came too close to the coup de grace; it was vacated by the Supreme Court in the light of Southland Corp. v. Keating (U.S. 1984).38 Nonetheless, in the seventeen years before the Supreme Court uttered the final word, an ever-increasing number of state courts read the handwriting on the wall and applied the USAA instead of their own arbitration acts. Due both to jurisdiction and to early timing, the most important of these was undoubtedly the decision of the New York Court of Appeals, A/S J. Ludwig Monwinckels Rederi v. Dow Chem. Co. (N.Y. 1970).39 Southland: History be Damned! The climb starting in 1938 with Erie RR. v. Tompkins (U.S. 1938)40 and ascending through Guaranty Trust Co. v. York (U.S. 1945),41 Bernhardt v. Polygraphic Co. of America, Inc. (U.S. 1956),42 and Prima Paint Corp. v. Flood & Conklin Mfg. Co. (U.S. 1967)43 reached its summit44 in 1984 in Southland Corp. v. Keating (U.S. 1984).45 (The year before the Court had telegraphed its punch in Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (U.S. 1983)46 where it said, "Federal law in the terms of the Arbitration Act governs th[e] issue [of arbitrability] in either state or federal court.")47 Southland finalized the bizarre transformation of American arbitration law made almost certain along the way by Prima Paint. It established beyond cavil that the USAA is a regulatory federal statute superseding state law and, hence, governs in state courts. American arbitration law had been nationalized. USAA-148 was now without doubt USAA-2, or more accurately NAA—the National Arbitration Act. This mutation from a system in which state law was the foundation and federal law but an important adjunct had occurred with singularly little debate and with virtually no democratic input, not even the elite pressure group politics often passing for democracy these days.49 We have seen most of the transformation trail, all that remains is to examine the sorry end itself.50 In Southland the plaintiffs, franchisees of Southland, brought

140


suit for, inter alia, breach of contract, fraud, and violation of the disclosure requirements of the California Franchise Investment Law. Southland moved to compel arbitration of all claims. The California Supreme Court upheld ordering to arbitration all the claims except those under the Franchise Investment Law. It interpreted the law as requiring judicial determination of all claims arising under it. The USAA, if applicable, made such claims arbitrable. The majority opinion in the case was written by Chief Justice Burger. The cut of the Chief Justice's jib comes into view with his first sentence addressed to legislative history: "The Federal Arbitration Act [USAA] rests on the authority of Congress to enact substantive rules under the Commerce Clause."51 This statement is supported by a quotation within a quotation, namely from the House Judiciary Committee Report52 as quoted in Prima Paint. In that case the majority had concluded that the USAA "is based upon . . . the incontestable federal foundations of 'control over interstate commerce and over admiralty.'"53 The report had, of course, in the very same paragraph explicitly stated that the act pertained to questions of procedure to be determined by the forum court and was not substantive law. The report went on to say, "Before such contracts could be enforced in the Federal courts, therefore, this law is essential. The bill declares that such agreements shall be recognized and enforced by the courts of the United States. The remedy is founded also upon the Federal control over interstate commerce and over admiralty."54 These parts of the report, including the emphasized words, were conveniently omitted in the Prima Paint quotation and again by the Chief Justice in Southland. The Chief Justice's next foray into the legislative history starts, "Although the legislative history is not without ambiguities, there are strong indications that Congress had in mind something more than making arbitration agreements enforceable only in the federal courts."55 Thus not only does he find ambiguities where no real ones exist, but his "although" dismisses as mere ambiguities the vast and unambiguous mass of the legislative history, not the few scraps he himself produces. And "dismisses" is truly the right word because in spite of the dissent's presentation of a large part of that unambiguous mass, the Chief Justice never so much as deigns to cast it a further glance.

USA A: As A mended by the Supreme Court

141

The first scrap the Chief Justice addresses is a single word, "or," in the House Judiciary Committee Report: "The purpose of this bill is to make valid and enforcible agreements for arbitration contained in contracts involving interstate commerce or within the jurisdiction or admiralty, or which may be the subject of litigation in the Federal courts."56 As noted earlier in the extensive discussion in Chapter 9, were it not that the use of "or" was in fact a simple clerical or typographical mistake, the word would have created an ambiguity.57 The sentence in the report thus lends no support to the Chief Justice's argument. Nonetheless, the Chief Justice used "or"—but only partially58— as if the committee had really meant it. He thus read this sentence as suggesting "that Congress had in mind something more than making arbitration agreements enforceable only in the federal courts,"59 that is, that state courts must enforce them as well. As noted in Chapter 9, this was neither a literal —or objective—reading of the word nor an effort to ascertain the underlying intention of the committee. The Chief Justice's interpretation thus has no foundation in either of the two possible rational approaches to legislative language. To put it bluntly, the argument of Chief Justice Burger that this sentence with its erroneous word "or" "plainly suggests the more comprehensive objectives" beyond that of "making arbitration agreements enforceable only in the federal courts"60 is, when examined in full context, pure and simple nonsense. Chief Justice Burger's next "reason" for ignoring the genuine legislative history of the USAA marks the beginning of a collage of excerpts taken out of context from the hearings and the House Judiciary Committee Report: "This broader purpose [to go beyond the federal courts] can also be inferred from the reality that Congress would be less likely to address a problem whose impact was confined to federal courts than a problem of large significance in the field of commerce."61 The only "problem of large significance"—indeed, of any significance — laid before Congress by the A.B.A. was the refusal of the federal courts to enforce arbitration agreements, even in states with modern arbitration statutes. Not an iota of evidence exists to suggest that Congress itself had any thought whatever of other problems.62 That in 1925 another "problem of larger significance" did exist respecting cases arising under state law in forty-six state courts,

142


whether in intra- or interstate commerce, goes without saying. But the reformers had their own cure for that problem—a uniform state law —and asked no congressional help in solving it. Following their initial New York and New Jersey victories the reformers' tripartite plan consisted of a uniform act, a federal act for the federal courts, and a treaty for international arbitration.63 This is what they planned, and this is what they did. Chief Justice Burger's flights of fancy to the contrary notwithstanding, Congress did just what it was bid 64 —enact a federal act for the federal courts and no more. That some of the reformers might have harbored desires for the USAA to be applicable in state courts is irrelevant since they never made that known to Congress. And for good reason. To have asked Congress to enact such a statute would have seriously jeopardized the chances of enactment of any federal arbitration statute. This risk the reformers did not take. The next fragment of the Chief Justice's collage follows: The Arbitration Act sought to "overcome the rule of equity, that equity will not specifically enforce an[y] arbitration agreement." Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Comm. on the Judiciary, 67th Cong., 4th Sess. 6 (1923)65 . . . (remarks of Sen. Walsh). The House Report accompanying the bill stated: "[t]he need for the law arises from . . . the jealousy of the English courts for their own jurisdiction. . . . This jealousy survived for so lon[g] a period that the principle became firmly embedded in the English common law and was adopted with it by the American courts. The courts have felt that the precedent was too strongly fixed to be overturned without legislative enactment. . . . " H.R. Rep. No. 96, Part I, 1-2 (1924). Surely this makes clear that the House Report contemplated a broad reach of the Act, unencumbered by state law constraints. . . . 66

Even out of context, the language quoted from the House report says precisely nothing concerning alleged committee concerns about a "broad reach," that is, extension of the act to state courts. In 1925 both kinds of courts, state and federal, followed the accursed common law rules.67 Read out of context, "the need for the law" could perfectly well refer to either state or federal courts or both. In context, however, it is clear that the committee was concerned about the

US A A: As A mended by the Supreme Court

143

obsolete common law rules only in the federal courts. The words used by the Chief Justice are separated by only one six-line paragraph from the first substantive paragraph of the report. That paragraph makes clear beyond cavil that the evil to be remedied, the evil that is remedied by the statute, lies in the federal courts: The matter is properly the subject of Federal action. Whether an agreement for arbitration shall be enforced or not is a question of procedure to be determined by the law court in which the proceeding is brought and not one of substantive law to be determined by the law of the forum in which the contract is made. Before such contracts could be enforced in the Federal courts, therefore, this law is essential. The bill declares that such agreements shall be recognized and enforced by the courts of the United States. The remedy is founded also upon the Federal control over interstate commerce and over admiralty. The control over interstate commerce reaches not only the actual physical interstate shipment of goods but also contracts relating to interstate commerce.68 The foregoing comments also apply to the next patch in the collage. This one is the reverse of the dual pictures of stereopticons, two pictures of the same scene combined to produce a single picture of the scene with a perspective closer to the appearance of the scene viewed live. The stereopticon is an effort to get closer to the truth. 69 Here a single scene is presented in two pictures in a manner intended to cause the viewer to think there are two quite different scenes. It is effort that, whether deliberately or inadvertent, distorts the truth and deceives. The opinion goes on:

Congress also showed its awareness of the widespread unwillingness of state courts to enforce arbitration agreements, e.g., Senate Hearing, Part I, at 8. . . . and that such courts were bound by state laws inadequately providing for "technical arbitration by which, if you agree to arbitrate under the method provided by the statute, you have an arbitration by statute[;] but [the statutes] ha[d] nothing to do with validating the contract to arbitrate." Ibid.10 The problems Congress faced were therefore twofold: the old common law hostility toward arbitration, and the failure of state arbitration statutes to mandate enforcement of arbitration agreements. To confine the scope of the Act to arbitrations sought to be

144

Nationalization of American Arbitration Law enforced in federal courts would frustrate what we believe Congress intended to be a broad enactment appropriate in scope to meet the large problems Congress was addressing.71

That Congress "was addressing" "large problems," that is, law in state courts, is, as already noted, simply a figment of the Chief Justice's imagination. Such "problems" of state law had never even been submitted to Congress, much less addressed by it. It may also be noted that this part of the collage is dependent for its authority on testimony at the 1923 hearing and totally ignores the testimony at the 1924 hearings on the bill actually enacted. The latter, of course, made plain that it was only the federal courts that the reformers—and Congress—were after with the USAA. This part of the opinion adds a new wrinkle to the collage, however, because the state failures are now quite artificially made into two failures, that of the common law and that of traditional, that is, nonmodern, state arbitration statutes. Needless to say, no one at the time viewed these as two problems rather than one. Any such idea is another figment of the Chief Justice's imagination. This then is what passed for legislative history in the prevailing opinion of the exceptionally important case of Southland Corp. v. Keating (U.S. 1984).72 It is served up here for examination in all its unsavory state only partly to set right this particular facet of legal history. Even more important, it is an Orwellian object lesson in the potential and often actual unreliability of the legislative history of judges rationalizing results in cases.73 Before turning to further arguments made by Chief Justice Burger, other opinions in Southland deserve mention. Justice O'Connor's opinion in particular stands in sharp contrast to that of the Chief Justice; her legislative history is relatively untainted by her chosen substantive position. It is, in other words, quite nonpathological history. Justice Stevens' position is particularly interesting respecting both history and the role of the Court. He accepted Justice O'Connor's historical account, but was "persuaded that the intervening developments of the law compel the conclusion that the Court . . . reached."74 This is an unusually frank recognition of the ongoing legislative role of the Court in amending legislation over time.

USA A: As A mended by the Supreme Court

145

The Chief Justice also argued that if "Congress sought only to create a procedural remedy in the federal courts, there can be no explanation for the express limitation in the Arbitration Act to contracts 'involving commerce.'"75 Analogizing the act to those prescribing general rules of procedure for the courts, he points out that Congress did not limit the latter to cases involving commerce. From this he inferred that the USAA was not a procedural act for the federal courts. This argument is flawed in two respects. First, it ignores the legislative history of the USAA, which shows that Congress intended to do precisely what it had not done elsewhere: enact a procedural statute limited to matters involving commerce. As that history has been extensively explored in Chapters 8 and 9, it need not be repeated here. Moreover, there is a perfectly sensible explanation for the reformers', and hence Congress', limiting the applicability of the statute both to federal court procedurally and interstate commerce substantively. The explanation, unlike the Chief Justice's position, is entirely consistent with the legislative history; it is political. While Congress unquestionably had the power to prescribe procedural rules for the federal courts, in 1925 it had done so only sparingly.76 In general, federal courts followed the procedures of the courts of the states in which they were situated.77 Thus, even though constitutionally entirely justifiable, enactment of the USAA, by legislatively replacing state procedure in the federal courts with federal procedure, might have been seen as federal invasion of a realm traditionally left to the states. And this during a period of political conservatism on the national scene. The concern about constitutionality was not without factual basis in events in the courts. Concern about constitutionality hovered about modern arbitration statutes. The 1920 New York act had been promptly attacked on constitutional grounds in the New York courts, albeit unsuccessfully.78 There were also constitutional overtones in the question whether the New York courts could apply the New York statute in cases in which they had concurrent maritime jurisdiction with federal courts, a question arising and decided while the USAA was pending in Congress.79 Indeed, after its enactment, the USAA was subjected to constitutional attack that the

146


Supreme Court fought off under the banner of congressional power to regulate admiralty proceedings.80 It is easy for us now to think the political danger was slight as we have nothing to lose by doing so. The federal courts had long since created a special niche for arbitration, which they treated as neither substance nor procedure and to which they applied the law of the forum, that is, federal law.81 Thus congressional enactment of the USAA would, and did, displace federal, not state, law in the federal courts. We are not, however, political officeholders with their typically excessive fear of public reaction. One need only read the legislative record of the enactment of the USAA to see that the congressmen and senators involved were indeed very concerned not to be seen to be overreaching in exercising federal power. And the reformers who cast the bill were equally, if not more, concerned not to frighten the congressmen and senators. The political difficulties facing the reformers was, then, a real concern.82 Relief was, however, easily at hand without interfering in any serious way with the goals of the reformers. The political dangers could be largely avoided by limiting the applicability of the act to interstate commerce. Unlike procedure in the federal courts, Congress regularly enacted legislation based on its powers over interstate commerce.83 Thus the reformers stressed to Congress this alternative constitutional authorization and built its additional limitation into the bill. The limitation of the USAA to federal courts posed no significant barrier to accomplishment of the reformers' goals. As the legislative history shows, what concerned them respecting the federal government was exclusively the evisceration in federal courts of arbitration agreements enforceable under state law. It was not, of course, that the reformers did not care about state arbitration law in state courts. Indeed they did, although not one thing in the legislative history suggests that Congress did. The reformers, however, had a different solution than the USAA to the sinful fact that only two of the forty-eight states had a modern arbitration act. The reformers' solution was a modern Uniform Arbitration Act.84 Their solution was one not involving Congress.85 For that reason, they made no effort to persuade Congress that such a problem existed.86

USA A :AsA mended by the Supreme Court

147

In sum, contrary to the assertions of the Chief Justice in Southland, there was indeed an explanation why Congress limited the USAA to transactions involving commerce, but without intending to extend the act beyond the federal courts. We now turn to the consequences of the transformation of the USAA from a procedural statute applicable only in the federal courts to a substantive federal law governing in state courts as well as federal courts and superseding state law in conflict with it.

12 The Legal Consequences

What Hath God Wrought This Time? The Great Transformation: 1967-91 Encapsulated in their entirety, the changes achieved by Prima Paint, Southland, and their kin constitute a transformation of the USAA worthy of the best of medieval alchemists. From birth through its first thirty-five years or more, the USAA was a procedural statute applicable only in the federal courts.1 As such, its constitutional basis lay in congressional power to regulate procedures in the federal courts, rather than in its power over commerce. Thus the provision in section 2 relating to commerce was a limitation, rather than the foundation of the statute. It was a severe limitation; what constituted a transaction involving commerce within the meaning of the USAA was viewed narrowly,2 even after the great judicial expansion of the commerce clause in the 1940s.3 The aim of the statute was to treat arbitration clauses like other contract terms. Its goal was to implement the consent of the parties to arbitration clauses by enforcing those clauses where that was what the parties intended. It was, at most, policy neutral respecting the desirability of arbitration relative to other contracts.4 Moreover, a certain amount of judicial skepticism about arbitration remained, which sometimes led to narrow application of the USAA.5 In addition, by 1953 the Supreme Court had recognized a 148

The Legal Consequences

149

need to limit its application where arbitration might not be a suitable forum. 6 Now, none of the foregoing obtains. The foundation change has been the shift of the constitutional underpinnings of the USAA from congressional power to control federal courts to congressional power to regulate commerce.7 The USAA therefore supersedes state law by reason of the Supremacy Clause of the United States Constitution.8 This carried with it applicability of the USAA in state courts and removed any doubt of its applicability in diversity cases so long as interstate commerce is involved, as it virtually always will be in diversity cases. The impact of all this is greatly expanded by a revised view of section 2's "transaction involving commerce" whereby the phrase goes to the limits of congressional power under the commerce clause.9 This impact is also greatly enhanced by the Court's replacing the prior "intention of the parties" approach, its bias, if any, being against arbitration, with a strong pro-arbitration stance,10 paralleling that flowering in collective bargaining law under the Labor Trilogy." This pro-arbitration stance is manifested in rules such as the following: Fraud in the inducement of the overall contract, and possibly other formation issues, is for the arbitrator.12 Arbitration clauses are to be read broadly to bring disputes within their coverage.13 Where some issues in dispute are nonarbitrable, arbitration must go ahead with the arbitrable issues, even though the result is two separate proceedings, arbitration and litigation, with all the problems that entails.14 The clause in section 2 providing for nonenforcement of arbitration agreements "upon such grounds as exist at law or in equity for the revocation of any contract" is read narrowly.15 All state law excluding issues arising under state law as unsuitable for arbitration — the public policy exclusion —is invalid.16 The public policy exclusion is virtually eliminated from federal law,17 subject only to congressional power explicitly to exclude. International trade arbitration is favored at the expense of national policy.18 Like most revolutionary transformations, this one has left its share of loose ends. Among these is the long-established rule that the USAA does not create federal jurisdiction,19 a rule ill fitting the now substantive, regulatory USAA. The distinct possibility now exists that some sections of this unitary statute are not enforceable in state court although others clearly are.20 The congressional

150


purpose in enacting the statute—to permit people by contract to choose the alleged efficiencies of binding arbitration agreements— has been artificially split into conflicting policies in a hierarchy. On top is Congress's favoring of freedom of contract;21 on the bottom is the policy of achieving expeditious resolution of disputes.22 Questions have been opened about the preclusive effect of unconfirmed awards.23 Most important of all is that the Court has largely ignored the serious inconsistencies between its interpretation of the USAA respecting the public policy defense and its giving broad scope to that defense in collective bargaining arbitration.24 Potentially perhaps the biggest loose end was that considered by the Supreme Court early in 1989 and treated in the following section.

Rebirth of State Arbitration Law or Just More Confusion? The Supreme Court Decides Volt: 1989 In Volt Information Services, Inc. v. Stanford Univ. (U.S. 1989),25 the Supreme Court was faced with the question whether parties could choose state law to govern their arbitration agreements where the USAA would govern in the absence of such choice.26 No other question brings so readily to the fore the anomalous results arising from treating the USAA as a full-scale regulatory statute, as more than one federal court had done before Volt: Parties are not free to burden the arbitration process under the Federal Act by adopting state law which shifts the determination of disputes from arbitrators to courts. To allow the parties to so contract would undermine the provisions of the Federal Act. Congress, in enacting the Federal Arbitration Act [USAA], exercised its power over admiralty and interstate commerce. Any arbitration contract involving one of those areas is governed by the Federal Act. To permit the parties to contract away the application of the Act by adopting state law to govern their agreement would be inconsistent with the Act itself and with the holding in Prima Paint.21

The trouble with this reasoning is that an arbitration statute comes into operation only when the parties wish it to since they do not have to agree to arbitration in the first place. The arbitration


151

act is thus by its very nature first and foremost an enabling statute, one conferring power on parties. Its various regulatory roles come into play only // the parties select arbitration to resolve their disputes. That being the case, it is by no means self-evident that, just because a particular arbitration act would otherwise apply, the legislature enacting it intended to preclude the parties from choosing some other act to govern their arbitration relations. This is particularly the case respecting the USAA, because the Court had earlier also stressed the congressional intention to allow freedom of contract regarding arbitration.28 Volt thus presented a real dilemma to the Court. All eight justices participating in Volt agreed that the parties may choose to have state law govern arbitration agreements otherwise governed by the USAA.29 The majority opinion30 notes the absence of an express preemptory provision in the USAA and asserts, citing Bernhardt v. Polygraphic Co. of America (U.S. 1956),31 that the USAA reflects no congressional intent to occupy the entire field of arbitration.32 Nor, says the Chief Justice, does application of the California statute conflict with the USAA because Congress's purpose was primarily to make enforceable agreements relating to arbitration into which the parties have entered. Refusing to give effect to the California statute would be quite inimical to the FAA's [USAA's] primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms. Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues they will arbitrate, ... so too may they specify by contract the rules under which that arbitration will be conducted."

The Court went further. Earlier in the opinion it rejected the argument that the choice-of-law provision was a waiver of a federally guaranteed right and, hence, governed by state law. Rather, no federal right was created in the first place. Having agreed to have California law govern, the parties had simply not agreed to arbitration where California law did not provide for arbitration.34 Even more damaging to a regulatory USAA was the Court's refusal to apply to the interpretation of the choice-of-law clause the federal pro-arbitration principles of interpretation most clear-

152


ly expounded in Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (U.S. 1983)35 and Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (U.S. 1985).36 While citing these cases with approval37 the Court held them inapplicable. "There is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate."38 In light of the foregoing, the Court refused to review the state court's interpretation of the arbitration clause, that being a matter of state law, pure and simple. Thus the parties' use of a standard American Institute of Architects form containing the following clause resulted in incorporation of California arbitration law in conflict with the substance of the USAA: "The Contract shall be governed by the law of the place where the Project is located." The Court thus came down heavily in favor of the facilitative, freedom of contract side of the USAA at the expense of its regulatory side. Or did it? Having apparently adopted a clear, the parties-can-opt-out rule, the majority went on to ask whether in spite of the choice of California law by the parties, the USAA preempts the California law. The question, said the majority, is whether application of the California law pursuant to the arbitration agreement itself, "would undermine the goals and policies of the USAA." The Court concluded that it would not. Nonetheless, the very asking of the question raises doubt as to the status of the parties' freedom to choose state arbitration law to govern contracts otherwise subject to the USAA. The dissenters39 disagreed with the majority's refusal to review the state court's interpretation, rejecting two key majority arguments. First, the dissent argues that where a state court interprets a contract "in such a way as to preclude enforcement of a federal right [it's interpretation] is not immune from review ... as to its 'adequacy'" in the Supreme Court,40 and this is such a case. Second, whether the parties have agreed to adopt state arbitration law to govern their agreement is itself a question of federal law.41 This federal law requires that doubts concerning the scope of arbitrable issues be resolved in favor of arbitration.42 Unlike the majority, Justice Brennan asserts that the decision in this case


153

frustrates that rule. The California rule applied in the case will stay arbitration while litigation goes ahead, and the rule of Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (U.S. 1983)43 applies "no less than would an interpretation of the parties' contract that erroneously denied the existence of an agreement to arbitrate."44 The upshot is an intertwining of federal and state law in which the Supreme Court is not barred from reviewing the state court determination. Construed pursuant to the foregoing principles, "the choice-oflaw clause cannot bear" the California court's interpretation. This was a standard form contract respecting which there was no evidence about the parties' intent outside the writing. The "normal purpose" of such clauses is selection of law between states, not between state and federal law.45 Moreover, "the law of the place" is just as much the law of the United States as it is the law of California. If, say the dissenters, every state court construes choice-of-law clauses such as these as the California court has, the USAA will be rendered "a virtual nullity as to presently existing contracts."46 Is Volt a fundamental shift in the Court's thinking? One heralding a return of power over arbitration to the states? In one respect the answer is clearly yes. There are, and undoubtedly will continue to be, a vast number of contracts containing clauses more or less like the one involved in Volt. To whatever extent courts interpret those clauses as did the California court, arbitration law for those cases is state law. This is true not only of state courts, but also of federal courts in diversity cases, because they will be bound to follow the appropriate state rule in interpreting choice-of-law clauses. In practical terms, Volt may very well lead to even more state law governance of arbitration than occurred before the transformation of the USAA in Prima Paint and its progeny. In those earlier days there must have been countless federal cases applying the USAA with unheralded and ignored choice-of-law clauses calling for application of state law. As the dissenters in Volt note,47 Bernhardt v. Polygraphic Co. of America, Inc. (U.S. 1956)48 was such a case, as was the later case of Scherk v. Alberto-Culver Co. (U.S. 1974).49 With heightened consciousness of the issues, such clauses

154


will now surely be put forth regularly whenever the USAA and state law differ. Thus we can probably look forward to a flock of cases in federal court involving interstate commerce, but governed by state arbitration law.50 The foregoing is far from insignificant, especially for the unfortunate parties to contracts with conflict of law clauses of a general nature like that in Volt. Nonetheless, it does appear to be as far as Volt goes, at least for now. Nothing in Volt appears specifically to undo any of the rest of transformation described earlier. And yet . . . ? Surely there is a change of atmosphere about Volt. First, respecting its facts it is a clear and unanimous rejection of a regulatory interpretation of USAA in favor of a freedom of choice interpretation. This in itself is not insignificant. Joined with the fact that the USAA does not create federal jurisdiction, it makes somewhat anomalous the ringing march-to-the-federal-flag tone of cases like Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (U.S. 1983),51 Southland Corp. v. Keating (U.S. 1984),52 Dean Witter Reynolds, Inc. v. Byrd (U.S. 1985),53 and Perry v. Thomas (U.S. 1987).54 Even more striking is the majority's unwillingness to apply in the case the pro-arbitration principles constituting such a significant element of the Great Transformation.55 Is the majority's opinion simply another example of fundamentally thoughtless and apparently largely goalless bureaucratic analysis? Such work is hardly unknown in this area, Southland being perhaps the best example. Or does it, like the order in which the Politburo stood on Lenin's tomb, reflect some deeper significance? Does it signal a general retreat from the pro-arbitration stance of the transformation and a return to the neutral, intention-of-the-parties notion Congress undoubtedly meant in 1925? Does it herald a stop or possibly a rollback in the number of basic contract questions, normally governed by state law, that have been incorporated into the growing area of federal arbitration law?56 So too, the majority's handling of the interpretation of the conflict of the laws clause is disharmonious with the Great Transformation. The regulatory nature of the USAA established by that transformation surely called for federal review of the choice-of-law clause along the lines argued by the dissent.57 Instead of following


155

the spirit of the transformation, the majority seemingly limits the right of such review to waivers, and then says, with too impeccable logic, that the choice-of-law clause was not a waiver. Rearrangement of the Politburo on Lenin's Tomb often signified great and mysterious changes. It also often signified nothing much at all. Volt appears to be the same.58


Ill Internationalization of American Arbitration Law


13 In terna tionaliza tion

A Good Start Soon Dies: 1922 In 1922, the New York Chamber of Commerce, which had been a driving force in the enactment of the 1920 New York act,1 collaborated with a committee of the American Bar Association to draft a model arbitration treaty.2 The model treaty was the third of the three reform measures intended to transform the American law of arbitration, the others being a Uniform Arbitration Act3 and the United States Arbitration Act.4 This model treaty provided that a clause in a written contract between citizens, subjects, or residents of the states adopting the treaty to settle an existing or future dispute "shall be valid, enforceable and irrevocable, save only upon such grounds as exist at law or in equity for the revocation of any contract, and shall be so treated by the courts of the High Contracting Parties."5 The treaty further provided that arbitral awards made within the territory of the "High Contracting Parties" should be entitled to "full faith and credit" in the courts of the other contracting party.6 By approving the committee report (containing thirteen recommendations), the A.B.A., without discussion of the model treaty, approved it at the 1922 annual meeting.7 A year later, the model treaty was submitted to the Economic Committee of the League of Nations, which accepted the idea of irrevocability. The committee, however, rejected the "full faith and 159

160

Internationalization of American Arbitration Law

credit" provision on the ground that not all countries in the world were yet prepared to accord reciprocal authority to arbitral awards.8 The American Bar Association thereafter let the model treaty rest in peace for many decades.9 Bilateral Treaties: 1946 and Thereafter After World War II, the United States began to put clauses on commercial arbitration in its bilateral treaties of Friendship, Commerce and Navigation.10 The first treaty of this kind, concluded with China in 1946, provided that a written arbitration agreement was to be accorded full faith and credit by the courts of the High Contracting Parties, but that an arbitral award would be recognized only in the nation in which it was rendered." A step further was taken in the agreement concluded with Ireland in 1950, where not only were arbitral awards reciprocally recognized but the concept of reciprocity was extended to awards rendered outside the territories of the contracting States.12 Among the bilateral treaties, the one concluded with the Netherlands13 in 1956 was the most far reaching; the treaty makes foreign arbitral awards conclusive in the courts of either country and it bars an investigation by the enforcing court as to the correctness of the arbitrator's fact-findings and his conclusions of law.14 The New York Convention: 1958 This network of bilateral treaties forms the background for the participation of the United States in the ECOSOC15 conference on what would come to be known popularly as the New York Convention or where the context is clear, just the Convention. More formally, it is the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.16 The United States delegation was not an ardent believer in the multilateral approach chosen. In fact, it was instructed to participate in the work in only a limited way. "It did not attempt to exert a strong influence on the content of the convention, confining

Internationalization

161

itself to exposition of its views on matters of basic principle and emphasizing the value of the pragmatic as opposed to the multilateral convention approach to progress in arbitration."17 In 1958 the United Nations Economic and Social Council adopted the Convention. The United States delegation, while recognizing that there were no constitutional barriers to adherence, nonetheless recommended strongly that the United States not sign or adhere to the Convention.18 The Department of State, in a letter to the chairman of the Senate Committee on Foreign Relations, advised that the Convention "deals with a subject matter of considerable technical and legal complexity and will require thorough study in order that its implications, particularly with respect to Federal and State Laws, must be fully understood" and that it "would be some time before the executive branch would be able to express an informed judgment on whether adherence to the Convention would be in the national interest and whether therefore the Convention should be submitted to the Senate for its approval."19 The A.B.A., drawing heavily on the contractual nature of commercial arbitration, recommended that the Convention be ratified by the United States. The A.B.A. concluded that, however valid reasons for past United States reluctance to participate may have been, they were no longer compelling, because the United States had emerged as the foremost trading and investing nation in the world. It was said, "[f]rom a strictly selfish economic point of view, the United States should do all it can to strengthen public and private international law, and to take whatever steps it can to advance rather than to discourage the enforcement of contractual obligations throughout the sphere of private activities."20 The A.B.A. also asserted that the basic disadvantage of not acceding to the Convention was that . . . this stand of aloofness provides an excuse for others to say that not even the United States, a leader of the free enterprise system, is wholehearted in its support of judicial or arbitral processes for resolving private controversies in the international arena. This necessarily hampers the wider growth of the rule of law for resolving international disputes, public as well as private.21

162


The United States Adopts the Convention: 1970 It was to take nearly another decade before the United States accepted the A.B.A.'s view that "[a]t long last the time has come for the United States to join in an international regime of commercial arbitration for the benefit of its own nationals who trade and invest throughout the world."22 Finally, in 1970 the United States acceded to the Convention23 and Congress added USAA §§201-08,24 enforcing the Convention in the United States courts. Internationalization Moves Ahead: Effect of the Convention In spite of its name, the Convention and USAA §§201-08 implementing it go beyond merely providing for recognition and enforcement of executory arbitration agreements. Article II of the Convention requires recognition of arbitration agreements in writing. This includes judicial reference of arbitrable matters to arbitration at the request of one of the parties.25 USAA §206 implements this provision by authorizing a court having jurisdiction26 to direct arbitration and to "appoint arbitrators in accordance with the provision of the agreement." Any development of this kind will have at least some internationalizing effect on national law. For example, the grounds on which arbitration awards may be attacked under the Convention27 are by no means identical to those in the USAA.28 Thus an American court might find itself enforcing an international award where it would not enforce a domestic one or vice versa. The Convention, however, limits its superiority over national law. Recognition and enforcement of an award may be refused in three circumstances. One of these pertains to the law of the country chosen by the parties to govern the arbitration agrement, or if none, where the award was made. The other two pertain to the law of the country where recognition and enforcement of the award is sought. Thus, recognition and enforcement of the award may be refused under the following circumstances. First, there may be refusal if the agreement to arbitrate is invalid under the chosen law, or if


163

none, the law where the award is made.29 Second, such refusal may occur if the "subject matter of the difference is not capable of settlement by arbitration" under the law where recognition and enforcement is sought. Third, refusal may occur if "recognition or enforcement of the award would be contrary to public policy" under the law where recognition and enforcement is sought.30 The Convention also contains other language appearing to limit its superiority over national law. Article II, paragraph 3, requires a court to enforce an agreement to arbitrate unless it is "null and void, inoperative or incapable of being performed." This follows an earlier provision requiring such enforcement only "concerning a subject matter capable of settlement by arbitration."31 One might expect that with such language in the Convention, the Supreme Court of the United States would apply the same standards of nonarbitrability to agreements and awards subject to the Convention that it would to domestic arbitration not subject to the Convention. One would so expect in vain. Starting with Scherk v. Alberto-Culver Co. (U.S. 1974),32 the Court enforced an international arbitration agreement (and presumably awards) it assumed would not be enforceable were it a domestic agreement. The Court reached the foregoing result without depending on the Convention. It did, however, state that its conclusion was "confirmed by international developments and domestic legislation in the area of commercial arbitration,"33 referring to the Convention and USAA §201-08. It is noteworthy that in an extensive footnote on these subjects, no mention whatever is made of the various sections of the treaty quoted above. Instead the Court refers to the "frequent concern" among delegates to the Convention "that courts of signatory countries . . . should not be permitted to decline enforcement of [agreements to arbitrate] on the basis of parochial views of their desirability or in a manner that would diminish the mutually binding nature of the agreements."34 A decade after Scherk its principles blossomed into full flower in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (U.S. 1985).35 Mitsubishi Motors was a Japanese corporation manufacturing automobiles in Japan. It was the product of a joint venture between CISA, a Swiss corporation wholly owned by Chrysler Motors, and Mitsubishi Heavy Industries, a Japanese corporation. The purpose of the joint venture was the distribution through

164


Chrysler dealers of automobiles made outside the continental United States by Mitsubishi Motors, but bearing either Mitsubishi or Chrysler trademarks. Soler, an automobile dealer incorporated and doing business in Puerto Rico, entered into two agreements. One was a Distributor Agreement with CISA. This agreement contained no arbitration clause. The second was a Sales Procedure Agreement with CISA and Mitsubishi, which referring to the Distributor Agreement, governed the terms and conditions of sales of Mitsubishi products to Soler. This second agreement contained an arbitration provision, but only as between Mitsubishi and Soler, not CISA, and only relating to disputes arising "out of or in relation to Articles I-B-V" of the agreement or its breach.36 Following disputes about quantities of cars Soler was required to take and various self-help actions by Mitsubishi, Mitsubishi sought an order to compel arbitration. Soler brought CISA into the proceeding and counterclaimed on numerous grounds, including causes of actions under the Sherman Act for antitrust violations. The lower courts held, inter alia, that the arbitration clause covered Sherman Act claims.37 The Court of Appeals, however, held that Sherman Act claims were not arbitrable. The Supreme Court reversed, holding that Sherman Act claims were arbitrable in this international setting, even though it assumed for the purposes of the case that they would not have been in a purely domestic case.38 As in Scherk the Court discussed the question of the effect of the international character of the case on enforceability of the arbitration clause largely free of the New York Convention and USAA §§201-08. Only after extensive discussion of The Bremen v. Zapata Off-Shore Co. (U.S. 1972),39 which had upheld a choice-of-forum clause in an international agreement, and of Scherk itself, did the Court toss in the Convention to support its position: "And at least since this Nation's accession in 1970 to the Convention . . . that federal policy [favoring arbitration] applies with special force in the field of international commerce."40 It was easy for the Court to proceed this way in part because of the odd structure of the Convention, which inserts the obligation of courts to enforce arbitration agreements as a kind of aside to their obligation to recognize and enforce awards.41 Thus the Court was not forced by the


165

Convention to equate the public policy limitation on enforceability of awards found in Article V, paragraph 2(b), with a comparable limitation on the enforcement of arbitration agreements. (In contrast, the dissent starts its analysis of the convention with Article II, which provides for enforcement of arbitration agreements.42) After explaining how it expected the arbitration panel43 effectively to deal with Soler's antitrust claims, the Court went on to consider its position after the arbitration award: Having permitted the arbitration to go forward, the national courts of the United States will have the opportunity at the award enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed. [Reference to Article V, paragraph 2(b).] While the efficacy of the arbitral process requires that substantive review at the award-enforcement stage remain minimal, it would not require intrusive inquiry to ascertain that the tribunal took cognizance of the antitrust claims and actually decided them.44

By this way of proceeding the Court avoided tying the possible unenforceability of the award on grounds of public policy to the question of enforceability of the arbitration agreement that might possibly lead to such a result. Since Mitsubishi, Shearson/American Express, Inc. v. McMahon (U.S. 1987),45 Rodriguez de Quijas v. Shearson/American Exp., Inc. (U.S. 1989),46 and Gilmer v. Interstate/Johnson Lane Corp. (U.S. 1991)47 have virtually eliminated the public policy defense in domestic cases, in the absence of express congressional provision to the contrary.48 True, no Supreme Court decision has yet explicitly held the public policy defense to be inapplicable to domestic antitrust law. Nonetheless, the Court in Mitsubishi indeed handled roughly American Safety Equip. Corp. v. J. P. Maguire & Co. (2d Cir. 1968),49 the leading case applying the defense to domestic antitrust matters.50 So rough was that handling that both McMahon and Rodriguez, although securities, not antitrust, cases, seemed after Mitsubishi like foregone conclusions. Nonetheless, even though the domestic-international distinction drawn in Mitsubishi may no longer be significant in antitrust law, the case remains a living monument to the favoring of internationalization of American arbitration law over domestic policy concerns.

166


Moreover, Mitsubishi may still retain independent force in determining in particular instances whether Congress has sufficiently expressly intended the public policy defense to be available. Thus, there is a possibility that the Court might hold that a particular issue arising in relation to an international contract might be fully arbitrable, even though it would not be arbitrable relative to a domestic contract. Moreover, should the Supreme Court, after facing up to the conflict between its USAA cases and its LMRA §301 cases,51 move back toward the Wilko v. Swan (U.S. 1953)52 position in domestic arbitration, it may very well not do so respecting international arbitration. There is thus no reason to think that the willingness of the Court to subordinate American public policy to what it perceives to be the needs of international arbitration and commerce is likely to change in the foreseeable future. State International Arbitration Acts: 1986-91 One development which should be mentioned before closing this discussion on the internationalization of American arbitration law is the movement in a few states (thus far) to adopt so-called "international arbitration" acts. California and Florida are the leaders.53 The motivation behind these statutes appears to be to attract a new industry to the state in question, namely the international arbitration industry.54 The interrelations between such statutes and the USAA are far too complex to analyze here. It may only be mentioned that the Supreme Court's recent decision in Volt Information Sciences, Inc. v. Stanford Univ. (U.S. 1989)55 opens the possibility for these state acts to have a larger role than might otherwise be the case. Under the decision, parties designating the particular state international arbitration act as the governing law appear to be free to do so, even though the USAA would otherwise apply.

Postscript


14 The Road to Damascus

Looking Back Looking back over the story I have told, we see that in 1925 Con-

gress exercised its constitutional powers over federal courts and enacted the USAA as a procedural statute to govern proceedings in federal courts.1 Thirteen year later, the Supreme Court decided a case totally unrelated to the USAA, Erie RR. v. Tompkins (U.S. 1938).2 There the Court held that actions in federal courts based on diversity of citizenship of the parties should be governed by state law. Eighteen years later, in Bernhardt v. Polygraphic Co. of America, Inc. (U.S. 1956),3 the Court quite reasonably applied that principle to the state law of arbitration.4 Again, this was not a case involving the USAA.5 In spite of the disconnections between Erie and Bernhardt and the USAA, a series of quite logical developments from those decisions6 nonetheless led to the Supreme Court's amending the USAA into a statute enacted to regulate interstate commerce. Under the Supremacy Clause the USAA thereupon superseded state law in the state courts. Ironically, in view of the Erie principle as applied in Bernhardt, the USAA thus came to govern diversity cases in federal courts as well. We have also seen the legitimation of arbitration as a universal dispute resolution technique, probably going far beyond the original intentions of Congress in 1925, a legitimation virtually eliminating the public policy defense. 169

170

Postscript

The preface of this book gives four reasons for telling this story: the intrinsic importance of arbitration, its value as a Gothic illustration that legislative history is pathological history, its revelation of the distortion of public policy following from such legislative history, and to illustrate the workings of bureaucratic formalism in the Supreme Court. Further comment is in order respecting the second and fourth of these reasons. Legislative History Is Pathological History The Supreme Court's decision in Southland Corp. v. Keating (U.S. 1984)7 is the law of the land, but the Court lacks jurisdiction to rule history.8 The majority used the artifacts of the history of the USAA in building their arguments just as a mason uses stone in building a stone wall —picking ones that are useful, ignoring ones that are not, discarding troublesome ones, chipping away offensive spurs on otherwise useful pieces, twisting and turning each stone until it best fits, and above all, covering up the chinks and defects with a mortar of words. In short, the legislative history in Southland is typical judicial legal "history"; it is advocacy, not history.9 The result is pathological history.10 The source of this pathology lies in "history" being written primarily to prove a point in a highly adversary situation, not to get at the truth as best as a historian can.11 That there are some rules of the game—violated grievously, I believe, by Chief Justice Burger in Southland Corp. v. Keating (U.S. 1984)12-fails to eliminate the distortions. Nor does the common occurrence, as in Southland, of two, or sometimes more, opposing partisan versions of legislative history. In spite of its horrific defects, the great bulk of so-called legislative history — what we think Congress was doing at the level of the articulated word —is to be found in the partisan writing of justices and judges aimed at justifying their individual decisions. The exceptions—when there is enough interest for professional scholars to take a hand —tend to be in areas of high controversy and emotion. In such hot areas even the coolest of scholars have difficulty maintaining normal levels of professional objectivity. What I have attempted to write is also advocacy, but it is neither

The Road to Damascus

171

the advocacy of the lawyer urging a result desirable to a client nor the advocacy of a judge justifying the outcome of a case. It is the advocacy of scholarship. Scholars also pick and choose stones and put them into their walls in ways seen useful, but scholars are (or should be) under constraints of objectivity far heavier than those of lawyers or even judges. Their duty is to use all the important stones, not just the ones useful to their views, to examine, not to chip off, the offensive spurs damaging to the wall, to twist and turn stones to reveal the greatest information, not to build the smoothest wall of artful persuasion, and to avoid covering the blemishes with the mortar of sophistry. This was my aim, however successfully or unsuccessfully accomplished. It seemed worthwhile to subject a particularly bad example of judicial legal history from a relatively cool area to the advocacy of scholarship, the aim of which is to find and express the truth. The purpose of doing so was, apart from its relation to arbitration law, to raise questions concerning all legislative history written by the courts, most especially the Supreme Court of the United States. Neither historians nor legal scholars concerned with the historical aspects of a given statute should ever found their legislative history on judicially written legislative history. It is, virtually by definition, a defective product.13 Bureaucratic Formalism Where bureaucratic formalism of the kind described in this account prevails, never are the basic goals of the law thoroughly examined and comprehensively addressed. Instead the Court examines bits and pieces, the flotsam and jetsam of a particular case. In making the examination, the Court, or each of its factions, is dominated by two things. One is a rather general sense of direction, a direction often quite romanticized.14 The other is precedent, using the term in a broad sense to encompass judicial precedent, pertinent administrative regulation, and legislation. This precedent is used partly to rationalize the desired result, but also very definitely to channel the result. The upshot of these two conflicting roles of precedent is all too often law with important and unexamined consequences. When these consequences come to roost, the process repeats the pattern, often lurching off on another tangent.

172

Postscript

The consequences of this process are numerous. One consequence of any formalism, bureaucratic or otherwise, is the covering up of true aims and outcomes. Realists, and more recently Critical Legal Scholars, have attacked formalism vigorously for this quality. The thrust of their attack is that the real reasons for judicial decisions are not expressed by the formal support for them. Indeed the argument is that the formal support bears either no relation to the real reasons at all, or may even bear an inverse relation. For example, it is often argued that much formal reasoning based on principles of equality is in fact camouflage for decisions maintaining or enhancing inequality. The story of arbitration in the Supreme Court illustrates the cover-up function of formalism. One cannot immerse oneself in the arbitration cases without coming to the conclusion that a major force driving the Court is docket-clearing pure and simple. That is, the Court is motivated to reduce the cases having to be tried by the judicial system, particularly the federal judicial system. If this means overriding the consent principle of the USAA,15 sobeit; if it means abdication of judicial responsibility for enforcing regulatory legislation,16 sobeit; if it means converting a statute from one governing procedure in federal courts to a substantive regulatory one overriding state law, sobeit. Yet nowhere does the Court admit to such a policy. It may be noted that such complaints about judicial decision making are essentially complaints about conspiracy. They posit deliberate implementation of judicially favored policies with conscious or unconscious covering up those favored goals. My present concern for the bureaucratic formalism of our judicial dispute resolution system is, however, in large measure quite different from such complaints. I am more concerned with the determinism resulting from the system itself. This formalism creates patterns of decision with lives of their own. While superficially appearing to be the ultimate in logical development, and even though at each step (e.g., each case) the judicial decision maker seeks to achieve particular goals, the overall patterns tend to be fundamentally aimless, meandering, and above all, confusing. They are hence dysfunctional in terms both of the policies being achieved and of legal efficiency.


173

The foregoing is not to say that no one benefits or has a vested interest in these characteristics, or that the beneficiaries may not themselves be nicely camouflaged. The vested interests, however, are not, at least not directly, those of outsiders: corporations, labor unions, or any of countless powers whose centers lie outside the dispute resolution system and about which most political controversy centers. The vested interests are those of the system itself. The most obvious beneficiaries are the lawyers and those working with and for them. The bench, too, is a beneficiary. Although many complaints arise from the bench about overcrowded dockets and the like, the fact is that judging is a growth industry in the United States. Complaints from participants in any growth industry about its growth smack of crocodilian lachrymosity. The history of the United States Arbitration Act is one of the clearest examples of this dysfunctional bureaucratic formalism in action. The path of the USAA described in Chapter 11 from Erie RR. v. Tompkins (U.S. 1938)17 to Volt Information Sciences, Inc. v. Stanford University (U.S. 1989)18 exemplifies the aimlessness of both result and methods in reaching the results of bureaucratic formalism. In very large measure the transformation of the USAA from a procedural statute applicable only in federal courts into a substantive regulatory statute superseding state law everywhere was a product of the dynamics of the legal system rather than of conscious judicial legislation. Indeed, the very fact that courts, including the Supreme Court, generally deny that they are legislating is a factor in this process. Such denial keeps them from focusing on what they are in fact doing and why they are doing it rather than on a kind of mindless formalism in which they blindly follow paths laid out for vastly different reasons. Context and Causation At the outset" I said: These accounts seek through the events described to search out at the level of the articulated word what the participants thought they were doing, what they said they were doing, and what they were actually doing. This is the level at which most legal analysis of courts and legislatures occurs. Descriptions of this kind are examples of

a 174

postscript what Professor Purcell calls "the relevant history for purposes of legal argument and authoritative judicial exposition."20

A study so focused necessarily omits a great deal, particularly relating to context and causation. Respecting context, I have treated it to the extent necessary to understand what the participants thought they were doing, what they said they were doing, and what they were actually doing. This has provided a basis for some relatively modest suggestions about causation of various events at various stages of the story. In only one respect have I gone very far out on a limb in asserting causation in the same way that full-blown historians assign causes to events. That is in my assertions concerning the impact of the dynamics of some of our current judicial processes themselves. These I believe to have been very great respecting arbitration law and to continue being very great respecting much of our law.21 Lest anyone think I have intended to go beyond this, let me stress the kind of causative investigation I have not made. I have eschewed answering the following questions, suggested by Edward Purcell as essential to any proper full-blown history of American arbitration law: 1. What was the connection between the arbitration reform movement and the more general movement for professional procedural reform that occurred during the same decades? 2. Who, if anyone, or what forces, if any, were behind the arbitration reform movement besides the obvious actors and obvious forces and, if any, why? 3. What is the relationship between the arbitration reform movement and more general political and social change in the United States?22 These are fascinating questions indeed. They would be grand turf for a Ph.D. or S.J.D. thesis, to say nothing of possible work by a mature scholar, and I hope someone undertakes the daunting task.23 I trust no reader will think I have addressed these questions or drawn conclusions about them. 24 1 believe, however, that the story I have told is essential to anyone who wishes to answer them. By their works ye shall know them.


175

Looking Forward On the surface, it may appear that American arbitration law has achieved unity and coherence through its nationalization. In fact, major fault lines run through the law, along which tensions exist or will build up. Even after Gilmer v. Interstate/Johnson Lane Corp. (U.S. 1991),25 a great tension exists between the strong public policy limitations on full arbitrability in collective bargaining arbitration and the absence of such limitations in arbitration under the USAA. Further, sooner or later tension will develop between the political forces underlying governmental regulation of the socioeconomy and potential blunting of that regulation by substituting arbitration for judicial enforcement. Similarly, tension is inevitable between the freedom of arbitrators to make final decisions and the need for judicial oversight when their decisions concern important regulatory legislation. Also, partly because of Southland Corp. v. Keating (U.S. 1984)26 a great tension exists between forces in the states to limit and control arbitration on the one hand and the strong "freedom of contract" thrust of the USAA on the other. And finally, Volt Information Sciences, Inc. v. Stanford Univ. (U.S. 1989)27 has created new cracks in the Southland facade. Given these tensions, one can almost certainly predict that American arbitration law will look markedly different ten or twenty years from now. Predicting what those changes will be or how they will be brought about is folly. One can, however, perhaps suggest some constraints and general routes likely to be followed or not to be followed. First, it seems quite unlikely that anything like the old reform movement will come forth to give American arbitration law a good old-fashioned comprehensive going over. That movement itself has accomplished most of its aims and its organization, the American Arbitration Association, has settled into establishmentarian institutional maturity.28 And in spite of the great interest in arbitration of various groups, the legal situation is unlikely to be so desperate that enough of them will come together to give arbitration law a comprehensive shake-up, comparable, for example, to that

176

Postscript

given commercial law by the UCC. No one can, however, tell for sure. Second, we may anticipate particular congressional restrictions on binding arbitration agreements and perhaps on arbitration at all in particular acutely sensitive political issues, such as civil rights. Third, surely sometime the Supreme Court will have to bring greater symmetry of result to the conflict between noncollective bargaining cases like Gilmer v. Interstate/Johnson Lane Corp. (U.S. 1991)29 and collective bargaining cases like McDonald v. City of West Branch (U.S. 1983).30 Fourth, possibly the most likely prognosis is a continuing erosion of state power and a continuing surrender to the power of international arbitration. A Heretical View Since even generalities like the foregoing are highly speculative, I should like to conclude by offering a decentralist view of what should happen respecting the state-federal interface, as opposed to what is likely to happen. The trail of the USAA has led to an erosion of state power certainly never intended initially by Congress. Nor is there any reason to think that congresses at the times of the various bends in the road leading to this result had any desire for such erosion. Indeed, it is far from clear that even the majorities of the Supreme Court in the key cases had that desire. Rather they seem to have been propelled in considerable measure by a kind of determinism resulting from a combination of weaknesses in the drafting of the act and unrelated fundamental changes resulting from Erie RR. v. Tompkins (U.S. 1938).31 The latter resulted both in rules that led to a kind of mindless formalism and in very real practical problems in trying to harmonize the USAA with the changed legal background. If one steps back and asks why the federal government should impose the USAA on the states as a regulatory statute, it is extremely difficult to produce a satisfactory answer. Commercial arbitration is simply one of a number of forms of dispute resolution constituting an adjunct to the contract law and litigation systems


177

of the states. In spite of the immense growth of federal intervention into the economy in the past hundred years, this basic foundation of "private" law remains the domain of the states. It may be noted that all interstate commerce is dependent upon this law. Although current interpretations of the commerce clause would undoubtedly allow complete federal takeover of this domain, no such takeover has occurred or appears even to be in the offing. There is still, for example, no federal commercial code. And certainly there is no federal code of private law, such as a Civil Code, or even of contract remedies. Why, then, single out arbitration for federal intervention? Before answering the question, it should be recalled that the nature of an arbitration act such as the USAA is to empower private parties to make arrangements for dispute resolution they may be unable to do otherwise. It thus differs from the usual regulatory statute. Its regulatory function is limited to that of controlling the ways such arrangements are made and, once made, the arrangements themselves, not to forcing parties to be subject to the act in the first place. In this vital respect, general arbitration acts differ sharply from such things as statutory mandatory court-annexed arbitration aimed not at implementing party consent but at reducing court loads. One conceivable reason why commercial arbitration should be singled out for federal control would be if commercial arbitration were a serious problem area, such as the numerous areas of consumer law in which the federal government has exercised its powers with considerable vigor. The difficulty with this is that commercial arbitration simply is not that kind of problem area. The nationalization of commercial arbitration can hardly, therefore, be justified on such a ground. Thus, given its intimate connection with state law and the absence of serious current concern about its effective operation in almost all the states, the natural arena of commercial arbitration law seems to lie in the states. Moreover, the peculiar problem so exorcising the reformers and providing the strongest argument for the enactment of the USAA in the first place has now been largely solved outside the USAA. Under Bernhardt v. Polygraphic Co. of America, Inc. (U.S. 1956),32 it is no longer possible for a federal court to deny enforcement of an arbitration agreement between

178

Postscript

citizens of two states, both of which have modern arbitration statutes and the courts of either of which would have enforced the agreement.33 Nor, since almost every state in the union now has a modern arbitration statute 34 —more modern in most instances than the USAA —is there a need for a great deal of concern that arbitration agreements in interstate commerce will remain unenforceable. Any need for general federal intervention in arbitration with interstate aspects is obviated by the ability of the federal government, exercised in numerous areas,35 to create special systems of arbitration. A Proposal Ignoring what we have in place now, to what kind of a structure of state-federal commercial arbitration law would the foregoing lead us? I suggest the following. Whether state or federal arbitration law is applicable would not depend upon which court, state or federal, is hearing the matter. Only the most peripheral, non-outcome determinative procedural matters would still be determined by the forum. In the tiny, perhaps even nonexistent, area of intrastate transactions, state law would govern whether or not the state had a modern arbitration statute. In interstate transactions, state law would govern, providing the state had a modern arbitration statute. If the state had no modern arbitration statute, a general federal arbitration act would govern. Where the state had a modern arbitration statute, but had excluded from its coverage the type of dispute involved in the case, the result would depend upon the origin of the rights involved in the dispute. If the dispute arose out of state substantive law, arbitration would be excluded; if the dispute arose out of federal substantive law, arbitration would take place. Where, as in Dean Witter Reynolds, Inc. v. Byrd (U.S. 1985)36 and Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (U.S. 1983),37 both state and federal issues were at stake, and the state issues were nonarbitrable under the state law, arbitration of the federal issues would take place first. Similar principles would govern where the state-law dispute


179

was subject to special arbitration statutes, such as those commonly found in no-fault and health legislation. The same principles should apply in international transactions as in interstate cases. To achieve such a pattern in our arbitration law would require a number of changes in present law: The USAA would have to be amended so that modern state arbitration laws would govern in both state and federal courts. It would also have to provide that the USAA would apply only where the state in question lacked a modern arbitration statute. In the latter circumstances, the USAA would apply in both state and federal courts. Various clarifications would need to be made as well. Particularly needing confirmation is the unitary nature of the USAA, a statute applicable either in its entirety or not at all. Related to this, clarification is needed that the USAA is applicable only when interstate commerce is involved or other section 2 bases exist. Finally, both to minimize differences in result and to take advantage of the dominant current thinking on commercial arbitration, the federal government should substitute the Uniform Arbitration Act for the present USAA provisions, adding it to the federal provisions required for a federal act.38 The principles suggested run afoul of the Supreme Court's views expressed in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (U.S. 1985).39 But nothing in the case suggests that it is beyond the power of Congress to overrule those views.40 Indeed, quite the opposite, the Court says: "Doubtless, Congress may specify categories of claims it wishes to reserve for decision by our own courts without contravening this Nation's obligations under the Convention."41 Presumably, in spite of the generality of the Court's language, at some point excessive congressional limits on arbitrability might violate the United Nations Convention on the Recognition and Enforcement of Arbitration Awards. And were Congress to allow the states to determine arbitrability respecting agreements subject to the Convention, they too would be subject to treaty limits if there are any. Congress would, of course, also be in a position to prohibit any state limitations Congress deemed incompatible with "this Nation's obligations under the Convention."

180

Postscript

In sum, it is feasible to restore this area of private law to the states without creating problems of having different laws apply depending upon which court handles the litigation, with or without the possibility of forum shopping. In the international area, it is feasible to accomplish this without violating the United Nations Convention on the Recognition and Enforcement of Arbitration Awards.

Notes

Preface 1. 465 U.S. 1 (1984). 2. Macneil, I., Speidel, R., and Stipanowich, T., The Federal Arbitration Act (forthcoming) (hereafter Macneil, Speidel, and Stipanowich, FAA). The USAA later became more commonly called the Federal Arbitration Act (FAA). To avoid confusion in the present book it is called the USAA throughout. 3. 923 F.2d 791 (10th cir. 1991). 4. See Macneil, Speidel, and Stipanowich, FAA, supra note 2. 5. Erie RR. v. Tompkins, 304 U.S. 64 (1938). 6. Supra note 1. 7. It is the shortest part, because the tale of internationalization is relatively new, relatively simple thus far, and the process only recently fully under way. 8. Letter from Edward Purcell to Oxford University Press, p. 3 (Feb. 24, 1991). 9. Supra note 1. 10. 388 U.S. 395(1967). 11. Wiecek, Clio as Hostage: The United States Supreme Court and the Uses of History, 24 Cal. W.L. Rev. 227 (1987-88). 12. See generally M. Weber, Economy & Society 223-26, 956-1005 (G. Roth and C. Wittich, eds. 1978). 13. K. Llewellyn, The Common Law Tradition—Deciding Appeals 38 (1960). 14. Macneil, Values in Contract: Internal and External, 78 Nw. U.L. Rev. 340, 345-46 n. 13 (1983). 15. For an excellent discussion of both the possibility and the limits of truth seeking in history, see W. McNeill, Mythistory and Other Essays 1-67 (1986). 16. Chapter 14. 17. 393 U.S. 145 (1968). The case established basic principles respecting arbitrators' revealing information suggesting possible bias. 18. See Chapter 1, note 3. 19. J. Auerbach, Justice Without Law? 95-114, 125-26(1983).

181

182

Notes to pages 3-11

Chapter 1 Introduction 1. See, e.g., Note, Out With the Old, In With the New: The Mini-Trial is the New Wave for Resolving International Disputes, 1991 J. Dispute Resolution 111. 2. See, e.g., The Economist, Nov. 10, 1990, p. 89. 3. Throughout, this book follows the convention of spelling "state" with a capital "S" when referring to a sovereign state, not to a state of the union, although a State includes the latter. 4. To a degree this is true even of disputes within the State itself. 5. Most commonly, negotiation is thought of in terms of articulated negotiation, but far more subtle forms can and do occur in which the communication may even approach the subliminal. 6. It, too, may impose varieties of pressures on the parties to comply. 7. See R. Mnookin, Bargaining in the Shadow of the Law: The Case of Divorce (1979). 8. D. Luban, The Quality of Justice 5-6 (Dispute Procedures Research Program Working Papers Series 8, Inst. Legal Stud. U. Wis. 1988). These issues are treated extensively in Chapter 6. 9. On this subject generally see Macneil, Bureaucracy and Contracts of Adhesion, 22 Osgoode Hall L.J. (1984); Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1174 (1983). 10. Such disputes may be of quite a personal nature, but are far more likely to become involved in hierarchical decisions relating to the conduct of the hierarchy's activities. 11. Panels of arbitrators, most often tripartite, are also common. The singular is used throughout this discussion for the sake of simplicity. 12. The arbitration decision may, however, under some legal regimes, be submitted to the jury along with the other evidence. But sometimes a party who does not do better before the jury than before the arbitrators will be stuck with the costs of the litigation. Where this is the case, the advisory arbitral decision does in fact have some legal binding effect. 13. The corporation may, of course, be involved in other relationships in which such a challenge may be made, e.g., a union may object, and in some circumstances may have legally enforceable rights respecting the move. 14. Where it is, as in the case of conspiracies in restraint of trade, the State can, and does, prohibit all such activities and refuse to give legal effect to resolutions of disputes achieved by such conspiracies. 15. See Symposium: Court Annexed Arbitration, 14 Just. Sys. J. 123 (1991). 16. No good encompassing term exists for "non-collective bargaining arbitration." "Commercial arbitration," probably the most common phrase, is entirely too narrow to describe arbitration governing, for example, disputes about marital property in a divorce proceeding. "General arbitration" might be a good term, but I know of no one who uses it, although reference is sometimes made to general arbitration statutes. Sometimes, however, these also govern collective bargaining arbitration. (The Uniform Arbitration Act provides an option for its enactment in a given state to include or not include labor arbitration.)

Notes to pages 11-17

183

The bare word "arbitration," unless carefully delimited, encompasses both collective bargaining arbitration and non-collective bargaining arbitration. Since the two areas are often governed by bodies of law not entirely but quite different, the elision is dangerous. Nonetheless, hereafter the word arbitration will be used to refer to non-collective bargaining arbitration of all kinds. Chapter 2 Before the Enlightenment 1. See Chapter 3. 2. See, e.g., Lurie, Private Associations, Internal Regulation and Progressivism: The Chicago Board of Trade, 1880-1923, as a Case Study, 16 Am. J. Legal Hist. 215, 220-21 (1972). Cohen lists nearly 100 "Trade Organizations in Chicago agreeing to Promote Trade Arbitrations," J. Cohen, Commercial Arbitration and the Law 303-5 (1918) (hereafter Cohen, Commercial Arbitration), although this was after the reform movement was well underway. See also Note, Commercial Arbitration Developed in Trade Courts, 1 J. Am. Jud. Soc'y 7 (1923). 3. This is illustrated by the section on Arbitration and Award in Corpus Juris published in 1916. It contains 252 large pages of excruciatingly fine print dealing with the intricacies of then-current arbitration law. 5 C.J., Arbitration and Award §§1-710(1916). 4. This was true at least as early as 1887. 1 American & English Cyclopedia of Law, Arbitration and Award Ml (1887). 5. M. Domke, Commercial Arbitration Appendix 1 (rev. ed. 1983). 6. M. Domke, Commercial Arbitration 22 (1968). 7. See 5 C.J., Arbitration and Award, supra note 3, §§514, 516. Rule-of-courtordered arbitration, treated below, incorporated all of the fifth and sixth elements. 8. Instead we are treated to statements like this one: "Although most of the American states passed arbitration legislation during the nineteenth century, these statutes did little more than codify the common-law attitude and outline procedures for review." Allison, The Context, Properties, and Constitutionality ofNonconsensual Arbitration: A Study of Four Systems, 1990 J. Dispute Resolution 1, 11 (hereafter Allison, Nonconsensual Arbitration). The alleged authority for this statement is L. Fuller and M. Eisenberg, Basic Contract Law 432-33 (3d ed. 1972). What Fuller and Eisenberg actually said was: "Most states adopted arbitration statutes during the nineteenth century, but the New York statute of 1920 was the first to make arbitration agreements irrevocable and to provide for judicial appointment of arbitrators." Id. 9. As the examination of the 1873 Illinois statute in text infra at notes 9-27 will demonstrate, this is, of course, unnecessary in speaking of the law of a single jurisdiction, provided one's library has the necessary dusty and disintegrating books for that jurisdiction. 10. 111. Rev. Stat. ch. 10, §§1-18 (Kurd 1915-16). The 1873 act was substantively identical to 111. Rev. Stat. ch. 7, §§1-16 (1845). These acts were in addition to, not in substitution for, common law (judge-made) arbitration. Eisenmeyer v. Sauter, 77 III. 515, 516 (1875); Phelps v. Dolan, 75 111. 90, 92 (1874).

184


11. 111. Rev. Stat. §1 (Hurd 1915-16). 12. Id. §15. 13. Id. §1. 14. Id. §16. 15. Id. §§3, 17. 16. Id. §4. 17. Id. 18. Id. §5. 19. Id. 20. Id. §§6, 18. 21. Id. §§7, 18. 22. Id. §§8, 18. 23. Id. §§9, 18. 24. Id. §§10, 18. Applications before judgment on the award, subject to normal chancery jurisdiction respecting judgments. §11. 25. Id. §14. 26. Id. §12. 27. Id. §13. Two dollars a day, doubled since the 1845 act (§14). 28. Id. Witnesses and law officials received the same fees they would have in court proceedings. 29. W. Sturges, Commercial Arbitration and Awards §60, at 198 (1930) (hereafter Sturges, Commercial Arbitration). There were occasional statutory exceptions, id. §60, at 199, and public policy limitations, such as controversies involving illegality, see id. §61, at 202-4, and matrimonial matters, id. §65, at 212-13. Sturges, Commercial Arbitration, is the first truly scholarly treatise on American arbitration law. Although it was published a decade after the first modern arbitration statute in New York and five years after the United States Arbitration Act, Professor Sturges very carefully separated the common law of arbitration from that of the new statutes. Since relatively little seems to have changed in the common law of arbitration between the period being discussed in the text and 1930, the treatise is an invaluable summary of the pre-1920 period. 30. Sturges, Commercial Arbitration, supra note 29, §290, at 676. A necessary corollary was that the arbitration agreement was irrevocable after the award was rendered. Id. §76, at 242-43. 31. Id. §303, at 701. 32. Such agreements then and now are commonly called submission agreements. But the term is also sometimes used to include agreements to submit future disputes to arbitration. 33. Sturges, Commercial Arbitration, supra note 29, §76, at 243. 34. Underhill v. Van Cortlandt, 2 Johns. Ch. 339, 361 (1817). 35. Typical of casual modern treatment is the following: ". . . courts in nations employing the English common law system, including the United States, demonstrated an early and sustained hostility toward arbitration. Although these courts would usually enforce post-dispute arbitration agreements, [incorrect] they usually would not compel compliance with a predispute arbitration clause." Allison, Nonconsensual Arbitration, supra note 8, 1990 J. Dispute Resolution at 11 (footnotes, all to secondary sources, omitted).


185

The main source of many lawyers' knowledge of this subject may very well be the pop legal history of Judge Frank in Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978 (2d Cir. 1942), also hardly a balanced account. 36. For extensive lists of citations, see Hirshman, The Second Arbitration Trilogy: The Federalization of Arbitration Law, 71 Va. L. Rev. 1305, 1310-11 nn.2728(1985). 37. Sturges, Commercial Arbitration, supra note 29, §76, at 237-39. Both Colorado and Washington resisted the common law rules respecting revocability, id. §15, at 50-51, as, to a limited degree, did Pennsylvania, id. §15, at 48-49. A few jurisdictions excluded arbitration provisions in articles of membership and bylaws of associations from the normal revocability of arbitration law. Id. §16, at 51-52. 38. Sturges, Commercial Arbitration, id. §87, at 262. 39. What we could call expectation damages — compensation for not receiving the gains of promised arbitration —would be virtually impossible to prove. That left only what we would call reliance damages, likely to occur when some steps had actually been taken in the arbitration process after a dispute had arisen. See Sturges, Commercial Arbitration, id. §85, at 255-58, for some illustrative cases. 40. 5H.L.C. 811 (1855). 41. The discussion in 5 C.J. Arbitration and Award, supra note 3, §§70-72, at 45-46, seems to suggest that provisions requiring arbitration of the whole cause of action as a condition precedent to legal action could nonetheless be made effective, but the authorities fail to support that position. United States Asphalt Ref. Co. v. Trinidad Lake Pet. Co., 222 Fed. 1006 (S.D.N.Y. 1915); Delaware* H. Canal Co. v. Pennsylvania Coal Co., 50 N.Y. 250 (1872); Burnham, Arbitration as a Condition Precedent, 11 Harv. L. Rev. 234 (1897); Annotation, Validity of Agreements to Arbitrate Disputes Generally as a Condition Precedent to the Bringing of an Action, 26 A.L.R. 1077 (1923); Sturges, Commercial Arbitration, supra note 29, §15, at 45 n.2. 42. Sturges, Commercial Arbitration, supra note 29, §20, at 62-66. 43. Id. 44. Id. §21, at 71-81. It should be noted that statutes had been enacted in various states dealing with some of these provisions. Id. §20, at 67-68; §21, at 73-75; §16, at 51-52. 45. It is unnecessary to review the fairly extensive law relating to clauses of this type. Suffice it to say that sometimes they "worked" in court, Van Iderstine Co. v. Barnet Leather Co., 242 N.Y. 425, 152 N.E. 250 (1926), and sometimes they did not, Nolan v. Whitney, 88 N.Y. 648, 650 (1882). 46. The power of a court of justice, with the consent of the parties, to appoint arbitrators and refer a case pending before it, is incident to all judicial administration, where the right exists to ascertain the facts as to pronounce the law. Conventio facit legem. In such an agreement there is nothing contrary to law or public policy. Newcomb v. Wood, 97 U.S. 581, 583 (1878). For more extensive discussion of this type of arbitration, see 5 C.J., Arbitration and Award, supra note 3, §23, at 26. Its origins lie in a late seventeenth century act of Parliament, 9 & 10 Wm. 3, ch. 15 (1698).

186


47. 5 C.J., Arbitration and Award, supra note 3, §§95-97, at 54-55. 48. Id. §93, at 54. 49. Id. §§22-24, at 26-27. 50. Id. §58, at 39. 51. Simple confirmation of an arbitration award was not available at common law in the absence of an authorizing statute. 52. See generally, Sturges, Commercial Arbitration, supra note 29, §§88-142, at 263-332, for the situation obtaining about 1930. (By this time, however, the federal government, ten states, and the territory of Hawaii had enacted "modern" arbitration statutes, i.e., those providing for enforceability and irrevocability of agreements to arbitrate future disputes. Id. §26, at 88.) 53. Cohen, Commercial Arbitration, supra note 2, e.g., focuses virtually all of its advocacy on these points. 54. An example of the effect of their work: "Arbitration clauses from their inception have been uniformly disfavored by the courts." Note, 36 Yale L.J. 571 (1927). The authority given for this sweeping inaccuracy is Julius Henry Cohen, one of the more polemic of the reformers. Cohen, The Law of Commercial Arbitration and the New York Statute, 31 Yale L.J. 147, 152 (1921) (hereafter Cohen, New York). Were Cohen still alive he could accurately claim that he was miscited in

detail —no such statement or anything close to it appears on the page 152 —but the polemics of the reform movement created precisely the atmosphere where such mistakes were to be expected. 55. For a comprehensive review of common law arbitration in one probably quite typical jurisdiction, see Steers, Arbitration at Common Law in Indiana, 5 Ind. L.J. 175 (1929). 56. This is the common law so bemusing to English lawyers accustomed to dealing with a common law of England. 57. 5 C.J. Arbitration and Award, supra note 3. 58. T. Parsons, Law of Contracts 806-31 (8th ed. 1893). 59. Contemporaries seem to have considered the "law of arbitration" as described in the text to be local manifestations in particular jurisdictions, including federal, of a single general corpus of common law of arbitration. (This corpus was, of course, always subject to particular legislative modifications.) The closest thing I have found to a recognition of a body of federal law as such is Julius Henry Cohen's chapter entitled "The Development in the Federal (U.S.) Courts," Cohen, Commercial Arbitration, supra note 2, at 242-52. But Cohen does not purport to show that "federal" law is different; rather his work is a polemic against particular federal decisions following widely accepted, albeit erroneous in his eyes, common law principles. It was this ancient cast of the common law mind that prevented remedy of the perceived defects of the law by judicial change. 60. Fox v. Hempfield R. Co., 9 Fed. Cas. 627 (C.C.W.D. Pa. 1857) (citing Pennsylvania law as governing in holding that arbitration was a condition precedent to any action) (overruled in 1898, see infra note 61); Newcomb v. Wood, 97 U.S. 581 (1878), upholding lower federal court decision enforcing an arbitration agreement made in court, citing an Ohio statute that authorized such agreements in writing or by oral consent in court; the Supreme Court then said: "The reference here in question was made in the latter mode and by virtue of this authority." Id. at


187

583; Warren v. Tinsley, 53 Fed. 689 (5th Cir. 1893) (applying Texas law to the submission and arbitration proceedings pursuant to an agreement incorporating that law). 61. Mitchell v. Dougherty, 90 Fed. 639 (3rd Cir. 1898), overruling Fox v. Hempfield, supra note 60. 62. 90 Fed. 639 (3d Cir. 1898). 63. 90 Fed. at 645. 64. Jefferson Fire Ins. Co. v. Bierce & Sage, Inc., 183 Fed. 588 (C.C.E.D. Mich. 1910); United States Asphalt Ref. Co. v. Trinidad Lake Pet. Co., 222 Fed. 1006 (S.D.N.Y. 1915). 65. Rae v. Luzerne County, 58 F.2d 829 (M.D.Pa. 1932); California Prune & Apricot Growers' Ass'n v. Catz American Co., 60 F.2d 788 (9th Cir. 1932). 66. As in Haskell v. McClintic-Marshall Co., 289 Fed. 405 (9th Cir. 1923). 67. United States Asphalt Ref. Co. v. Trinidad Lake Pet. Co., 222 Fed. 1006 (S.D.N.Y. 1915). 68. It was not, therefore, governed by the Conformity Act. 17 Stat. 196 (1872), U.S. Rev. Stat. §914 (1874) (Conformity Act). 69. Supra note 60. 70. Supra note 63. 71. The court cited, 222 Fed. at 1011, the decision in Meacham v. Jamestown, F. & C. RR., 211 N.Y. 346 (1914), a leading arbitration case, where Judge Cardozo held: "An agreement that all differences arising under a contract shall be submitted to arbitration relates to the law of remedies, and the law that governs remedies is the law of the forum." 211 N.Y. at 352. 72. 1 Stat. 92 (1789), U.S. Rev. Stat. §721 (1874) (Judiciary Act). 73. 41 U.S. (16 Pet.) 1 (1842). Swift involved a dispute between a citizen of Maine and a citizen of New York over the validity of a bill of exchange in the hands of a holder in due course. The Court applied federal general common law in answering the question, rather than looking to the state law, which otherwise would have governed. 74. Supra note 68. 75. Where the statutory requisites are met, the federal courts have jurisdiction over suits between parties who are citizens of different states. 76. Supra note 68. 77. Erie RR. v. Tompkins, 304 U.S. 64 (1938). Erie was the landmark case establishing the principle that state law governed federal courts exercising diversity jurisdiction. 78. California Prune & Apricot Growers' Ass'n. v. Catz American Co., 69 F.2d 788 (9th Cir. 1932). 79. Justice O'Connor, in an otherwise fine dissenting opinion in Southland Corp. v. Keating, 465 U.S. 1 (1984), errs in stating that Swift "set up a major obstacle to the enforcement of state arbitration laws in federal diversity courts." Id. at 35. Prior to the enactment of the New York law in 1920, see Chapter 4, the federal law did not differ systematically from state law in such a way as to constitute an obstacle. With the advent of the 1920 New York law enforcing agreements to arbitrate future disputes, the federal judge-made law could, and did in the Second Circuit, become such an obstacle. But this was not because of Swift; it was because

188


of the jurisdictional and "remedy-not-a-right" routes just described. It may be noted that recognition of Justice O'Connor's error on this point does not affect the validity of the rest of her opinion. Indeed it strengthens it, since the federal judges' routes around the state law prior to the USAA were clearly not substantive in the sense the majority in Southland attributed substantive character to the USAA. Moreover, it is crystal clear that both routes were ones giving primacy to the law of the forum. Thus the enactment of the USAA was properly viewable as a congressional response to straightening out the federal forum, just as Justice O'Connor argues. See Chapters 9 and 10. 80. Because Asphalt Refining was in admiralty, neither statute applied to the case, but the court's argument was equally applicable to cases they did govern. Asphalt Refining was shortly followed in two other admiralty cases: The Eros, 241 Fed. 186 (E.D.N.Y. 1916), affd, 251 Fed. 45 (2d Cir. 1918), and Aktieselskabet Korn-Og Foderstof Kompagniet v. Rederiaktiebolaget Altanten, 250 Fed. 935 (2d. Cir. 1918).

Chapter 3 The Beginning of Reform 1. Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U.L.Q. 193, especially at 211-18 (hereafter Jones, Arbitration in New York). 2. Chamber of Commerce of the State of New York, A Brief History of Commercial Arbitration in New York, in Selected Articles on Commercial Arbitration 23-24 (D. Bloomfield, ed. 1927) (hereafter N.Y. Chamber, Selected Articles); Kent, Pioneers in American Arbitration, 17 N.Y.U. L. Rev. 501, 505 (1940) (hereafter Kent, Pioneers); Gwynne, The Oldest American Tribunal, 1 Arb. J. 117 (1937) (hereafter Gwynne, Oldest Tribunal); Jones, Arbitration in New York, supra note 1, at 207-11. 3. Kent, Pioneers, supra note 2, at 503-06. 4. See Lurie, Private Associations, Internal Regulation and Progressivism: The Chicago Board of Trade, 1880-1923, as a Case Study, 16 Am. J. Legal Hist. 215, 220-21 (1972): ". . . ordinary common sense, knowledge of human nature, a clearcut sense of commercial equity, patience and forebearance produce the results desired in arbitration." Charles Bernheimer, see infra note 20, Chairman, Committee on Arbitration of the New York Chamber of Commerce, to the Committee on the Prevention of Unnecessary Litigation. 39 N.Y. St. Bar Ass'n 263 (1916). 5. Note, Arbitration in the United States, 2 J. Am. Judicature Soc'y 53, 54 (1918) (hereafter Note, Arbitration in the United States). 6. Perhaps, given the role of New York City in all this, "pavement roots" would be a better phrase. 7. Cf. C. Harrington, Shadow Justice: The Ideology and Institutionalization of Alternatives to Court (1985); Gallagher, Book Review, 13 Law & Social Inquiry 133 (1988). It is difficult to believe that the Arbitration Society of America was


189

serious when it labeled an arbitration tribunal it created in the early 1920s the People's Tribunal of Arbitration, but that is what it did. Note, Arbitration Society of America, 6 J. Am. Judicature Soc'y 59 (1922). 8. Kent, Pioneers, supra note 2, at 503. 9. N.Y. Chamber, Selected Articles, supra note 2, at 24; Gwynne, Oldest Tribunal, supra note 2, at 119. 10. Gwynne sets out three: [I]ts financial support was to have come from the Legislature, which after 1878 refused to make any appropriation; secondly, decisions were arrived at with increasing formality and even reached the dignity of a court of justice; third, it gave merchants a special court which was regarded as being favorable to a special class, and met with considerable unpopularity from the rest of the community.

Id. 11. Lauer, Conciliation and Arbitration in the Municipal Court of the City of New York, 1 J. Am. Judicature Soc'y 153 (1918). 12. N.Y. Code Civ. Proc. §§2365-86 (Stover 1902). 13. 222 Fed. 1006 (S.D.N.Y. 1915). 14. Although Scots law had never had the English common law inhibitions about enforcing arbitration agreements, it was less known and less influential, although discussed in Cohen. J. Cohen, Commercial Arbitration and the Law 27-28, 37-38, 58-59 (1918) (hereafter Cohen, Commercial Arbitration). 15. 5 H.L.C. 811(1855). 16. Cohen, Commercial Arbitration, supra note 14. 17. Id. at 205-25. 18. 52&53 Vict.,ch. 49. 19. Cf. McChesney, Intellectual A ttitudes and Regulatory Change: A n Empirical Investigation of Legal Scholarship in the Depression, 38 J. Legal Educ. 211 (1988). 20. Charles L. Bernheimer, 1864-1944, was born in Germany and educated in Switzerland. He entered, at the bottom, what appears to have been a family business in wholesale dry goods in New York, where he became a successful merchant. He was active in city reform politics and was an amateur explorer and paleontologist in the American Southwest. He was the writer of numerous magazine articles. He founded the Arbitration Foundation, which in 1926 merged with the Arbitration Society of America to become the present American Arbitration Association, of which he was a director. 2 Who Was Who in America 59 (1950) and Kent, Pioneers, supra note 2, at 507-8. See also F. Kellor, American Arbitration: Its History, Functions and Achievements (1948) (hereafter Kellor, American Arbitration). 21. A Bill Relating to Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 7-14 (1923) (testimony of Charles L. Bernheimer) (hereafter 1923 Hearing).

190


22. Julius Henry Cohen, 1873-1950, was educated at New York University Law School and became a successful lawyer in New York City. He held a number of important positions, including that of General Counsel of the New York Port Au-

thority from 1921 to 1942. He was active in various reform movements in the city, and wrote a number of books on business, labor, and law, mainly between 1916 and 1919. Like Charles L. Bernheimer, he became a director of the American Arbitration Association, but not until 1947, see F. Kellor, American Arbitration, supra note 20. 3 Who Was Who in America 170 (1960). He and Bernheimer seem to have been truly indefatigable in the cause of arbitration reform. 23. Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st Sess. 31 (1924) (statement of Charles L. Bernheimer) (hereafter 1924 Hearings). 24. Gwynne, Oldest Tribunal, supra note 2, at 119. 25. Cohen, The Law of Commercial Arbitration and the New York Statute, 31 Yale L.J. 147 (1921) (hereafter Cohen, Arbitration and New York). 26. Werner, 32 Proc. Mo. Bar Ass'n 145 (1914), republished with modifications in a number of journals, including 3 J. Am. Judicature Soc. 101 (1919). It appears that this proposal may have played a role in the chamber's overture to the New York State Bar Association. J. Auerbach, Justice Without Law? 104 (1983) (hereafter Auerbach, Justice). As will be seen, this joinder of business and bar did not prevent a schism in the movement in New York later between a businessmen's wing and a lawyers' wing. See Chapter 4. 27. The statement in the text is not, however, accurate as to Chicago reformers respecting future disputes. See discussion below. 28. Cohen, Arbitration and New York, supra note 25. 29. Robbins, Preventing Unnecessary Litigation at the Source, 82 Cent. L.J. 280 (1916). 30. Cohen, Commercial Arbitration, supra note 14. 31. See Auerbach, Justice, supra note 26, at 95-96. 32. 40 N.Y. St. Bar Ass'n Rep. 372-92 (1917). The committee presented these rules for approval to the state bar in 1917. Id. at 365-66. 33. Id. at 372. 34. At various times the arbitration reformers were also involved in investigations or proposed reforms relating to conciliation, id. at 368-70, commercial courts, and international arbitration, to mention but some. 35. See L. Brown and E. Dauer, Planning by Lawyers: Materials On A Nonadversarial Legal Process (1978). 36. 40 N.Y. St. Bar Ass'n Rep. 410 (1917). 37. This statement introduces Appendix B of the report of the A.B.A. Committee on Commerce, Trade, and Commercial Law. 49 A.B.A. Rep. 300 (1924). Bernheimer was not a lawyer, and hence not an A.B.A. member, and proffered his views as Chairman, Committee on Arbitration of the New York State Chamber of Commerce.


191

Another version is found in Bernheimer's testimony before the congressional committee on the United States Arbitration Act: The bill on the one hand aims to eliminate friction, delay, and waste, and on the other to establish and maintain business amity and to reduce the price of commodities to the consumer: this latter on the theory that a merchant in figuring his cost adds to his price a certain amount representing the risk of rejection, claims, fault-finding, etc., even including litigation. If inexpensive but dependable arbitration were possible instead of costly, time-consuming, and troublesome litigation, the risk would be correspondingly smaller and the price made to conform therewith. Not only will the suggested law accomplish all of this, but it will help to conserve perishable and semiperishable food products, and save many millions of dollars in foodstuffs now wasted because of the lack of legally binding arbitration facilities. 1923 Hearing, supra note 21, at 2. In 1924, Julius Henry Cohen set out three evils to be corrected by enactment of the USAA: delay, expense, and failure of litigation to achieve results regarded as just by the standards of the business world. 1924 Hearings, supra note 23, Appendix. 38. Supra note 13. 39. Cohen, Commercial Arbitration, supra note 14, at xiv. 40. Charles L. Bernheimer in id. at x. The Asphalt Refining decision had not, of course, held any such thing, as it concerned only executory agreements to arbitrate, not awards, which under prevailing American law the courts enforced. Nevertheless, there was reason for London's concern, since Americans could have enforced executory agreements to arbitrate against British subjects in England under English law, but British subjects could not do so in the United States under American law, New York or federal. 41. Id. 42. 40 N.Y. St. Bar Ass'n Rep. 367, 392-93 (1917). 43. Id. at 367. A bit of competition with the Chamber? Definitely. See the comments of the chairman of the committee, Daniel S. Remsen. Id. at 398-99. "Fear of lost legal business, and lost professional respect, echoed through the arbitration debates." Auerbach, Justice, supra, note 26, at 106. 44. 40 N.Y. St. Bar Ass'n Rep. 410 (1917). 45. Cohen, Commercial Arbitration, supra note 14. 46. 42 N.Y. St. Bar Ass'n Rep. 93 (1919). 47. Id. at 92-93, 96-98. 48. Julius Henry Cohen was chairman of one of them. 43 N.Y. St. Bar Ass'n Rep. 661 (1920). He, too, expressed a preference for correction by the courts of "their error," evidently the position of the Chamber of Commerce. But his colleagues on the committee, while agreeing to the desirability of judicial correction and that efforts to follow that route should continue, nevertheless called for legislation rather than awaiting the results of that "slow and tedious process of judicial correction of judicial error to be applied in this field." Id. at 127-28.

192


49. See Chapter 4. 50. See Note, Arbitration in the United States, supra note 5, at 54-58. 51. Laws of 111. 1917, ch. 202, §1. 52. See Chapter 2. 53. Submission was defined as "a written agreement to submit differences to arbitration, whether such differences be in whole or in part in suit or not in suit." Laws of 111. 1917, ch. 202, §17. 54. Note, Arbitration in the United States, supra note 5, at 55. Judge Olson was also the chairman of the board of directors of the American Judicature Society, whose journal was an important organ of the reform movement. 55. Laws of 111. 1917, ch. 202, §1. 56. Id. §4. 57. Id. §5. 58. Id. §15. 59. M. Domke, Commercial Arbitration 22 (1968), quoted in Chapter 2, sets out a list of the characteristics of "modern arbitration statutes." 60. When it did come into issue, the reformers expressed their distaste. See Sturges, Arbitration Under the New North Carolina Arbitration Statute— The Uniform Arbitration Act, 6 N.C.L. Rev. 363, 407-8 (1927), who states that "the [identical North Carolina] section promises much litigation," and then lists seven questions "which immediately arise." 61. See supra text at notes 14-19. 62. N.Y. Code Civ. Proc. §§2373-75 (Stover 1902); Sturges, Commercial Arbitration 500-508, 793-98 (1930). 63. Stone, The Scope and Limitation of Commercial Arbitration, 10 Acad. Pol. Sci. Proc. 501-3 (1923). This paper is a brief for the "legalizing" of arbitration. See Chapter 4. 64. Julius Henry Cohen sets out the Illinois law in an appendix in Cohen, Commercial Arbitration, supra note 14, at 294-98, but otherwise makes no comment on it in that volume. 65. Note, Arbitration in the United States, supra note 5, at 57. 66. Id. 67. Id. at 58. Chapter 4 Reform Gathers Momentum 1. N.Y. Code Civ. Proc. §§2365-86 (Stover 1902). See Chapter 3. 2. Id. §2366. 3. Id. §2383. Although §2384 provided for damages in case of an improper revocation (and fees for the arbitrators), it made no provision for specific performance and explicitly made invalid any agreements for damages for revocation. §2385. The code also preserved revocability by death and proceedings in lunacy until the award was filed or delivered, but not afterward. Id. §2382. 4. An earlier statute had reversed the common law rule of unanimity for both statutory and common law submissions. The code left that provision intact respect-


193

ing statutory submissions, but restored the common law rule of unanimity respecting common law submissions. N.Y. Code Civ. Proc. §2371 and n.b. (Stover 1902).

5. Id.§§2372-73. 6. Id. §2373. 7. Id. §2378. 8. Id. §2380. 9. Id. §2374. 10. Id. 11. Id. §2375. 12. Id. §§2368-72, 2377-78, 2381. 13. Id. §2386.

14. For discussion of the reformers' efforts toward enactment of this statute, see Chapter 3. 15. They will also observe considerable changes in addition to those incorporated by the 1920 act. 16. 1920 N.Y. Laws, ch. 275, §2 (hereafter N.Y. Arbitration Law 1920). 17. The distinction is discussed in light of subsequent judicial interpretation in Fraenkel, The New York Arbitration Law, 32 Colum. L. Rev. 623, 624-25 (1932). The lack of formality required of the agreement for future disputes might have been more of a concern than it seems to have been, but for the right to a summary hearing before the court and a jury on the issue of the making of the contract. N.Y. Arbitration Law 1920 §3. The original bill proposed to the New York State Bar Association, drafted by Julius Henry Cohen, 43 N.Y. St. Bar Ass'n Rep. 96 (1920), would have avoided this situation. It proposed to amend the Code of Civil Procedure, rather than enact a separate statute. It would have deleted all formal requirements except a writing and have extended the coverage of the code to agreements respecting future as well as present disputes. 41 N.Y. St. Bar Ass'n Rep. 154 (1918). It was, however, decided in 1920 to recommend a separate law (with some peripheral amendments of the code): The special reason for this change is a belief that the preservation of a jury trial is necessary to the constitutionality of a bill providing for the enforcement of contracts for arbitration of future differences. Then, too, by presenting this bill as a separate law the Code provisions can be made use of as far as applicable and at the same time left standing for use in arbitrations voluntarily entered into after dispute had arisen. It also has the additional advantage of presenting to the Legislature in a more concrete form the question of irrevocability of contracts for arbitration. 43 N.Y. St. Bar Ass'n Rep. 97 (1920). 18. Section 2382. 19. N.Y. Arbitration Law 1920 §9. 20. Id. 21. Id. §3. 22. Id. §4. Judicial appointment of an arbitrator was also provided for in other instances where, for example, the agreement failed to provide a method of selection.

194


23. Id. §5. 24. Id. §7. Code of Civil Procedure §§2383-84 dealing with revocations of submissions were also repealed, being no longer necessary with enactment of the broad provisions against revocability. 25. See supra text at note 13. 26. See Chapter 2. 27. Letter to Oxford University Press, p. 3 (June 8, 1990). One may quibble with aspects of this statement. There surely are those who question how salutary this wholesale reform has been. Cf. Chapter 6 dealing with the public policy defense and one-sidedness. Also, a casual review of reported prereform cases raises questions concerning the "main breeding ground." Maybe the great majority of arbitration matters were such. But those which ran into sufficient trouble to find their way into appellate reports suggest a far broader usage. Nonetheless, the basic thrust is correct. 28. 52&S3 Vict.,ch. 49. 29. Sturges, Arbitration Under the New Pennsylvania Arbitration Statute, 76 U. Pa. L. Rev. 345 (1927) (hereafter Sturges, Pennsylvania). 30. 52&53Vict.,ch. 49, §1. 31. Id. 32. Id. §5. 33. See Chapter 3. 34. 52 & 53 Viet., ch. 49, §19. 35. J. Cohen, Commercial Arbitration and the Law (1918) (hereafter Cohen, Commercial Arbitration). 36. F. Kellor, American Arbitration: Its History, Functions and Achievements 10 (1948) (hereafter Kellor, American Arbitration). This book is not only a hymn to arbitration, but a hagiography of the saints of the reform movement. The latter contains a curious omission: Julius Henry Cohen. In the breathless, exultant preface to her story of how the American Arbitration Association came into being and flourished, she raises her glass to the great ones, starting with Charles L. Bernheimer and Moses H. Grossman. Id. at xii. Nowhere does Cohen's name appear. The omission could be excused on the ground that Cohen was a founding member of neither of the organizations joined to form the AAA in 1926, nor even a director of the AAA until 1947, shortly before his death. That does not, however, account for the short shrift given him in her account of the enactment of the New York act. Kellor gives credit for the initiative leading to its enactment to the New York State Bar Association and the Chamber of Commerce, and says that Cohen's book "was influential in obtaining the law." Id. at 10 n.4. No mention is made, however, of Cohen's being general counsel of the chamber, nor of the fact that he personally drafted the act. Nor does she ever mention his manifold activities that led, inter alia, to the enactment of the New Jersey statute, and most important of all, the United States Arbitration Act, which he also drafted. ("[W]hile Mr. Piatt gave me the credit for drafting it, and while it is true I made the first draft, there were many others who went over it." Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Na-

Notes to page 38

195

tions: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st Sess. 15 [1924][hereafter 1924 Hearings].) Indeed, he is mentioned nowhere else in her book except in a chapter of long lists of members of boards, committees, and so forth, appearing at the end. Kellor, American Arbitration supra note 36, at 181-216. Obviously there is a story here, but what is it? 37. Moses Henry Grossman, 1873-1942, a graduate of New York University Law School, practiced law in New York City. He was active in a number of eleemosynary affairs, and was a member of a great many organizations, including learned and professional associations, fraternal organizations, and curiosities such as the National Puzzle League. 2 Who Was Who in America 224 (1950). 38. Kellor, American Arbitration, supra note 36, at 11. 39. Id. at 12. 40. Frances Alice Kellor, 1873-1952, rose from modest circumstances to a secure, if modest, niche in history. She is the only one of the principals of the reform movement who made it into the Dictionary of American Biography. (Her selection obviously was not because of her twenty-five-year career in arbitration; in a two and a half column sketch only half a dozen or so lines concern that period.) (Supp. 5. 1950-55.) Miss Kellor received an LL.B. from Cornell Law School in 1897, but then turned to what we might now call participatory sociology both studying (at the University of Chicago and in the field) and working in black women's prisons, with urban problems of various kinds, and with immigrants. She was active nationally in the progressive movement. She turned her attention to arbitration relatively late in her career, becoming 1st Vice President of the American Arbitration Association on its founding in 1926. Always a prolific author, she was the most productive of the early arbitration reformers on that score. See American Arbitration Association, Arbitration Bibliography 7, 28, 56, 68, 85 (1954) (hereafter AAA, Bibliography); 3 Who Was Who In America 468 (1960); 4 Notable American Women 393 (1980). Kellor's interest in arbitration may have been stimulated by her work with immigrants: The campaigns to "Americanize" the immigrant, rehabilitate the delinquent, the deviant, and the discontent are examples of programs for the socialization of the law . . . . One of the first active Americanizing groups, the North American Civil League for Immigrants (1907), focused public attention on the political significance of "petty litigation" and the role of courts in processing such conflict. The league was a private philanthropic organization formed to represent Northeastern conservative economic interests . . . . In 1908, Frances Kellor, a member of the league, was appointed to the New York State Immigration Commission by Governor Charles Evans Hughes and charged with directing research on the relationship of immigrants to criminal and civil law. As a result of its study the commission established the New York State Bureau of Industries and Immigration (1910). Kellor described this bureau as an "immigrants court" . . . . Unlike the inferior courts, however, this government agency served as "mediator in bringing together the disputants in cases concerning immigrants."

196

No tes to pages 38-40

C. Harrington, Shadow Justice: The Ideology and Institutionalization of Alternatives to Court 20-21 (1985). 41. Kellor, American Arbitration, supra note 36, at 12. It seems hard to believe, but on February 28, 1923, the Vincent Astors gave a dinner in honor of arbitration for sixty New York judges, followed by a conference at which 400 business and professional men discussed arbitration's future! Id. at 12. Something of the spirit of the reformers is captured in a statement made shortly before his death by Lucius Root Eastman during World War II: I think voluntary arbitration is to all of us less of a procedure than it is a symbol of the peace on earth and goodwill toward men which exists in the heart of all Americans in this great struggle for freedom which now encompasses the world. Many of us believe that in arbitration we have a concept that stands out in opposition to war. We believe that a science of arbitration can be equally well organized and intelligently administered and that under the banner of arbitration the scattered forces of those who strive for peace can be united. But to be effective, the concept of voluntary arbitration must be vitalized. We must organize it scientifically. We must through education and actual performance bring its potential values home to every American and through him to the world of which he is becoming so large a part. AAA, Bibliography, supra note 40, at Hi. 42. Kellor, American Arbitration, supra note 36, at 12. 43. Id. at 12-13. The measure of its success may be indicated by the assertion that the Arbitration Society's organizing a People's Tribunal of Arbitration in New York as a national prototype for large cities had "been editorially approved by influential newspapers in almost every state in the union." Note, Arbitration Society of America, 6 J. Am. Judicature Soc'y, 59 (1922). If the society's statement in this note is any indication, hyperbole was the word of the day. Speaking of this endorsement, the society said: "There is a reason for it. Newspaper editors —alert of mind, fingers on the public pulse, and attention riveted upon the public needs and public sentiment —have long sensed the imperative necessity for relief from the 'law's delays'." Id. Nor was the society's founder above a bit of self-gratulation. The same statement describes Grossman as holding "distinguished rank at the New York Bar." 44. Stone, The Scope and Limitation of Commercial Arbitration, 10 Acad. Pol. Sci. Proc. 501-03 (1923). Stone wrote this in spite of (or perhaps because of?) his being a member of the Board of the Arbitration Society of America. 45. Kellor, American Arbitration, supra note 36, at 13-14. 46. Id. at 15. 47. Id. 48. Id. at 15-16. 49. J. Auerbach, Justice Without Law? 106-07 (1983) (hereafter, Auerbach, Justice). The legalistic view was clearly enunciated as early as January 1917 by Daniel S. Remsen at the New York State Bar Association meeting: We propose simply to formulate rules that will help lawyers to get together and use the provisions in the Code that are already in the Code for arbitra-


197

tion, instead of having our disputes arbitrated in commercial bodies, who may give very good consideration to the facts but mighty poor consideration to the law. It seems to us that we will get better results if those same facts are considered by lawyers as arbitrators rather than by laymen, and there is a great demand by commercial bodies for that very thing. The object of the rule is simply to make it easy for lawyers to get together and utilize that machinery that is already in existence. 40 N.Y. St. Bar Ass'n Rep. 398-99 (1917). 50. Id. at 108. 51. Id. Lucius Root Eastman, 1874-1943, received his LL.B. from Boston University and was a member of the Boston bar for eight years before becoming president of Hills Brothers Company. He was president of the American Arbitration Association for eight years and chairman of the board for five more. The work of the merger committee came in the middle of his four years as president of the Merchants Association. AAA, Bibliography, supra note 40, at //';'. 52. Charles L. Bernheimer and Moses H. Grossman were appointed honorary presidents, along with Newton D. Baker, Herbert Hoover, and Charles Evans Hughes. Kellor, American Arbitration, supra note 36, at 186. 53. Auerbach, Justice, supra note 49, at 108. 54. 47 A.B.A. Rep. 293 (1922); see also the comments of Julius Henry Cohen about this meeting in 50 A.B.A. Rep. 144 (1925). I may be overlooking something, but I have found no such action mentioned in the report of that conference in 5 A.B.A. J. 15-81 (1919). Although the conference did endorse a fairly long resolution urging bar associations to take steps to help prevent unnecessary litigation, there is nothing in it specifically about arbitration. W. H. H. Piatt discussing the conference years later simply referred to discussion, not to a resolution. See A Bill Relating to Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 8 (1923) (hereafter 1923 Hearing). 55. Two of the members of this committee at this time were Francis B. James and William H. H. Piatt, both of whom were active in pushing the United States Arbitration Act until it was finally enacted. See 1924 Hearings supra note 36, at 1011, 19. In 1924 James said that he had been on the committee for a dozen or more years and also said that he was the person who had suggested that the committee take up the matter of the United States Arbitration Act. Id. at 19. 56. 45 A.B.A. Rep. 75 (1920). 57. 46 A.B.A. Rep. 355-61 (1921). At this time Piatt became chairman of the committee, and Cohen became a member, thereby guaranteeing that the committee would continue an active role in arbitration reform. 58. Id. at 52-54; Sturges, Arbitration Under the New North Carolina Arbitration Statute- The Uniform Arbitration Act, 6 N.C.L. Rev. 365 (1927) (hereafter Sturges, North Carolina). 59. 47 A.B.A. Rep. at 288 et seq. (1922).

198


60. Id. at 318-21. 61. Id. at 315-18. 62. Id. at 293-95. 63. Id. at 293. 64. Id. at 294. 65. Id. at 289. 66. Id. 67. Id. at 53. 68. 47 A.B.A. Rep. 294 (1922). 69. N.J. St. Bar Ass'n Y.B. 39 (1923-24). 70. The largest number of votes recorded on motions was 126. 71. N.J. St. Bar Ass'n Y.B. 21 (1923-24). 72. Id. The minutes refer to discussion of other motions, but not this one; on the other hand, no discussion is mentioned respecting two other recommendations that were not unanimously approved and upon which one would expect there was considerable debate. Id. at 23. 73. Id. at 22. 74. O'Connell, 1872-1942, was a graduate of Harvard Law School, a successful Boston lawyer, congressman from 1906 to 1910, and a part-time law teacher. He was active in many professional and fraternal organizations. The most prolific of our dramatis personae, he fathered 12 children some of whom he favored with ancient Irish names. At the time of these comments, 1925, he had been a Commissioners on Uniform State Laws from Massachusetts for a decade. 2 Who Was Who in America 402 (1950). 75. See Chapter 5. 76. Cohen, Commercial Arbitration, supra note 35. 77. 33 Nat'l Conf. Comm'rs Uniform St. Laws 192 (1923). 78. 35 Nat'l Conf. Comm'rs Uniform St. Laws 77 (1925). His extensive remarks at that time suggest some of the possible reasons for his recantation. Id. at 73-79. 79. 50 A.B.A. Rep. 154 (1925). See also O'Connell's comments the preceding month. 35 Nat'l Conf. Comm'rs Uniform St. Laws 76-78 (1925). 80. 50 A.B.A. Rep. 143 (1925). 81. Id. at 150. 82. 1925 Mass. Acts ch. 294, §5. 83. See Chapter 3. 84. See Sturges, North Carolina, supra note 58, at 363; Kellor, American Arbitration, supra note 36, at 46. 85. 1925 Or. Laws ch. 186. 86. 1929 Or. Laws ch. 350. 87. Sturges the Reformer struggled manfully with this language, trying to eke out enforceability respecting future disputes, but Sturges the Scholar kept him from any firm assertion that it did. W. Sturges, Commercial Arbitration and Awards at 89-91 (1930). 88. Section 2 (a) was amended to read: Written Agreement, (a) A provision in any written contract to settle by arbitration a controversy thereafter arising out of such contract, or out of


199

the refusal to perform the whole or any part thereof, or an agreement in writing between two or more persons to submit to arbitration any controversy existing between them at the time of the agreement to submit, shall, provided the arbitration be held within the state of Oregon, be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 1931 Or. Laws ch. 36. 89. It became effective January 1, 1926.

Chapter 5 After Adversity, Reform Triumphs 1. See Chapter 3. 2. Wis. Laws 1923, ch. 447. See Sturges, Arbitration Under the New North Carolina Arbitration Statute— The Uniform Arbitration Act, 6 N.C.L. Rev. 365, 375 (1927) (hereafter Sturges, North Carolina). 3. See Chapter 4. 4. 33 Nat'l Conf. Comm'rs Uniform St. Laws 187-92 (1923). 5. Id. 6. Id. at 59, 62, 66. Since the discussions of the Committee of the Whole are not published, we know nothing of the arguments advanced respecting the Arbitration Committee's draft and that emerging from the Committee of the Whole. 7. Id. at 193-97. 8. Nathan William MacChesney, 1878-1954, received his LL.B. from University of Michigan and his LL.M. from Northwestern University, following which he became a successful lawyer in Chicago. He was president of the Illinois State Bar in 1916 and president of the National Conference of Commissioners on Uniform Laws, 1922-25. He was an officer in the Illinois National Guard and reached the rank of brigadier general on active duty during World War I. He held a number of diplomatic posts and was active in a wide range of public, eleemosynary, and professional affairs. He was the author of a wide range of books on American history and on law. Of those whose brief biographies are set out in this book, he was the most prominent during his life and had by far the longest entry in Who's Who. 3 Who Was Who in America 540 (1960). Unlike Frances Kellor, however, he is not in the Dictionary of American Biography. An extensive treatment of his early career and character appearing the year he was president of the Illinois State Bar Association is in Chicago Legal News, June 15, 1916, at 365. 9. 33 Nat'l Conf. Comm'rs Uniform St. Laws 66 (1923). 10. Id. at 99-100; 48 A.B.A. Rep. 40 (1923). 11. 48 A.B.A. Rep. 42 (1923). 12. Id. at 299. This was the A.B.A. committee charged with responsibility for both the federal and uniform arbitration law. Julius Henry Cohen was also a member of that bar association committee. 13. Id. at 52.

200


14. Report of the Committee on the Uniform Arbitration Act Regarding a Uniform Arbitration Act, 34 Nat'l Conf. Comm'rs Uniform St. Laws 638-45 (1924). 15. Id. at 642. The chairman of the committee stated that this provision was incorporated from the Illinois act, id. at 63. I have, however, been unable to find any such provision in the Illinois act, either as passed in 1917, Laws of 111. 1917, at 202, or as amended in 1919, Laws of 111. 1919, at 216. 16. 34 Nat'l Conf. Comm'rs Uniform St. Laws 640 (1924). 17. Id. at 60-62, 68-73. 18. Id. at 163. 19. Id. at 71-72. As noted in Chapter 4, O'Connell had been chairman of the conference's committee bringing in the first "New York" version with a laudatory report in 1923, see supra text at note 5. His changing relation to the reform cause is discussed in Chapter 4. 20. 34 Nat'l Conf. Comm'rs Uniform St. Laws 64-65 (1924). 21. Id. 22. A Bill Relating to Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 9 (1923). See Chapter 7. 23. 34 Nat'l Conf. Comm'rs Uniform St. Laws 62-63 (1924). MacChesney referred to adhesion contracts as "jug-handled contracts." Id. at 68-69. 24. The closest they seem to have come was Julius Henry Cohen's testimony in the 1924 hearings on the USAA, treated in Chapter 6. Concern about adhesion contracts is a particularized and limited recognition of the coerciveness of all contract. 25. Sturges, North Carolina, supra note 2, at 370 n.8. 26. 34 Nat'l Conf. Comm'rs Uniform St. Laws 82-92 (1924). Cohen disapproved of the requirement of lawyer representation "to preclude the building up of a class of men who shall practise before arbitration tribunals who are not permitted to practise law." Id. at 90. This support for "legalization" of the process may possibly have put him at odds with his colleague and close collaborator, Charles Bernheimer, but I have found no public indication of this. 27. Id. at 92-95. 28. Id. at 95. 29. Id. at 96-97. 30. Uniform Arbitration Act (1924) §12, in id. at 371. 31. Designated here by its date to avoid confusion due to its withdrawal in 1943 and replacement with a modern act, which I shall refer to as UAA (1955). See infra text at notes 71-79. 32. 34 Nat'l Conf. Comm'rs Uniform St. Laws 163 (1924). Voting at the National Conference is by states and territories. The dissenters were Connecticut, Massachusetts, Missouri, New Jersey, Pennsylvania, and Porto Rico. 33. 49 A.B.A. Rep. 46 (1924). 34. Id. at 46-48. 35. Id. at 52. 36. 35 Nat'l Conf. Comm'rs Uniform St. Laws 444 (1925). 37. Id. at 63, 757-61.


201

38. And made this remark: "Mr. Cohen, as a matter of history, is really the father of the proposition [modern arbitration acts], as far as the present day is concerned. It is his pet child, and the action of this Conference did not please him." Id. at 63. 39. Id. at 67. 40. Id. at 74-78. It is extremely difficult now to sort out —and probably was at the time for both participants and observers —how much of the opposition was to the reforms and how much was to the reformers, how much was founded on genuine belief in the substantive objections raised to the reform proposals and how much was based on such factors as general populist or regional distaste for the eastern establishment, for pushy reformers, and perhaps for Jews, particularly Jews connected with the New York commercial establishment. All these resonate through O'Connell's comments. For example, see especially id. at 74. A few years later Wesley Sturges, a reformer himself, wrote that "Strains of petty sectional prejudice and of provincialism, if not also of personal animus, [were] sounded every now and then by Messrs. MacChesney and O'Connell." Sturges, North Carolina, supra note 2, at 374-75. 41. 35 Nat'l Conf. Comm'rs Uniform St. Laws 80-81 (1925). The dissenters were Massachusetts, New Jersey, New York (back in the reform fold), Pennsylvania, and Wisconsin. Illinois was in the majority, although Professor Ernst Freund, one of the Illinois commissioners, defected to the reformers. Id. at 70. 42. 50 A.B.A. Rep. 84(1925). 43. Id. at 85. 44. Id. at 135. 45. Indeed Cohen discouraged another member, James Rosenthal from Illinois, from raising it. Id. at 138-41. 46. Id. at 155. 47. Id. at 155-56. 48. Id. at 158-61. 49. Id. at 160. 50. Id. at 161. 51. Id. at 162. 52. Old soldiers may fade away, but they never forget, especially if they came late into the war. Over forty years later, Martin Domke revealed subtly his lingering irritation at the action of the commissioners. Although they had formally adopted UAA (1924) as a uniform act and the A.B.A. had approved it as such, in his treatise he refers to it only as a "draft of a Uniform Arbitration Statute." M. Domke, Commercial Arbitration §4.02, at 21 (1968) [emphasis added]. It was a "draft" that remained an official uniform act of the commissioners for nineteen years and, as Domke notes and as will be seen, was adopted as such by a number of states in its early years. 53. Sturges, North Carolina, supra note 2, at 363. 54. Id. 55. The Uniform Laws Annotated Master Edition, Historical Note 1 (1978) states that Pennsylvania and Wisconsin adopted UAA (1924). This is, however, contrary to the information in 9 U.L.A. Table III, at xvi (1957). At any rate, Pennsylvania adopted a modern statute in 1927. See Comisky and Comisky, Commercial Arbitration: Panacea or Nightmare?, 47 Temple L.Q. 456, 505 (1974). See Sturges, Arbitra-

202

Notes to pages 54-5 7

tion Under the New Pennsylvania Arbitration Statute, 76 U. Pa. L. Rev. 345 (1927), for a thorough treatment of this act. There is some justification for including Wisconsin, since its 1923 statute was related to 1924 UAA, although enacted before UAA was approved by the commissioners and the A.B.A. 56. F. Kellor, American Arbitration: Its History, Functions and Achievements 173-74 (1948) (hereafter Kellor, American Arbitration). Wisconsin must have been particularly gratifying to the reformers, since only eight years earlier it had followed the 1917 Illinois pattern, the progenitor of UAA (1924). See Chapter 3. 57. No instance of a jurisdiction reverting from a modern statute to a nonmodern statute or to the common law has been found. There have, however, been other manifestations of countercurrents of various kinds, which are treated in Chapter 6. 58. Kellor, American Arbitration, supra note 56, at 175. 59. 6Arb.J. 310(1942). 60. 7 Arb. J. (N.S.) 201 (1952). 61. Uniform Arbitration Act (1924), 7 U.L.A., Historical Note 1 (1978). 62. 7 Arb. J. (N.S.) 201 (1952). The draft was preceded by a short but comprehensive article on arbitration law by Wesley Sturges. Sturges, Some General Standards for a State Arbitration Statute, 7 Arb. J. (N.S.) 194 (1952). 63. 63 Nat'l Conf. Comm'rs Uniform St. Laws 204 (1954). 64. Dean, University of Minnesota Law School. 65. Gotshal, Arbitration and the Lawyer's Place in the Business Community, 11 Bus. Law. 52, 54 (April 1956) (hereafter Gotshal, Arbitration). 66. Pirsig, Toward a Uniform Arbitration Act, 9 Arb. J. 115 (1954). 67. Id. 68. Gotshal, Arbitration, supra note 65. 69. 64 Nat'l Conf. Comm'rs Uniform St. Laws 162 (1955). 70. See supra text at notes 1-52. 71. Hereafter UAA (1955) to distinguish it from UAA (1924). 72. 80 A.B.A. Rep. 172(1955). 73. 81 A.B.A. Rep. 145 (1956). 74. See Chapter 4. 75. 1957 Fla. Laws ch. 57-402. During this period Michigan and Arizona substituted UAA (1955) for their earlier modern statutes. In addition both the California and New York arbitration statutes had been revised, New York's in particular being substantively very close to UAA (1955). See Feldman, Arbitration Modernized— the New California Arbitration Act, 34 S. Cal. L. Rev. 413 (1961); Falls, Arbitration Under the New Civil Practice Law and Rules in New York, 17 Arb. J. 197 (1962). Domke says that UAA (1955) was "integrated, with some changes, in the new arbitration statutes of California, Michigan, New York, and Texas." M. Domke, Commercial Arbitration §4.02, at 30 (rev. ed. 1983) (hereafter Domke, Commercial Arbitration). Domke's exclusion of Michigan and Texas from the ranks of those adopting UAA (1955) is inconsistent with the Uniform Law Annotated Master Edition, which claims Michigan and Texas for UAA 1955, but not California or New York. See Chart in 7 U.L.A. 1 (1978). In the text I have followed the Master Edition rather than Domke. 76. The territory of Hawaii had enacted a modern statute in 1925. 77. The District of Columbia joined in 1977. 78. Whether a state has adopted the UAA or its own modern act is not a simple

Notes to pages 5 7-58

203

question, since variations are common. Domke, Commercial Arbitration (1983), suprr note 75, seems to adopt a purist notion since it shows as of the 1990 Supplement only twenty-nine UAA states. The Uniform Laws Annotated (Master Edition), however, shows forty-four UAA states in its 1990 Supplement. 79. Mississippi has a modern statute pertaining to a wide range of construction contracts and related agreements, such as architectural contracts. Miss. Code Ann. §§11-15-101 etseq. 80. 29U.S.C.§151 etseq. 81. United Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); United Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574 (1960). The three are often known as The Trilogy, suggesting even more exalted metaphors than those of earthly royalty. 82. See, e.g., United Papermakers Int'l Union v. Misco, Inc., 484 U.S. 29 (1987); Ray, Protecting the Parties' Bargain After Misco: Court Review of Labor Arbitration Awards, 64 Ind. L.J. 1 (1988). 83. For a criticism of any deferral, see Peck, A Proposal to EndNLRB Deferral to the Arbitration Process, 60 Wash. L. Rev. 355 (1985). See also Lynch, Deferral, Waiver, and Arbitration under the NLRA: From Status to Contract and Back Again, 44 U. Miami L. Rev. 237 (1989); Edwards, Deferral to Arbitration and Waiver of the Duty to Bargain: A Possible Way Out of Everlasting Confusion at the NLRB, 46 Ohio St. L.J. 23 (1985); Comment, Distinguishing Arbitration and Private Settlement in NLRB Deferral Policy, 44 U. Miami L. Rev. 341 (1989); Note, Further Convolutions in a Convoluted Policy: Olin, Taylor, and NLRB Deferral to Arbitral Decision, 82 Nw. U.L. Rev. 443 (1988). 84. Nevertheless, as will be seen in Chapter 6, there has been considerable nibbling away at other parts of the king's crown. In addition to those mentioned in Chapter 6 it is also possible that AT & T Technologies v. Communications Workers of America, 475 U.S. 643 (1986), has narrowed the scope of The Trilogy. See Note, Arbitration After Communications Workers: A Diminished Role?, 100 Harv. L. Rev. 1307 (1987). 85. Supra note 81, 363 U.S. at 586-87. 86. See, e.g., Southland Corp. v. Keating, 465 U.S. 1 (1984); Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983). 87. Arb. Times 8 (Summer 1991). 88. AAA Press Release, at 3, undated, original in author's files. 89. AAA Annual Report 25 (1990-91). 90. AAA arbitrators traditionally serve without fee on cases lasting only a day or two. AAA, A Guide for Commercial Arbitrators 6-7 (1985). 91. AAA, 1990 Statistical Report 37. 92. Id. at 5. The corresponding figure for the 5440 construction cases was $800 million, id. at 13; 381 securities cases, $84 million, id. at 18. The number of commercial and construction cases has climbed slowly but steadily in the years 1984-90, but securities cases, a recent field for the AAA, have declined from a peak of 495 and $266 million in 1988. Figures for 1988 are from AAA Press Release, supra note 88, Appendix, at 2-3. 93. 47 A.B.A. Rep. 288-322 (1922). 94. Id. at 52-53.


204 Chapter 6 Countercurrents

1. It will be recalled that in arbitration terminology a nonmodern statute is one failing to provide for enforceability of executory arbitration agreements, particularly those relating to future disputes. 2. See Chapter 4. 3. See J. Auerbach, Justice Without Law? 103 (1983) (hereafter Auerbach, Justice). 4. See Gallagher, Book Review, 13 Law & Soc'y Inquiry 132 (1988). See also the Preface of the present book. 5. Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st Sess. 15 (1924). Cohen also said there was "some historical basis" for supporting "some of the justices [who] have been unkind enough to their predecessors to say that there was a time when the judges were paid according to the cases they acted upon and the fees they got." He, however, did "not want to reflect on the judiciary in that way." 6. Parsons v. Ambos, 121 Ga. 98, 101 (1904). For an extensive older discussion of equity's refusal to enforce agreements to arbitrate, focusing on the quality of justice afforded in arbitration, see Mr. Justice Story's opinion in Tobey v. County of Bristol, 23 F. Cas, 1313 (C.C. Mass. 1845) (#14,065). See Annotation, Validity of agreement to submit all future questions to arbitration, 135 A.L.R. 79 (1941) (hereafter Annot., Validity). 7. The Georgia court quoted supra note 6 soon followed the quoted words with the following: Some of the early cases put their rule upon the ground that a provision whereby the courts may be ousted of their jurisdiction is repugnant to that other provision, implied in every contract, that its validity and effect shall be determined by the courts and the law of the land. But whether predicated on the idea that the agreement is repugnant to the contract or to public policy, the principle is universally recognized that such general submissions are revocable. 121 Ga. at 101-02. I have made no study of the cases to see whether judicial discussions of the ouster rule reveal more of either the regulatory or the onesidedness argument than the text suggests. The extensive annotation, Annot., Validity, supra note 6, provides no reason for thinking there is much more. But once again we must realize that our generation, as well as the writer of that annotation, views the ouster doctrine through the eyes of its deadly enemies, the reformers. It may be that a careful study of the doctrine without that bias would reveal rather more genuinely considered underlying public policy than we currently think. 8. See Heinrich Kronstein's differentiation between traditional and institutional arbitration, infra text at notes 34-49. 9. For example a case involving relative equals and an openly negotiated arbitration clause, but nonetheless denying enforcement.


205

10. The earliest published example I have found is Senator Walsh's raising of the adhesion question in the January 1923 hearing on the USAA. A Bill Relating to Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 9 (1923) (hereafter 1923 Hearing). It is hard to believe, however, that it occurred nowhere earlier in unrecorded debates. The issue was certainly very live a year later in discussions of UAA (1924). See Chapter 5. 11. The closest is Hale, Law Making By Unofficial Minorities, 20 Colum. L. Rev. 451 (1920), who clearly recognizes the issue, but expresses only limited concern. Between parties of somewhat equal strength, ... as in the ordinary commercial contracts between two business men, this element of coercion is sufficiently mutual, in all probability, to prevent one side acquiring by an arbitration contract any undue advantage over the other. There is therefore apparently no valid objection to letting the parties "coerce" each other into submission to the "rule" of the arbitrators. The latter have been chosen, in a sense, democratically, by the parties affected. And if a permanent board of arbitrators, such as the London Court of Arbitration . . . should "make law" by establishing a series of precedents, it would then be time enough to consider whether the sovereign state should step in, when occasion demands, and modify these precedents, as it does those of the ordinary law courts. Id. at 454. 12. J. Cohen, Commercial Arbitration and the Law x-xi (1918). 13. Nathan Isaacs, a professor of business law at Harvard Business School, led this attack in a review of W. Sturges, Commercial Arbitration (1930). Isaacs, Book Review, 40 Yale L. J. 149 (1930). 14. Auerbach, Justice, supra note 3, at 112. Philip G. Phillips, then in private practice in Boston, shortly to work for the National Labor Relations Board, led this prong of the attack. Phillips, The Paradox in Arbitration Law: Compulsion as Applied to a Voluntary Proceeding, 46 Harv. L. Rev. 1258 (1933). 15. Auerbach, Justice, supra note 3, at 112. 16. [Ed.] Philip G. Phillips, supra note 14. 17. Auerbach, Justice, supra note 3. 18. Id. at 113. 19. 54 Yale L. J. 36 (1944). 20. Phillips' critical articles, but not Kronstein's, are listed in American Arbitration Association, Arbitration Bibliography 59 (1954). 21. Donahue v. Susquehanna Collieries Co., 138 F.2d 3 (3d Cir. 1943). The present status of this case is unclear. In Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728 (1981), the Supreme Court held collective bargaining arbitration not to have preclusive effect respecting FLSA claims. Insofar as arbitration under the USAA is concerned, however, Barrentine has been undermined by Gilmer v. Interstate/Johnson Lane Corp., H I S . Ct. 1647 (1991), see infra text at notes 105-11.

206


22. Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs. 631, 651 (1952). Jerome Auerbach cites as another example Soia Mentschikoffs contribution, The Significance of Arbitration—A Preliminary Inquiry, 17 Law & Contemp. Probs. 698 (1952). Auerbach, Justice, supra note 3, at 114, 168. He specifies no page references in his citation, however; if Mentschikoff had such concern it is expressed with such mildness that I could not find it. 23. Westwood and Howard, Self-Government in the Securities Business, 17 Law & Contemp. Probs. 518 (1952). 24. Some were written by established members of the reform movement, and most were written taking the pro-arbitration status quo for granted. 25. 346 U.S. 427 (1953). Now overruled by Rodriguez de Quijas v. Shearson/ American Exp., Inc., 490 U.S. 477 (1989). 26. For the development of this doctrine in the securities business, see M. Domke, Commercial Arbitration §19.03 (rev. ed. 1983). 27. 346 U.S. at 434-37. 28. 391 F.2d 821 (2d Cir. 1968). 29. 21N.Y.2d621(1968). 30. It is unlikely that the arbitration clause had been thrust down the throat of the party seeking to arbitrate the antitrust issues: the alleged victim of the antitrust violations was the one seeking to arbitrate them. 31. Sterk, Enforceability of Agreements to Arbitrate: An Examination of the Public Policy Defense, 2 Cardozo L. Rev. 481, 503-04 (1981) (hereafter Sterk, Enforceability). 32. See infra text at notes 83-111. 33. Sterk, Enforceability, supra note 31; Domke, Commercial Arbitration (1983), supra note 26, §19.04. See also Note, Resolving the Conflict Between Arbitration Clauses and Claims Under Unfair and Deceptive Practices Act, 64 B.U.L. Rev. 377 (1984). 34. 38 N.Y.U. L. Rev. 661 (1963) (hereafter Kronstein, Power). 35. Id. at 661-62. 36. Id. at 663. 37. Id. 38. Id. Readers desiring to assess Kronstein's views could do worse than start with a review of the information the AAA distributes to commercial arbitrators proceeding under its auspices. This includes not only the Commercial Arbitration Rules (1990), commonly incorporated into arbitration agreements by reference, and the Code of Ethics for Arbitrators in Commercial Disputes (1977), but also A Guide for Commercial Arbitrators (1985). I was particularly struck by the potentiality for de facto AAA lawmaking suggested by the statement in the latter, "An arbitrator should not compromise." Id. at 16. No such principal appears in the rules, to the application of which parties give their consent. The guide is not commonly, if ever, incorporated in arbitration agreements by reference. Nonetheless, the principle that the arbitrator should not compromise is undoubtedly followed by countless arbitrators simply because the AAA says so. 39. 415 U.S. 36(1974). 40. 415 U.S. at60n.21. 41. Barrentine v. Arkansas-Best Freight Sys. Inc., 450 U.S. 728 (1981).


207

42. McDonald v. City of West Branch, 466 U.S. 284 (1984). See also, Note, Arbitral Deference and the Right to Make and Enforce Contracts under 42 U.S.C. §1981, 82 Nw. U.L. Rev. 109 (1988). 43. [E]ven though a particular arbitrator may be competent to interpret and apply statutory law, he may not have the contractual authority to do so. An arbitrator's power is both derived from, and limited by, the collectivebargaining agreement. He "has no general authority to invoke public laws that conflict with the bargain between the parties." [cite.] His task is limited to construing the meaning of the collective-bargaining agreement so as to effectuate the collective intent of the parties. Accordingly, "[i]f an arbitrable decision is based 'solely upon the arbitrator's view of the requirements of enacted legislation,' rather than on an interpretation of the collective-bargaining agreement, the arbitrator has 'exceeded the scope of the submission,' and the award will not be enforced." Ibid, (quoting United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (I960)). Because the arbitrator is required to effectuate the intent of the parties, rather than to enforce the statute, he may issue a ruling that is inimical to the public policies underlying the FLSA, thus depriving an employee of protected statutory rights. Barrentine v. Arkansas-Best Freight Sys. Inc., 450 U.S. 728, 744 (1981). 44. Alexander v. Gardner Denver Co., 415 U.S. 36, 58 n.19 (1974). 45. 415 U.S. at 57. 46. 346 U.S. 427(1953). 47. Ironically enough, the divergence between the USAA cases and the collective bargaining cases started with Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), decided in the very same year as Alexander. It may be noted that the public policy defense arises differently in USAA cases than in collective bargaining cases. In the latter the dispute has invariably been arbitrated, and the public policy defense is raised against giving full preclusive effect to the award. In the USAA cases the defense is typically raised against a demand to arbitrate. Thus, when the defense is allowed under the USAA, it is a more stringent defense than it is under the NLRA collective bargaining cases. 48. In Gilmer v. Interstate/Johnson Lane Corp., Ill S. Ct. 1647 (1991), treated in detail in the text infra at notes 105-11, the Court for the first time addressed the inconsistencies between the two lines of cases. 49. In 1967 Bernstein wrote that the "charge of victimization is extremely rare. Indeed, the only such charge, as far as one can ascertain, is in Kronstein . . . ."Bernstein, The Impact of the Uniform Commercial Code Upon Arbitration: Revolutionary Overthrow or Peaceful Coexistence?, 42 N.Y.U. L. Rev. 8, 33 n.75 (1967). 50. Fiss, Against Settlement, 93 Yale L. J. 1073 (1984). 51. See R. Abel, ed., The Politics of Informal Justice— The American Experience (1982) (hereafter Abel, Informal Justice). 52. For a summary of developments and issues respecting ADR, see J. Marks,

208


E. Johnson, Jr., and P. Szanton, Dispute Resolution in America: Processes in Evolution (1984). 53. de Sousa Santos, Law and Community: The Changing Nature of State Power in Late Capitalism, in 1 Abel, Informal Justice, supra note 51, at 249, 26061. 54. 346 U.S. 427(1953). 55. Sterk, Enforceability, supra note 31, at 486, 543. This is the second of two public policy grounds for nonenforcement treated by Sterk; the other pertains to nonexistent or defective consent and is considered in the following discussion of one-sidedness. 56. N.Y. Arbitration Law 1920, ch. 275, §2. 57. 9 U.S.C. §2. 58. See Domke, Commercial Arbitration (1983), supra note 26, §5.01. 59. Sterk, Enforceability, supra note 31, at 486. 60. Id. at 486-87. 61. N.Y. Gen'l Bus. Law §399-c (McKinney 1984). 62. "No arbitration agreement shall have the effect of preventing a person from seeking or obtaining assistance of the courts in enforcing his constitutional or civil rights." 12 Vt. Stat. Ann. §5653(b). 63. USAA §9 provides: "If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration . . . then at any time within one year after the award is made any party to the arbitration may apply to the court ... for an order confirming the award." Although a reading of section 9 certainly does not compel such a result, some courts have held that failure to include such an "entry of judgment" clause makes any award under the agreement not binding on the parties. I. Macneil, R. Speidel, and T. Stipanowich, The Federal Arbitration Act §40.2 (forthcoming) (hereafter Macneil, Speidel, and Stipanowich, FAA). This might well be viewed as an additional formal requirement. Cases raising the issue are, however, relatively rare. The current AAA rules include an entry of judgment provision. An arbitration clause incorporating those rules thus is not subject to such an attack. Id. and UAA (1955). 64. Mo. V.A.M.S. §435.460. In contracts involving commerce, this section has been held to conflict with the FAA and hence unconstitutional under the Supremacy Clause of the U.S. Constitution. Webb v. R. Rowland & Co., 800 F.2d 803 (8th Cir. 1986); Bunge Corp. v. Perryville Feed & Produce, Inc., 685 S.W.2d 837 (Mo. 1985). 65. Tex. Civ. Stat. Ann. art. 224-1 9 (Vernon) repealed (Aug. 31, 1987); S.C. Code §15-48-10 (1976). 66. Cal. Civ. Code §1298 (1988), pertaining to real estate contracts. 67. Sec. Indus. Conf. on Arb. Unif. Code of Arb. §31. This code has been adopted by the National Association of Securities Dealers, the New York Stock Exchange, and Amex and has been approved by the SEC. See C. Fletcher, Arbitrating Securities Disputes 72-73 (1990) (hereafter Fletcher, Securities Disputes). 68. For example, Fletcher has concluded that, based on the data he has examined, "a customer can, with difficulty, gain access to securities markets for option and margin trading without signing an arbitration agreement." Fletcher, Securities Disputes, supra note 67, at 177.

Notes to pages 70- 76

209

69. See Gilmer v. Interstate/Johnson Lane Corp., Ill S. Ct. 1647 (1991), discussed infra text at notes 105-11. 70. See supra text at notes 25-27. 71. 465 U.S. 1(1984). 72. Macneil, Speidel, and Stipanowich, FA A, supra note 63, at §9.5. 73. 417 U.S. 506 (1974). 74. 346 U.S. 427(1953). 75. 15 U.S.C. §78j. Since Wilko involved a claim under the Securities Act of 1933, 15 U.S.C. §77/, it could not have been directly in point. 76. The contract in Scherk provided that the laws of Illinois "shall apply to and govern this agreement, its interpretation and performance." 417 U.S. at 508. 77. 417 U.S. at 516. 78. Id. 79. 417 U.S. at 517. 80. 417 U.S. at 519. 81. 407 U.S. 1(1972). 82. 407 U.S. at 9. 83. 473 U.S. 414(1985). 84. 391 F.2d 821 (2d Cir. 1968). 85. The Court in Mitsubishi also attacked the reasoning of the key lower court decision, American Safety, which had extended the Wilko principle to the domestic antitrust area. As the prime impact of this attack on the public policy defense was on the domestic scene, it is treated infra text at notes 93-101. Mitsubishi's international aspects are treated in Chapter 13. 86. 465 U.S. 1 (1964). 87. 473 U.S. 414(1985). 88. 470 U.S. 213(1985). 89. This could happen, of course, only if the arbitration award occurred before judgment on the federal claims. If arbitration lived up to its claims to speed this was likely to happen. 90. 470 U.S. at 221-22. 91. See Macneil, Speidel, and Stipanowich, FAA, supra note 63, ch. 41 (this chapter is written by G. Richard Shell). 92. USAA§13. 93. 473 U.S. 414(1985). 94. 473 U.S. at 632-37. 95. 391 F.2d 821 (2d Cir. 1968). The Court's summary of American Safety is based on that of the court below in Mitsubishi itself. 96. 473 U.S. at 632. 97. 473 U.S. at 637. 98. 473 U.S. at 632. 99. Id. 100. 473 U.S. 634. 101. The Court found "it unnecessary to assess the legitimacy of the American Safety doctrine as applied to agreements to arbitrate arising from domestic transactions." 473 U.S. at 629. 102. 482 U.S. 220(1987).

210


103. The only real uncertainty was how soon the Supreme Court would finish the job. Some lower courts, seeing the inevitable, jumped the gun and held Wilko to be dead, thereby affronting the dignity of the Supreme Court, which later roundly rebuked them. Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 484 (1989). 104. 490 U.S. 477(1989). 105. Ill S. Ct. 1647(1991). 106. The dissent disagreed on the basis of USAA §1, which excludes from coverage certain contracts of employment. The majority avoided deciding whether the exclusion applied to contracts of employment of brokers on two grounds. Ill S. Ct. at 1651 n.2. One was that the issue had been raised by Gilmer neither below nor in the Supreme Court, but only by amicus curiae. The other was that the obligation to arbitrate was found in the broker's registration application with various stock exchanges, not in his contract of employment. The fatuousness of this latter reasoning is illustrated by the way the majority had to explain how Gilmer happened to enter the agreement to arbitrate: "As required by his employment, Gilmer registered . . . ." Id. What this means, of course, is, "As required by his contract of employment, Gilmer registered . . . ." On the subject of the section 1 exclusion generally, see Macneil, Speidel, and Stipanowich, FAA, supra note 63, §§11.2-11.5. 107. Ill S. Ct. at 1654. 108. 415 U.S. 36(1974). 109. H I S . Ct. at 1657. 110. Id. 111. lllS.Ct. at 1656 n.5. Less than a month after Gilmer, the Court decided Astoria Fed. Sav. & Loan Ass'n v. Solomino, 111 S. Ct. 2166 (1991). There Solomino sued in federal court on an ADEA claim, after the New York human rights agency had found no probable cause for the claim. The question before the Court was whether his claim was barred by the principle of administrative estoppel. Without mentioning Gilmer, the Court held the claim not to be barred, quoting the following: "Although administrative estoppel is favored as a matter of general policy, its suitability may vary according to the specific context of the rights at stake, the power of the agency, and the relative adequacy of agency procedures." Ill S. Ct. at 2170. In the light of Justice Souter's failure to mention Gilmer, it is somewhat ironic that the quoted words come from Alexander v. Gardner Denver Co., 415 U.S. 36 (1974). 112. 450 U.S. at 743. Similarly in McDonald v. City of West Branch, 466 U.S. 284 (1984), the Court said: "First, an arbitrator's expertise "pertains primarily to the law of the shop, not the law of the land." . . . An arbitrator may not, therefore have the expertise required to resolve the complex legal questions that arise in §1983 actions." 466 U.S. at 290. 113. 473 U.S. 414(1985). 114. See AT & T Technologies v. Communication Workers of America, 475 U.S. 643 (1986). 115. On the subject of issue preclusion under the FAA, as distinct from collective bargaining arbitration, see Macneil, Speidel, and Stipanowich, FAA, supra note 63, ch.41. 116. Ill S. Ct. 1647(1991).


211

117. 473 U.S. 414(1985). 118. Ill S. Ct. at 1656. 119. This view is reinforced by the decision in Carnival Cruise Lines, Inc. v. Shute, H I S . Ct. 1522 (1991), where the Court upheld against passengers who lived in the state of Washington a clause in a cruise passenger ticket requiring all suits against the line to be brought in Florida. The lower courts have taken equally restrictive positions respecting adhesion and arbitration. See Macneil, Speidel, and Stipanowich, FAA, supra note 63, §19.3. 120. Supra note 102. See Macneil, Speidel, and Stipanowich, FAA, supra note 63, ch. 13; Fletcher, Securities Disputes, supra note 67, at 70-78. Availability of SEC regulation was a substantial factor in the Court's justification for the results in Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220 (1987), and in its opinion overruling Wilko v. Swan, 346 U.S. 427 (1953), in Rodriguez de Quijas v. Shearson/ American Exp., Inc., 490 U.S. 477 (1989). Chapter 7 USAA: The Campaign 1. See Chapter 4. 2. 304 U.S. 64 (1938). 3. Ironically, about a decade before the USAA would embark on its second life nationalizing American arbitration law, the name "USAA" was dropped by the repeal of section 14. This occurred when U.S.C. Title 9, the codification of the USAA, was enacted into positive law, 61 Stat. 669, ch. 392, §1 (July 30, 1947). Thereafter the act came commonly to be called the Federal Arbitration Act (FAA), although not officially so designated. To avoid confusion it is referred to here as the USAA even for periods since 1947. 4. 350 U.S. 198 (1956). Bernhardt established that in a federal diversity case state arbitration law governed. The apparent anomaly of how this led to the USAA superseding state arbitration law is treated in Chapter 11. 5. The matter was raised at the National Conference of Bar Associations that year. 47 A.B.A. Rep. 393 (1922). 6. 45 A.B.A. Rep. 75 (1920). 7. It also produced a draft of a proposed uniform act. 8. See Chapter 4. 9. In diversity cases since Erie and Bernhardt, state law, statutory or common, as the case might be, would govern. 10. 230 N.Y. 261(1921). 11. 276 Fed. 319 (S.D.N.Y. 1921). 12. Id. at 323. The case was affirmed on similar grounds, 5 F.2d 218 (2d Cir. 1924), after the Supreme Court had held in a related case that New York courts also had jurisdiction of the matter and could apply the New York act, Red Cross Line v. Atlantic Fruit Company, 264 U.S. 109 (1924). In that decision the Supreme Court had explicitly refrained from considering "whether the unwillingness of the federal courts to give full effect to executory agreements for arbitration can be justified." 264 U.S. at 125.

212


13. 276 Fed. at 323. 14. The District Court decision in Atlantic Fruit was, however, useful in providing the reformers with valuable ammunition in their battle for a modern federal arbitration act. See, e.g., Charles Bernheimer's testimony, A Bill Relating To Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 2 (1923) (hereafter 1923 Hearing); and Julius Henry Cohen's testimony, Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st Sess. 16 (1924) (hereafter 1924 Hearings). Later, the Supreme Court questioned the Atlantic Fruit decision. Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109 (1924). By that time, however, the reformer's efforts in pursuit of a legislation solution were nearing success. 15. 46A.B.A. Rep. 53(1921). 16. Id. at52-54,311,355-61. The committee report, approved by the association, id. at 54, provided:

Eighth. — That the Association receive so much of the report of the committee as pertains to a tentative draft of a Bill Relating to the Arbitration of Disputes in Interstate and Foreign Commerce and that a resolution be adopted that the committee give further consideration to the same in the light of criticisms and suggestions. Id. at 311. The complex story of the Uniform Act is related in Chapter 5. 17. Id. at 359-61. 18. USAA 1921 Draft §2; N.Y. Arbitration Law of 1920 §2. 19. Sec. 2. That whenever the parties to any maritime transaction or any transaction involving commerce shall agree that a controversy thereafter arising between them out of such transaction shall be settled by arbitration, or they shall submit in writing a controversy which has arisen out of such transaction, such agreement or submission shall be valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. 46A.B.A. Rep. 360(1921). 20. N.Y. Arbitration Law of 1920 §2. Both the New York law and the 1921 USAA draft required submission of existing disputes to be in writing, but as noted in Chapter 4, New York's older Code of Civil Procedure continued to require further formality respecting existing disputes. 21. USAA 1921 Draft §3; N.Y. Arbitration Law of 1920 §5. 22. USAA 1921 Draft §4; N.Y. Arbitration Law of 1920 §3. 23. USAA 1921 Draft §5; N.Y. Arbitration Law of 1920 §4. 24. USAA 1921 Draft §6; N.Y. Arbitration Law of 1920 §6.


213

25. See Chapter 2. 26. See Chapter 3. 27. "[C]harter parties, bills of lading of water carriers, wharfage, supplies furnished vessels or repairs to vessels, seamen's wages, collisions . . . ." 46 A.B.A. Rep. 359(1921). 28. "[CJommerce among the several states or with foreign nations, or in any territory of the United States or in the District of Columbia, or between any such territory and another, or between any such territory and any state or foreign nation, or between the District of Columbia and any state or territory or foreign nation." Id. at 359. 29. The full text: §7. If the basis of jurisdiction be diversity of citizenship between citizens of several states or one of the parties be a foreign state, citizen or subject, the district court or courts which would have jurisdiction if the matter in controversy exceeded, exclusive of interest and costs, the sum or value of three thousand dollars, shall have jurisdiction to proceed hereunder notwithstanding the amount in controversy is unascertained or is to be determined by arbitration; provided, however, that the contract or submission out of which such controversy arises exceeds in whole or in part exclusive of interest and costs the sum or value of three thousand dollars.

Id. at 361. 30. The full text: §8. If the dispute relates to a matter which except for the arbitration agreement would be within the admiralty jurisdiction and would give a right to the party aggrieved to sue in rem, then notwithstanding anything herein to the contrary, the party aggrieved by failure, neglect or refusal to proceed with arbitration may begin his proceeding hereunder by libel and seizure of the vessel or other property of the party in default subject to such action in rem and the court shall then have jurisdiction to direct the parties to proceed with the arbitration and shall retain jurisdiction in rem to make its proceedings effective.

Id. 31. See Chapter 2. 32. 47 A.B.A. Rep. 315(1922). 33. Section 10 in whole provides: If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made, which award must be in writing and acknowledged or proved in like manner as a deed for the conveyance of real estate, and delivered to one of the parties or his attorney, any party to the arbitration may apply to the court so specified for an order confirming the award and thereupon the court must grant such an order, unless the award is vacated, modified or corrected as

214

Notes to pages 87-90 prescribed in the next two sections. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made. Notice of the motion must be served upon the adverse party or his attorney as prescribed by law for service of notice of motion in an action in the same court.

Id. at 317. 34. Section 18. 35. 47 A.B.A. Rep. 289 (1922). 36. Id. at 53. W. H. H. Piatt later described the history of the 1922 draft:

Here is the way it came up before [the A.B.A.] membership. Year before last and the year before that discussion was had, and recommendations, respectively, were reported in this report. This last year, before this report was gotten out after our committee hearing, which was had at New York in March, which was a public hearing, a tentative draft of the bill was sent out and requests for discussion of it were made. Then there was a printed copy of the report, embodying the exact language of the bill as submitted here, sent to every member of the American Bar Association; and there was a combined set of all the reports that went out in that form to the American Bar Association; and then, with it in that condition, it was brought before the general body on the floor at the convention in San Francisco and unanimously passed at that time, after having had all that publicity in the matter of requests for hearings and dissemination through the reports. 1923 Hearing, supra note 14, at 9. 37. 48 A.B.A. Rep. 286 (1923). 38. Id. 39. 1923 Hearing, supra note 14, at ii. The members were Senator Sterling, South Dakota (chairman); Senator Ernst, Kentucky; and Senator Walsh, Montana. 40. 1923 Hearing, supra note 14, at 2. 41. 1923 Hearing, supra note 14, at 4. At this time the modern New Jersey statute was not yet enacted. 42. Id. at 8. 43. Id. 44. See Proceedings of the 26th Annual Convention of the International Seamen's Union of America, at 204 (1923), quoted in Mr. Justice Frankfurter's dissent in Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 467 n.2. (1957). 45. 1923 Hearing, supra note 14, at 9. In a letter to Senator Sterling, January 31, 1923, Secretary of Commerce Hoover had mentioned this matter and suggested somewhat similar wording. 1923 Hearing, supra note 14, at 14. This change would have had an important impact thirty-five years later on labor relations in this country if the Supreme Court had paid any attention to its obvious import. See United Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); United Steelworkers v. Warrior


215

& Gulf Nav. Co., 363 U.S. 574 (1960); Textile Workers Union v. Lincoln Mills, 353 U.S. 448 (1957) (Frankfurter, J., dissenting). 46. 1923 Hearing, supra note 14, at 9. 47. Id. Nothing in the bill explicitly excluded insurance contracts, and, unlike the labor question, Piatt suggested no amendment excluding them. It is possible (likely?) that Piatt had in mind Paul v. Virginia 75 U.S. (8 Wall.) 168 (1868), where the Court had held that insurance was not interstate commerce. Under that decision, limiting coverage of the act to transactions involving commerce would effectively exclude insurance contracts from its coverage. 48. Nothing ever was done about it in the federal act. In the course of the dialogue with Senator Walsh, Piatt stated that the point Walsh was raising "has never been raised by anybody objecting to it in the forcible way you have." 1923 Hearing, supra note 14, at 11. Senator Walsh's concern was the first I have found expressed, but it seems highly unlikely that he was the first to think of or express such concern since "adhesion" was to be the primary focal point of those opposing a uniform act covering future disputes, see Chapter 5. The roots of that opposition went back at least to the 1917 Illinois statute, see Chapter 3. Francis B. James, the only remaining witness, followed Piatt, but he dealt almost exclusively with the federal sales act, the other bill being considered by the committee. 49. Id. at 10. 50. Id. at 10-12. 51. Id. at 14-18. 52. See 47 A.B.A. Rep. 296 (1922). This federal sales bill suffered the same fate in 1923 as the arbitration bill, death in committee. S. 1006, introduced by Senator Sterling at the same time in 1924 as S. 1005 (the USAA) died in committee, not even making it as far as a subcommittee hearing. The A.B.A. committee reported to the A.B.A. that "while not meeting with stated objections, [it] failed of passage at that Congress by reason of the congested condition of the congressional calendars, and must be reintroduced at the 69th Congress, at which it will undoubtedly pass, as the commercial interests of the country are becoming informed as to its importance to the commerce of the country." 50 A.B.A. Rep. 362 (1925). This confident prediction was not borne out; a federal sales bill never reached the eminence of having a committee report or even another hearing in spite of repeated A.B.A. efforts. By 1928 the A.B.A. committee was reporting that retirements of interested members of the 69th Congress had made it hard to secure anyone to do the work necessary to pilot the bill through committee. 53 A.B.A. Rep. 339 (1928). The A.B.A. committee kept at it awhile longer, but in 1932 reported that a bill had not even been introduced in the 72d Congress. 57 A.B.A. Rep. 405 (1932). We are thus left solely with the discussion in the abortive 1923 subcommittee hearing for enlightenment about congressional concerns respecting the proposed federal sales act. (For an account of the revival of the federal sales bill and its relation to the subsequent development of the Uniform Commercial Code, see Wiseman, The Limits of Vision: Karl Llewellyn and the Merchant Rules, 100 Harv. L. Rev. 465, 474-75,477-91,525 [1987].) 53. 1923 Hearing, supra note 14, at 13-14.

216

Notes to pages 91 -92

54. 48 A.B.A. Rep. 287 (1923). 55. 48 A.B.A. Rep. 287 (1923). It may be noted that by the time of this A.B.A. meeting the reformers knew they were having trouble with the Conference of Commissioners on Uniform State Laws, see Chapter 5, but no record of any mention of this by the committee or its members appears in the report of the meeting. 56. The A.B.A. report on this is unnecessarily confusing. Except for the additions of the word "That" to commence sections and a couple of changes in numbering or lettering sections, Senator Sterling's 1922 bill, S. 4214, 67th Cong., 4th Sess. (1922), and Congressman Mills' 1922, H.R. 13522, 67th Cong., 4th Sess. (1922), are identical to the A.B.A. 1922 draft. The August 1923 A.B.A. committee report recommended that "a resolution be adopted, approving the re-draft and its introduction into the next Congress of [Senator Sterling's 1922 bill] (Appendix B)." 48 A.B.A. Rep. 284 (1923). Appendix B does indeed set out the redraft. Unfortunately, however, Appendix B inaccurately identifies the redraft as the bill Congressman Mills had introduced in 1922, not as a redraft. A bit of sloppy lawyering that. 57. Id. at 302. 58. 1923 Hearing, supra note 14, at 13. Among these corrections was a change in the words "valid, enforceable and irrevocable" in section 2 to "valid, irrevocable and enforceable." 59. 48 A.B.A. Rep. 52-60 (1923). 60. The most important deletion was of section 8 (section 7 in the 1922 draft), eliminating any jurisdictional amount for diversity jurisdiction in USAA cases. See Chapters 8 and 9.

Chapter 8 USAA: Enactment 1. See Chapter 7. 2. S.1005, 68th Cong., 1st Sess. (1923); H.R. 646, 68th Cong., 1st Sess. (1923). 3. Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st Sess. (1924) (hereafter 1924 Hearings). The Senate subcommittee consisted of the same three senators who had comprised the 1922 Senate Judiciary Subcommittee, Sterling (chairman), Ernst, and Walsh (see Chapter 7). The House subcommittee consisted of seven congressmen: Dyer, Missouri, chairman; Foster, Ohio; Hickey, Indiana; Kurtz, Pennsylvania; Montague, Virginia; Wise, Georgia; and Dominick, South Carolina. 4. Senator Kendrick's testimony reflected the widespread lobbying that evidently had been occurring: ". . . my people in the West . . . are wiring and writing and asking me to indorse the proposed legislation, and even to appear before your subcommittee here and indicate to you their approval of the bill." 1924 Hearings, supra note 3, at 5. 5. Id. at 21.


217

6. REPRESENTATIVE DYER: Is there anybody here in opposition to the bill? THE CHAIRMAN: No one that I know of. REPRESENTATIVE DYER: Is there anybody who has indicated any opposition in writing, or otherwise? THE CHAIRMAN: No; I knew of no real opposition when the bill was before the Senate subcommittee at the last session. Id. at 24. On the face of it, Senator Sterling's second response is evasive, but I have no reason to believe that the evasion was intended to mask the existence of opponents to the bill. 7. 1924 Hearings, supra note 3, at 1. S. 1005 is printed in the report just after this statement, followed by the statement that H.R. 646 is in identical language. 8. Id. at 5. 9. Although he was a member of the subcommittee, Senator Walsh was absent at the beginning of the hearing, Id. at 1, and there is nothing to suggest that he ever did attend. 10. Id. at 11, 17-18. 11. 49 A.B.A. Rep. 52 (1924). 12. 1924 Hearings, supra note 3, at 7. 13. Id. at 7. 14. [Ed.] The case referred to is Atlantic Fruit Co. v. Red Cross Line, 276 Fed. 319(S.D.N.Y. 1921). 15. 1924 Hearings, supra note 3, at 16. 16. Id. at 17. 17. Id. at 18. 18. Id. at 18-19. 19. Id. at 24. 20. Id. at 27-28. Two other witnesses appeared whose presentations may have some slight bearing on the coverage of the bills. Wilson J. Vance, New Jersey State Chamber of Commerce, said: The reasons for indorsing a Federal measure have been well put forward here, and I need not dwell upon them at length. But we are so enthusiastically in favor of it that we feel that we can ask in a modest way the Congress to extend this principle to the Federal jurisdiction. Id. at 30. Another supporter was Thomas B. Paton, American Bankers' Association, who presented a resolution of that other A.B.A. supporting the 1922 bills:

Whereas all merchants doing interstate and foreign business seek a method whereby disputes arising in their daily business transactions can be speedily, economically, and equitably disposed of; and . . . Whereas the arbitration law of the various States of the Union are not in uniformity and often in conflict; and Whereas the law of any given State are not applicable in other States: Now, therefore, be it Resolved. That the commerce and marine commission of the American

218

Notes to pages 97-101 Bankers Association is thoroughly in accord with the efforts being made to create Federal legislation legalizing the settlement of commercial disputes; . . .

Id. at 31. 21. H.R. Rep. No. 96, 68th Cong., 1st Sess. (1924). 22. Id. at 1-2. 23. 65 Cong. Rec. 1931 (1924). 24. Id. 25. [Ed.] The case referred to is Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109(1924). See Chapter 7. 26. 49 A.B.A. Rep. 282-83 (1924). 27. Id. at 284. 28. S. Rep. No. 536, 68th Cong., 1st Sess. (1924). 29. Id. at 1. 30. Id. The significance of this deletion to the interpretation of the USAA is explored in Chapter 9. Other amendments included deleting from section 10 the requirement that awards be in writing and acknowledged or proved like a deed for real estate; deletion of section 14, which provided that upon an order confirming, modifying, or correcting an award, judgment was to be entered thereon, and that no objections could be taken thereto, although the judgment was appealable; and deletion of section 16, dealing with appeals from orders vacating or confirming awards. Some of the amendments were merely of a clarifying nature. 31. 65 Cong. Rec. HI 1080 (1924). 32. Id. atHHOSl. 33. Id. at HI 1081-82. 34. 66 Cong. Rec. S984 (1924). 35. Id. S2759(Jan. 31, 1925). 36. Id. atS2761. 37. Senator Caraway also introduced one of the few bits of even mild humor recorded in the history of the enactment of the USAA. He was much troubled by the phrase in section 2 "written provision in any maritime transaction," pointing out that a transaction is an event and not a written contract in which a written provision could exist. After considerable effort he failed in his efforts to secure a cosmetic amendment, Senator Sterling saying, "Mr. President, I think I am quite content to leave the language stand as it is in the amendment." Senator Caraway responded, "Should that be done, it would certainly be a monument to the Senator. I am perfectly willing for him to erect it." Id. at S2761-62. 38. Id. at S2762. Consideration of the Senate bill itself was postponed indefinitely. 39. Upon being asked whether the proponents were legal societies or commercial, Representative Graham replied with only partial accuracy: "Commercial." Id. at H3004. 40. Id. (statement of Rep. Graham). 41. Id. 42. USAA §15.


219

Chapter 9 USAA: Analysis of Legislative History 1. This was also true of the A.B.A. draft submitted in 1922. This is in sharp contrast to the very first A.B.A. draft of a USAA, see Chapter 7. No inference concerning congressional intention should be drawn from this, however, as the 1921 draft was never submitted to Congress. I have found no evidence to show that anyone in Congress knew about it, or if they did that it affected their understanding of what was presented to them later. 2. In the 1920s this basic law was supplied by the states in our state-federal system. To a large extent it still is. See, e.g., Perry v. Thomas, 482 U.S. 483, 49293 n.9 (1987). But see Shell, Substituting Ethical Standards for Common Law Rules in Commercial Cases: An Emerging Statutory Trend, 82 Nw. U.L. Rev. 1198 (1988). 3. See Chapter 7 for a discussion of the two types of provisions. 4. Section 8, which was deleted before the USAA was enacted, see below, was an additional jurisdictional provision. Whereas the jurisdictional provision of section 4 simply replicated jurisdiction the courts would have had in the absence of an arbitration agreement, section 8 enlarged federal court jurisdiction by eliminating the jurisdictional amount in diversity cases. Section 8, too, was limited to district courts. With the deletion of section 8 all following sections moved up one number. In the text discussion following the section numbers of the original bill are used, with footnotes giving the section numbers in the USAA as enacted. 5. "Or otherwise" might be argued to open up the applicability of this section to arbitrators selected under state arbitration law, statutory or common. In the context of arbitration legislation it more obviously means to include arbitrators chosen by the parties or by mechanisms adopted by the parties, e.g., trade association panels. The same phrase was common in nonfederal legislation — where it could not possibly be intended to apply to courts of another jurisdiction —whenever the statute provides for appointment of arbitrators in the absence of party consent. See, e.g., N. Y. Code Civ. Proc. §§2369-70 (Stover 1902), but see §2371, where statutorily appointed arbitrators were more rigorously regulated. In the modern Uniform Arbitration Act, the "or otherwise" of specific sections has been replaced by a catchall in section 3: "An arbitrator so appointed has all the powers of one specifically named in the agreement." 6. USAA §9. 7. It would not, however, be entirely without effect since differences in details between the prevailing state law and the USAA undoubtedly might exist and affect the outcome in individual cases. 8. It is extremely unlikely that the reformers intended the section to have anything to do with the state court question. More likely, they intended only to assure the parties the freedom to choose a court to which an award could be submitted for confirmation and to provide for a court when no choice was made. The 1922 draft of the Uniform Arbitration Act, 47 A.B.A. Rep. 318 (1922), where the question of state or federal courts had no relevance, also directed itself to this matter. Id. at 319. This provision of the USAA has given difficulty of a different nature. Some courts have, most unfortunately, held that failure to include a submission provision

220


precludes confirmation. Oklahoma City Assocs. v. Wal-Mart Stores, Inc., 923 F.2d 791 (10th Cir. 1991); Varley v. Tarrytown Associates, Inc., 477 F.2d 208 (2d Cir. 1973). For a detailed discission see I. Macneil, R. Speidel, and T. Stipanowich, The Federal Arbitration Act (forthcoming). 9. USAA§13. 10. USAA§14. 11. USAA§10and§ll. 12. As was done in the USAA 1921 draft, see Chapter 7. 13. USAA §12. 14. The reference in each section is to the "United States court in and for the district wherein the award was made." 15. Deleted before enactment. 16. USAA §8. 17. Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittee of the Committees on the Judiciary, 68th Cong., 1st Sess. (1924) (hereafter 1924 Hearings). 18. 49 A.B.A. Rep. 284 (1924). [Emphasis added.] 19. The subsequent deletion of this section by the Senate committee reveals not a contrary intent by Congress, but only the concern, expressed at the 1923 hearing, about the possible flooding of the federal courts with small claims. A Bill Relating to Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 10 (1923) (hereafter 1923 Hearing). Such a concern is consistent with an intention that the act apply only in federal courts and that small arbitration matters can be safely left to the state courts, just as other small matters are left to them. 20. USAA §8. 21. This does not mean, of course, that only federal courts handle admiralty or maritime matters. See G. Gilmore and C. Black, Law of Admiralty 47-51 (2d ed. 1975). When state courts, or even federal courts when not sitting "in admiralty," nonetheless handle admiralty or maritime matters, they do so as common law courts or courts of equity. For a great many purposes the distinction is unimportant. In this instance, however, it reveals the federal nature of the USAA. 22. USAA §9. See G. Robinson, Admiralty Law 22-26 (1939). 23. USAA §14. 24. USAA §§13 and 15, respectively. 25. That the Supreme Court has seemingly adopted this absurdity as the basis for its decision in Southland Corp. v. Keating, 465 U.S. 1 (1984), see Chapter 11, makes it no less absurd. 26. Section 2. 27. An excellent student note analyzes the source of the words in the New York act in the following manner:


221

"Valid," . . . apparently was meant to overrule the doctrine that futuredisputes provisions are "invalid" as attempts to oust courts of their jurisdiction, and if so, would appear to grant a right where none previously existed, even if a "right" to a "remedy" for breach of contract is a conceptual oddity. "Irrevocable" should be read in the light of an 1828 New York arbitration statute, which the 1920 act modified. Under the old New York act, which dealt only with submission agreements and not with future-disputes provisions, a party could "revoke" the arbitrators' authority at any time before final hearing, although a revoking party would be liable for "costs, expenses and damages incurred by his opponent in preparing for arbitration." By withdrawing a right to revoke, "irrevocable" may be said to have granted the converse right to have an arbitration provision respected. The term "enforceable" seems included in the New York formula only as a prelude to provisions for specific performance remedies ... in succeeding sections of the statute. Note, Erie, Bernhardt, and Section 2 of the United States Arbitration Act: A Farrago of Rights, Remedies, and a Right to a Remedy, 69 Yale L. J. 847, 854-55 (1960). The only interest shown in these words in Congress was in their order, which was changed at the behest of Senator Sterling. 1923 Hearing, supra note 19, at 13. 28. 230 N.Y. 261(1921). 29. Supra note 19. 30. As mentioned in Chapters 4 and 7, respectively, the 1920 New York act and the 1921 USAA draft did not include numerous provisions often associated with modern arbitration acts. In the case of New York, that was because the New York Code of Civil Procedure (1903) already contained them. In the case of the 1921 USAA draft, it was almost surely due to the reformers' slavish copying of the New York act without remembering that there was no federal statute like the New York Code of Civil Procedure. Both, of course, contained provisions like sections 3 and 4 of the USAA. 31. Or for that matter anywhere else in the world of arbitration, so far as I know. 32. See Chapter 8. See also the testimony of Julius Henry Cohen at the 1924 hearings: . . . you say to the judge, "You used to hold that these things were not good; now they are good. You used to say you did not have jurisdiction; now you have jurisdiction." That is all there is to it. The language is such as to make it clear. That polishing work has been done for two years. The bill has been approved twice by the American Bar Association; . . . . 1924 Hearings, supra note 17, at 17. [Emphasis added.] The Report of the House Judiciary Committee also states that the bill "was drafted by a committee of the American Bar Association." H.R. Rep. No. 96, 68th Congress, 1st Sess. 1 (House Report). 33. The A.B.A.'s federal sales act was before the committee at the same time, see below.

222


34. 1923 Hearing, supra note 19, at 13. [Emphasis added.] 35. Baum and Pressman, The Enforcement of Commercial Arbitration Agreements in the Federal Courts, 8 N.Y.U. L.Q. Rev. 238, 428, 430 n.21 (1931-32). 36. The discussion in this section refers to the intent of Congress, generally a perilous idea given the complexity of that institution. The USAA is, however, largely free of problems on that score, as nothing in the floor debate or elsewhere creates a problem of possibly differing intentions among members of the committees, between a committee and one of the houses, or between the two houses of Congress. 37. Even this one was drafted by the A.B.A. representatives. See Chapter 8. 38. Matters lying outside that conventional legislative history and referred to in Chapters 3 and 4 and parts of Chapters 5, 6, 7, and 8, however, may very well be indirectly pertinent to our inquiry. Our assessment of congressional understanding of what was presented to Congress at the time is more likely to be accurate if we understand the purpose of those speaking to Congress. Thus, I think the whole history of the reform movement in context is important to understanding both what the reformers were up to with the USAA and how Congress understood them. It is, however, unnecessary to press this point because the conventional legislative record is entirely clear to anyone not desiring to misuse it and entirely consistent with all the other things the reformers (including the A.B.A.) did before and during the lobbying effort in Congress. 39. Erie RR. v. Tompkins, 304 U.S 64 (1938). 40. 1923 Hearing, supra note 19, at 2-3. 41. 230 N.Y. 261(1921). 42. 1923 Hearing, supra note 19, at 18-22. 43. Id. at 19. 44. Senators Sterling, Ernst, and Walsh. 1923 Hearing, supra note 19, at ii; 1924 Hearings, supra note 17, at ii. 45. 1924 Hearings, supra note 17, at 16. 46. [Ed.] Meacham v. Jamestown F. & C. RR., 211 N.Y. 346, 352 (1914). 47. Id. at 37-38. [Emphasis added.] 48. Id. at 39-40. [Emphasis added.] 49. House Report, supra note 32, at 1. [Emphasis added.] 50. 1924 Hearings, supra note 17, at 27-28. [Emphasis added.] 51. Id. at 17. [Emphasis added.] 52. Id. at 34. [Emphasis added.] 53. Id. at 37. [Emphasis added.] 54. Id. at 38. [Emphasis added.] 55. Id. at 39-40. [Emphasis added.] 56. Id. at 41. [Emphasis added.] 57. Id. at 40. [Emphasis added.] 58. At the time Cohen testified, this may not have been thought to be true of maritime matters, since the New York Court of Appeals had recently held that a New York court could not, in a maritime case in which it had concurrent jurisdiction with federal courts in admiralty, order specific performance of an agreement to arbitrate. Red Cross Line v. Atlantic Fruit Co., 233 N.Y. 373 (1922). But taken in context with his brief and other testimony, it is clear enough that Cohen was thinking of state incapacity to affect outcomes in federal courts, not of their incapacity


223

to affect outcomes in their own courts. A month after the 1924 hearings, the Supreme Court reversed the New York Court of Appeals and held that the New York arbitration act could be applied by the New York courts in a case based on maritime jurisdiction. Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109 (1924). For communications to Congress respecting this case, see text infra at notes 91-93. 59. 1924 Hearings, supra note 17, at 38. 60. "So far as" can be interpreted to mean that the proposed statute does something more than govern the federal courts. The phrase also can be interpreted as simply laying a ground for the proposition that since Congress could control the state courts under the commerce and admiralty clauses the proposed bill, even though limited to federal courts, has an additional constitutional support. Taken out of context, the former might seem the more reasonable interpretation; in context it is a most unreasonable one. 61. Mr. Cohen's insertion of this additional constitutional authority for congressional enactment of the statute is more likely attributable to lawyerly caution than it is to any attempt to slip in by the back door a major change in the statute, one contrary to everything else he said about it. 62. Id. at 38. 63. Id. at 40. 64. 1923 Hearing, supra note 19, at 2, 3, 9, 14; 1924 Hearings, supra note 17, at 5, 11, 13, 17-18, 21, 23, 24, 28-29. 65. To illustrate, Cohen gingerly handled describing Congress's power to do this and made it clear that, although Congress had the power, the proposed statute did not exercise it. See text supra notes 51-62. 66. Section3. 67. Section 4. 68. Section 4. 69. Sections. 70. Section 9. 71. Section7. 72. Section 13. 73. 465 U.S. 1 (1984). 74. While we have stated that "state courts, as much as federal courts, are obliged to grant stays of litigation under §3 of the Arbitration Act," Moses J. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26; see also id., at 26 nn.34-35, it is immaterial to the resolution of this case whether §§3 and 4 actually "apply." . . . While we have held the USAA's "substantive provisions" —§§1 and 2 —are applicable in state as well as federal court, see Southland Corp. v. Keating, 465 U.S. 1, 12(1984), we have never held that §§3 and 4, which by their terms appear to apply only to proceedings in federal court, . . . are nonetheless applicable in state court. Volt Information Sciences, Inc. v. Stanford Univ., 489 U.S. 468, 477 nn.4, 6 (1989). 75. See Chapter 12. 76. The short shrift given the proposed federal sales act, see following paragraph, illustrates this general disposition.

224


11. 1923 Hearing, supra note 19, at 11-13. 78. 1923 Hearing, supra note 19, at 11. 79. 1923 Hearing, supra note 19, at 4-6. Senator Walsh was also on the Senate subcommittee a year later, but evidently did not attend the 1924 hearings. 80. House Report supra note 32, at 1. [Emphasis added.] 81. Id. at 1. 82. Id. at 2. 83. Id. at 1. [Emphasis added.] 84. This question is distinct from whether some of the other sections might apply to intrastate transactions. See Chapter 11. Of the four early federal cases considering this question, only one, Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 70 F.2d 297 (2d Cir. 1934), affd (without noting this point), 293 U.S. 449 (1935), held that one of those sections did apply to intrastate transactions, even though the basic section, section 2, did not. The other three, Krauss Bros. Lumber Co. v. Louis Boissert & Sons, 62 F.2d 1004 (2d Cir. 1933) (dictum); in re Cold Metal Process Co., 9 F. Supp. 992 (W.D. Pa. 1935); Zip Mfg. Co., 44 F.2d. 186 (D. Del. 1930), held to the contrary. The latter were correct interpretations of the act. See the text discussion above under the heading, "An Integrated Statute," pp. 105-7. The question of the meaning of the committee also should not be confused with whether Congress had the constitutional power to require the USAA to be applied to intrastate transactions in litigation in the federal courts. In 1925, during the reign of Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842), it almost surely did have power to enact such a law. Given the language of USAA §2, it clearly did not exercise that power. 85. For example, in Hammer v. Dagenhart, 247 U.S. 251 (1918), the Court had held unconstitutional an act of Congress prohibiting transportation in interstate commerce of goods made at any factory that employed children for more than a specified number of hours. The Court stated that: "The grant of power to Congress over the subject of interstate commerce was to enable it to regulate such commerce, and not to give it authority to control the states in their exercise of the police power over local trade and manufacture." 247 U.S. at 273. Hammer v. Dagenhart was, of course, decades later swept away in the massive expansion of the interstate commerce clause to encompass just about everything that goes on in the country. See, e.g.,Wickardv.Filburn,317U.S. Ill (1942). 86. Southland Corp. v. Keating, 465 U.S. 1 (1984). 87. The Chief Justice fails to address the second point. Nothing in the opinion, however, suggests that he intended to extend USAA §2 to intrastate commerce in flat contradiction of its provisions or to have overruled Bernhardt v. Polygraphic Co. of America, 350 U.S. 198 (1956) (state arbitration law governs in federal diversity cases involving intrastate commerce). Reading the word "or" as a true alternative would have had both effects. One may wonder whether the Chief Justice realized the danger of a careful reading of the sentence and avoided it deliberately, or whether he was simply muddled. 88. 350 U.S. 198(1956). 89. As a lifelong student of contracts, I am aware of the wealth of complexity, conflict, and confusion surrounding such concepts as objectivity and intention.


225

They are, however, concepts necessarily and only slightly confusingly used at the levels of understanding with which we are concerned in this book, notwithstanding their ultimate philosophical fuzziness. 90. Cf. Farber, Statutory Interpretation and Legislative Supremacy, 78 Geo. L. J. 281,289(1989). 91. 49 A.B.A. Rep. 282-83 (1924). 92. Supra note 58. 93. 49 A.B.A. Rep. 283 (1924). [Emphasis added.] 94. See Chapter 8. 95. 65 Cong. Rec. 1931 (1924). 96. 465 U.S. 1, 25 (1984) (O'Connor, J., dissenting). Chapter 10 USAA: Interpreted as Congress Intended 1. 11 A.B.A. J. 153(1925). 2. Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittee of the Committees on the Judiciary, 68th Cong., 1st Sess. 37-38 (1924) (hereafter 1924 Hearings). 3. See Chapter 9. 4. See Chapter 5. 5. 11 A.B.A. J. at 156. [Emphasis in original.] 6. [Ed.] The jurisdictional amount for diversity jurisdiction at that time. 7. 11 A.B.A. J. at 156. 8. 3 Docket 2829 (1925). 9. Id. 10. Id. 2929. 11. See Chapter 5. 12. 35 Nat'l Conf. Comm'rs Uniform St. Laws 65 (1925)[emphasis added]. 13. Id. at 72-73. 14. Those present and speaking to the subject included academic luminaries such as Ernst Freund and Samuel Williston. 15. Cohen and Dayton, The New Federal Arbitration Law, 12 Va. L. Rev. 265 (1926) (hereafter Cohen and Dayton, New Arbitration Law). 16. Id. at 267 n.*. 17. 465 U.S. 1 (1984). 18. 1924 Hearings, supra note 2. 19. Cohen and Dayton, New Arbitration Law, supra note 15, at 275. 20. See Chapter 9. 21. Professor Dobie based his similar conclusion on the Cohen and Dayton article. A. Dobie, Federal Procedure §87, at 341 (1928) (hereafter Dobie, Federal Procedure). 22. [Ed.] This is a reference to UAA (1924), which did not provide enforcement for agreements to arbitrate future disputes. See Chapter 5.

226


23. Note, Problems in Statutory Construction Arising Out of Arbitration Cases, 29 Colum. L. Rev. 195, 196-97 (1929). In the same year Heilman wrote an extensive argument that the enforcement of arbitration agreements is substantive for the purpose of conflicts of law. There is not a word in the article suggesting that the USAA was either intended to have that effect or should be so interpreted. Heilman, Arbitration Agreements and the Conflict of Laws, 38 Yale L. J. 617 (1929). Two years before these articles Wharton Poor contributed little but confusion to this question: Conflicts between the federal and state laws will undoubtedly arise in the future. If interstate commerce is involved, then of course arbitration must take place in accordance with the Federal Act. So if the subject matter is within the admiralty jurisdiction, relief in accordance with the United States Act must be sought. Difficulty will often arise in solving this question of jurisdiction. Very many contracts are on the border line between intra- and inter-state transactions. In the same way, it is also often difficult to be sure whether a contract is within the jurisdiction of the admiralty courts. In the absence of an arbitration clause, suit in cases of doubt can always be brought at common law since the common law jurisdiction is substantially allembracing. When, however, arbitration is sought, it will be necessary to be certain which court has jurisdiction. An erroneous choice at the outset might result in having all of the proceedings subsequently set aside. Poor, Arbitration Under the Federal Statute, 36 Yale L.J. 667, 671-72 (1927) (emphasis added). The final two sentences make plain that Poor understands the absolute language in USAA §2 respecting maritime transactions to be limited to federal courts. That being the case, there is no reason to think that the italicized words are not also limited to proceedings in federal courts. 24. W. Sturges, Commercial Arbitration and Awards (1930) (hereafter Sturges, Commercial A rbitration). 25. Sturges, Arbitration Under the New North Carolina Arbitration Statute— The Uniform Arbitration Act, 6 N.C.L. Rev. 363 (1927). 26. See Chapter 5. 27. Where a party brings a case in state court which could originally have been brought in federal court, the other party commonly has a right to remove to the federal court. 28 U.S.C. 1441 (1988). 28. Sturges, Commercial Arbitration, supra note 24. 29. The key case of Southland Corp. v. Keating, 465 U.S. 1 (1984), was such a case. 30. Baum and Pressman, The Enforcement of Commercial Arbitration Agreements in the Federal Courts, 8 N.Y.U. L.Q. Rev. 238 (1931-32) (hereafter Baum and Pressman, Enforcement). 31. Id. at 428 n. 103. 32. Id. at 430-31. Those cited are: the A.B.A. committee in the A.B.A. Journal, supra note 1; Cohen and Dayton, New Arbitration Law, supra note 15; and Dobie, Federal Procedure, supra note 21. 33. Baum and Pressman, Enforcement, supra note 30, at 459-60.


227

34. Id. at 459. 35. Amicus Brief for the Chamber of Commerce of the State of New York and the American Arbitration Association at 14, Marine Transit Corp. v. Dreyfus, 284 U.S. 263 (1932) (hereafter Cohen and Dayton, Brief). 36. S. Williston, Law of Contracts (rev. ed. 1938) (hereafter Williston, Contracts). 37. T. Parsons, Law of Contracts 806-31 (8th ed. 1893). 38. Williston, Contracts, supra note 36, §1920, at 5368. 39. Legal retrieval is such that one can never be sure that something earlier is not lurking out there, but if there is, it left remarkably little mark. 40. 54 N.Y.S.2d 179 (App. Term 1945). 41. Focus on party intention is now on whether the parties intended state arbitration law to apply where otherwise the USAA would govern. Volt Information Sciences v. Stanford Univ., 489 U.S. 468 (1989). 42. 153 Neb. 160(1950). 43. 153 Neb. at 171-72. 44. Nebraska did not recognize executory agreements to arbitrate. Consequently the court held that "a provision in a contract requiring arbitration . . . will not be enforced and that refusal to arbitrate is not available to the parties in an action growing out of the contract." 153 Neb. at 174. The single dissenter gave no reasons for the dissent. 45. 143 N.Y.S.2d 74 (Sup. Ct. App. Term), affd, 145 N.Y.S.2d 466 (App. Div. 1955). 46. Questions existed whether the case concerned commerce and whether the USAA maritime provision applied. 47. 185 N.Y.S.2d 857 (Sup. Ct. 1958). The transaction involved clearly evidenced interstate commerce; there was thus, no question on that score that the USAA would have governed in federal court. 48. 185N.Y.S.2dat859. 49. 328 S.W.2d 897 (Tex. Civ. App. 1959). 50. Id. at 906. 51. Only thirteen out of forty-eight states had modern arbitration statutes by 1931, and only sixteen as late as 1958. See Chapter 5. 52. A slightly later case doing so is United Ass'n of Journeymen v. Stine, 76 Nev. 189 (1960), a case concerning collective bargaining arbitration. 53. This would have required that the transaction in question be maritime or in commerce, but of course, even before the Supreme Court widened commerce drastically in the 1930s, countless such transactions found their way into disputes in state courts. 54. If we carried on past 1959 we would begin to come to more state cases treating the USAA, including those starting to grapple with the changes in the USAA being wrought in federal courts. The most important of these is probably Ludwig Mowinckels Rederi v. Dow Chemical Co., 25 N.Y.2d 576 (1969), where the New York court, following Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), and Robert Lawrence Co., Inc. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959), and anticipating Southland Corp. v. Keating, 465 U.S. 1 (1984), surrendered to federal power.

228


55. The USAA was added to the United States Code as Title 9. 56. 284 U.S. 263(1932). 57. 264 U.S. 109(1924). 58. 284 U.S. at 277-79. 59. 304 U.S. 64 (1938). 60. Since Erie more sophisticated and different tests have developed respecting differentiation among procedure, remedy, and substance. We need not concern ourselves with those here. 61. Cohen and Dayton, Brief, supra note 35. 62. Id. at 13-15. 63. Such an argument was unnecessary to win the case, and it would have been most unwise to advance it. 64. Id. at 21. 65. 41 U.S. (16 Pet.) 1 (1842). 66. 304 U.S. 64(1938). 67. 350 U.S. 198(1956). 68. California Prune & Apricot Growers' Assn. v. Catz American Co., 60 F.2d 788 (9th Cir. 1932); Karno-Smith v. School Dist. of Scranton, 44 F. Supp. 860 (M.D. Pa. 1942); Voutrey v. General Baking Co., 39 F. Supp. 974 (E.D. Pa. 1941); Hunkin-Conkey Const. Co. v. Pennsylvania Turnpike Cmn., 34 F. Supp. 26 (M.D. Pa. 1940). 69. The historically correct explanation for the existence of section 2 is that the section constitutes the core of the USAA, a unified statute, none of which was intended to govern unless all of it governs. See Chapter 9. Conceding this would have wrecked Cohen and Dayton's ingenious, but properly futile, argument. 70. Id. at 24. 71. Id. at 25-29. 72. Supra note 56. 73. A case like Marchant v. Mead-Morrison Mfg. Co., 29 F.2d 40 (2d Cir. 1928), which clearly accepted the applicability of state law in a state court case that may have involved interstate commerce, is in fact a nonleaner. The contract in question was made in 1922, and hence was not governed by the USAA. See USAA §14. 74. Krauss Bros. Lumber Co. v. Louis Boissert & Sons, 62 F.2d 1004 (2d Cir. 1933). Judge Hand does not cite the earlier Second Circuit case that apparently held this, In re Woerner, 31 F.2d 283 (2d Cir. 1929). 75. Cohen and Dayton, Brief, supra note 35. 76. Krauss Bros. Lumber Co. v. Louis Boissert & Sons, 62 F.2d 1004 (2d Cir. 1933) (dictum); In re Cold Metal Process Co., 9 F. Supp. 992 (W.D. Pa. 1935); Zip Mfg. Co., 44 F.2d 186 (D. Del. 1930). The one exception was Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 70 F.2d. 297 (2d Cir. 1934), affd (without noting the point discussed here), 293 U.S. 449 (1935), where Judge Hand limited his prior dictum in Krauss to USAA §4, now holding that section 3 applied when the federal court had jurisdiction, even though section 2 did not apply. This view was both unnoted and undisturbed when the case was affirmed by the Supreme Court. 293 U.S. 449 (1935).


229

Chapter 11 USAA: As Amended by the Supreme Court 1. 304 U.S. 64 (1938). A citizen of Pennsylvania was injured while walking along a railroad track belonging to Erie, a New York corporation. He sued Erie in federal court in Pennsylvania. Liability turned on whether he was a trespasser. The question before the Supreme Court was whether his status was to be determined by Pennsylvania law or "federal general common law." The Court held that Pennsylvania law governed, there being no "federal general common law." 2. 41 U.S. (16 Pet.) 1(1842). 3. See Chapters 9-10. 4. See Chapters 10. 5. 125 F.2d 493 (5th Cir. 1942). 6. Karno-Smith v. School Dist. of Scranton, 44 F. Supp. 860 (M.D. Pa. 1942). 7. 74 F. Supp. 85 (D. Minn. 1947). 8. 326 U.S. 99 (1945). The Court held in a diversity action for breach of fiduciary obligations that the state law governing included the state statute of limitations since its application or nonapplication would affect the outcome of the case. 9. 138 F.2d 3 (3d Cir. 1943). This was an action by employees to recover payment for overtime work under the federal Fair Labor Standards Act. The employment contract contained an arbitration clause. 10. 49 F. Supp. 842 (M.D. Pa. 1943). 11. An Act to make valid and enforceable written provisions or agreements for arbitration of disputes arising out of contracts, maritime transactions, or commerce among states or territories or with foreign nations. 12. The title of the Act suggests, though it does not compel, the conclusion that the provisions of the statute are applicable to three kinds of things: (1) contracts, (2) maritime transactions and (3) commerce, interstate and foreign . . . . The generality of the language used in the statute does not suggest any self-imposed limitation. . . . We think it clear that the provisions of §3 are not limited to the specific instances dealt with in §2. 138F.2dat5. 13. 70 F.2d 297 (2d Cir. 1934), affd, 293 U.S. 449 (1935). 14. See Chapter 10. 15. Murray Oil Prods. Co. v. Mitsui Co., 146 F.2d 381 (2d Cir. 1944); Agnostini Bros. Bldg. Corp. v. United States, 142 F.2d 854 (4th Cir. 1944). The Second Circuit continued to adhere to its distinction between section 3, which applied to both section 2 and non-section 2 contracts, and section 4, which applied only to section 2 contracts. San Carlo Opera Co. v. Conley, 72 F. Supp. 825 (S.D.N.Y. 1946), affd, 163 F.2d 310 (2d Cir. 1947). 16. See Chapters 9-10. 17. This might or might not lead to forum shopping, depending upon whether more than one forum was available in a given case. 18. 350 U.S. 198(1956).

230


19. 236 F.2d 776 (6th Cir.), cert, denied, 243 U.S. 910 (1957). See also Standard Magnesium Corp. v. Fuchs, 251 F.2d 455, 457-58 (10th Cir. 1957). 20. 350 U.S. 198 (1956). Bernhardt sued in United States District Court for Vermont for breach of his employment contract, made in New York, but for work in Vermont. Polygraphic moved for a stay pending arbitration in New York. Vermont did not enforce arbitration agreements. There were three key questions: (1) Was the contract in interstate commerce so that all the FAA, including section 2, governed? (2) If not, did FAA section 4 govern anyway? (3) If not, was the issue outcome determinative under Guaranty Trust! 21. The Court also raised a question, unanswered, about the continuing validity of Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 455 (1935), which, prior to Erie RR. v. Tompkins, 304 U.S. 64 (1938), had applied the USAA in a diversity case where interstate commerce was involved. 22. Supra note 13. 23. 326 U.S. 99(1945). 24. The editors of the Harvard Law Review correctly noted that Bernhardt was foreshadowed by Wilko v. Swan, 346 U.S. 427 (1953), where the Court "held that an arbitral, rather than judicial, determination could sufficiently alter the rights granted security buyers under the Securities Act to make an agreement to arbitrate invalid under . . . that act." The Supreme Court, 1955 Term, 70 Harv. L. Rev. 83, 138 n.298 (1956). It may also be noted, in view of the way the law developed subsequent to Bernhardt, that the Wilko court also assumed that the USAA was applicable only in federal courts: "In unrestricted submissions, . . . the interpretations of the law by the arbitrators . . . are not subject, in the federal courts, to judicial review for error in interpretation." 346 U.S. at 436-37. [Emphasis added.] 25. 350 U.S. at 208. For an argument that the majority intimated agreement with Mr. Justice Frankfurter, see Note, Erie, Bernhardt, and Section 2 of the United States Arbitration Act: A Farrago of Rights, Remedies, and a Right to a Remedy, 69 Yale L.J. 847, 848 n.9 (1960). 26. In Local 19, Warehouse Union v. Buckeye Cotton Oil Co., 236 F.2d 776 (6th Cir.), cert, denied, 243 U.S. 910 (1957), discussed in text at supra note 19. 27. 269 F.2d 811 (6th Cir. 1959). The case involved the arbitrability of disputes about terms of the renewal of expired airline leases. 28. The Sixth Circuit was unwilling to accept the District Court's conclusion that making the arbitration agreement was not ultra vires the Air Board under Kentucky law. Having determined that this issue was governed by Kentucky law, not by the USAA, it proceeded so that the parties could find the answer to the ultra vires question in state court. 29. 271 F.2d 402 (2d Cir. 1959). 30. See Chapters 3-4. 31. 271 F.2d at 406-7. 32. 388 U.S. 395 (1967). 33. The reformers, in their institutionalized form, the American Arbitration Association, submitted an amicus brief in Prima Paint in support of the result reached. The president of the AAA subsequently wrote an article praising the decision without, however, feeling any need to mention his institutional position and that the AAA had submitted an amicus brief. Coulson, Prima Paint: An Arbitration Mile-

Wotes to pages 138-39

231

stone, 23 Bus. Law. 241 (1967). Is partisanship in behalf of one's views of the public interest in a different ethical category respecting conflict of interest from partisanship on behalf of private interests? Evidently. 34. The case also commenced an expansive view of commerce as used in USAA §2, established a pro-arbitration stance for cases under the USAA similar to that established earlier for collective bargaining arbitration and held that fraud in the inducement of the contract as a whole is for the arbitrator where the arbitration clause is broad enough to cover such an issue. 35. Indeed, to this day, many such cases can be found. See I. Macneil, R. Speidel, and T. Stipanowich, The Federal Arbitration Act §9.5 (forthcoming) (hereafter Macneil, Speidel, and Stipanowich, FAA). In 1986 I was engaged as a consultant near the end of a very sizeable case unquestionably governed by the USAA. Both the major law firms involved had handled it throughout under the state Uniform Arbitration Act, except for brief periodic remarks that maybe the USAA governed, but that it really did not matter because the result was the same on the issues in question! 36. Alabama Oxygen Co. v. York Intl., 433 So.2d 1158 (Ala. 1983), vacated, 465 U.S. 1016 (1984); Thayer v. American Financial Advisors, Inc., 322 N.W.2d 599 (Minn. 1982); Southland Corp. v. Keating, 31 Cal.3d 584 (1982), rev'd465 U.S. 1 (1984); Pullman, Inc. v. Phoenix Steel Corp., 304 A.2d (Del. Super. Ct. 1973). 37. Alabama Oxygen Co. v. York Intl. (Ala. 1983), supra note 36. 38. 465 U.S. 1 (1984). 39. 25 N.Y.2d 576 (1970). For other decisions to the same effect, see Macneil, Speidel, and Stipanowich, supra note 35 §10.5. 40. 304 U.S. 64 (1938). 41. 326 U.S. 99 (1945). 42. 350 U.S. 198(1956). 43. 388 U.S. 395 (1967). 44. Or abyss, depending on one's viewpoint. 45. 465 U.S. 1 (1984). 46. 460 U.S. 1(1983). 47. 460 U.S. at 24. Since the case was in the federal court, this was a dictum respecting the state courts. 48. After the deletion in 1947 of the section naming the USAA the United States Arbitration Act, it became increasingly called the Federal Arbitration Act (FAA). It is still, however, sometimes called the USAA, and that usage is followed here to avoid anyone's thinking Congress has enacted a replacement arbitration act. 49. Unless one considers the American Arbitration Association, amicus in Prima Paint, "democratic" in this narrow sense. 50. Examination of the briefs in Southland, as in prior cases, is beyond the scope of this work. This is partly to avoid excessive length and partly because I am not sure what one would make of briefs respecting legislative history in any event. For example, the appellee's brief in Southland contains a fairly thin legislative history which, as one would expect, fits nicely with that in Justice O'Connor's opinion. On the other hand, so does Justice Black's dissent in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 409, 412-16 (1967), fit her position, but with far more detail. Which one, or both, or neither, influenced her account?

232


In contrast, the appellant's brief in Southland is very skimpy on legislative history, whereas, as will be seen, the opinion of the majority favoring the appellant uses every scrap that favors or can be twisted in some way to favor its position. Again, what could one make of this? Even if one could tell the effect of the briefs in any given case or cases, I am not at all sure that one could draw general conclusions about the specific role of briefs in creating judicial legislative history, pathological or otherwise. This is not to discourage anyone else from undertaking the task, more power to them. 51. 465 U.S. at 11. 52. H.R. Rep. No. 96, 68th Cong., 1st Sess. 1 (1924). [Emphasis added.] (hereafter House Report). 53. 388 U.S. at 405 (1967). 54. House Report, supra note 52, at 1. [Emphasis added.] 55. 465 U.S. at 12. 56. House Report, supra note 52, at 1. [Emphasis added.] 57. The sentence is unambiguous on its face; what makes it ambiguous is the report's context, including both the language of the USAA and the remainder of its extensive legislative history. See Chapter 9. 58. As noted in Chapter 9, literal reading of the word would have led to the application of the USAA §2 to intrastate transactions in cases in federal courts. Such recognition would have destroyed the Chief Justice's case since neither he nor anyone else could effectively argue that to be the case in the face of the clear language in section 2. 59. 465 U.S. at 12. 60. Id. 61. 465 U.S. at 13. [Emphasis added.] 62. See Chapter 9. 63. 47 A.B.A. 293-95, 315-22 (1922); 48 A.B.A. Rep. 284 (1923). 64. See testimony of Julius Henry Cohen, Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st Sess. 13-19 (1924) (hereafter 1924 Hearings). 65. [Ed.] This was the hearing on the bill introduced in 1922, not the bill finally enacted. Although the Chief Justice misuses it, it is an appropriate source of legislative history for the USAA. See Chapter 9. 66. 465 U.S. at 13. 67. See Chapter 2. The reformed states of New York and New Jersey were exceptions. 68. House Report, supra note 52, at 1. [Emphasis added.] 69. Except to the extent that it was typically overdone, so that the viewer sees more depth than he or she would have in reality. 70. [Ed.] It is difficult to make any sense at all out of this section of the Chief Justice's opinion. The quotation is from W. H. H. Piatt's testimony in the 1923 hearing where he responded to an argument he had heard that many states, one


233

being his own state of Missouri, already had perfectly good arbitration statutes. His response in full was: But the arbitration statute of Missouri is one in which there is a technical arbitration by which, if you agree to arbitrate under the method provided by the statute, you have an arbitration by statute, but it has nothing to do with validating the contract to arbitrate. A contract to arbitrate under our practice would be held invalid so far as our State is concerned, because it has no arbitration to it at all. A Bill Relating to Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. (1923). Evidently Piatt was referring to Mo. Rev. Stat. §§595-622 (1919), which provided very limited enforcement of agreements to arbitrate existing disputes. Id. §§596, 619-21. Apparently the Chief Justice's phrase, "state laws inadequately providing for," means "inadequate state laws providing only for." 71. 465 U.S. at 12-14. 72. Supra note 38. 73. That it should have been decided in 1984 seems singularly appropriate. 74. 465 U.S. at 17. 75. 465 U.S. at 14. 76. The Rules Enabling Act, which led to the Supreme Court's promulgation of the Federal Rules of Civil Procedure in 1938, was not enacted until 1934. It had a long history. As early as 1911, the A.B. A. had called for a uniform system of federal procedure, and for twenty years Congressman Shelton of Virginia had annually introduced a bill so providing. In opposition throughout was a key player in the history of the FAA, Senator Walsh. After Senator Walsh's death in 1933, Attorney General Homer Cummings successfully took up the crusade, against remarkably little opposition. 4 C. Wright and A. Miller, Federal Practice & Procedure §1003, at 16-20 (1987). 77. Admiralty and equity were the two primary exceptions. 78. Berkovitz v. Arbib & Houlberg, 230 N.Y. 261 (1921). 79. Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109 (1924). 80. Marine Transit Corp. v. Dreyfus, 284 U.S. 263 (1931). 81. See Chapter 2. 82. Dean Sturges recognized this fear years later in concluding that the limitation of the USAA to commerce and maritime contracts probably resulted from "apprehension over the power of Congress in this connection," which deterred extension of the act beyond Congress' clear areas of substantive regulatory power over commerce and admiralty. Sturges and Murphy, Some Confusing Matters Relating to Arbitration under the United States Arbitration Act, 17 Law & Contemp. Probs. 580, 596 (1952). 83. Although, of course, neither as extensively nor intensively, as it started to do in 1933 and thereafter.


234

84. See Chapter 5. 85. It may be noted that a USAA extending to state courts would have been a far from adequate solution to the problem of state law. In 1925 narrow views of the scope of interstate commerce prevailed, and countless important transactions in state courts would have remained uncovered by a modern arbitration act, even with such an extension. 86. Alexander Rose did mention the problem, asserting that the USAA would have a moral effect, encouraging the states to take care of it. 1924 Hearings, supra note 64 at 27-28. Chapter 12 The Legal Consequences 1. In Bernhardt v. Polygraphic Co. of America, 350 U.S. 198 (1956), the Court held that in diversity cases the state law applicable under Erie RR. v. Tompkins, 304 U.S. 64 (1938), governed arbitration of an intrastale contract. Oddly enough, in doing so the Court set the stage for holding that the USAA was a substantive law regulating interstate commerce in the fullest sense of regulation. It had, however, not yet so held. 2. Bernhardt v. Polygraphic Co. of America (U.S. 1956), supra note 1. 3. Wickardv. Filburn, 317 U.S. Ill (1942). 4. Freedom of contract itself is not policy neutral since the availability of legal enforceability of agreements affects the power positions of the parties. What effect freedom of contract has depends on the circumstances, including the nature of the agreements in question. Thus a statute such as USAA, changing the law to treat arbitration agreements like other contracts, cannot be policy neutral in any general sense. 5. Justice Whittaker's dissent in United Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 589-90 (1960), nicely, if somewhat anachronistically, summarized this view: And I respectfully submit that today's decision cannot be squared with . . . this Court's statement on Moorman [Ed. 338 U.S. 457 (1950)], "that the intention of the parties to submit their contractual disputes to final determination outside the courts should be made manifest by plain language" (emphasis added), 338 U.S., at 462; nor with this Court's statement in Hensey [Ed. 205 U.S. 298), that: "To make such [an arbitrator's] certificate conclusive requires plain language in the contract. It is not to be implied." (Emphasis added.) 205 U.S., at 309. "A party is never required to submit to arbitration any question which he has not agreed so to submit, and contracts providing for arbitration will be carefully construed in order not to force a party to submit to arbitration a question which he did not intend to be submitted." (Emphasis added.) Fernandez & Hnos. v. Rickert Rice Mills, . . . 119F.2dat815(C.A. 1st Cir.). This view had its scholarly counterpoint. As late as 1962, one of America's most distinguished legal scholars continued to place his treatment of arbitration in a


235

chapter titled, "Bargains Harmful to the Administration of Justice" located in the volume titled, "Illegal Bargains." 6A Corbin, Contracts (1962). To this day this organization remains one of the less complimentary monuments to the memory of this outstanding scholar. 6. Wilko v. Swan, 346 U.S. 427 (1953). 7. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967); Southland Corp. v. Keating, 465 U.S. 1 (1984). 8. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967); Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983); Southland Corp. v. Keating, 465 U.S. 1 (1984); Perry v. Thomas, 482 U.S. 483 (1987). 9. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). 10. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967); Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983); Southland Corp. v. Keating, 465 U.S. 1 (1984); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 414 (1985). 11. United Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); United Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574 (1960). 12. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). 13. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 414 (1985). 14. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). 15. Southland Corp. v. Keating, 465 U.S. 1 (1984). 16. Id. 17. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 414 (1985); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987). 18. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 414 (1985). 19. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983). 20. Id.; Southland Corp. v. Keating, 465 U.S. 1 (1984). The Court has again left this possibility open in Volt Information Sciences, Inc. v. Stanford Univ., 489 U.S. 468 (1989), see discussion below. 21. Except, of course, where it conflicts with the Court's pro-arbitration stance. 22. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). 23. Id. 24. McDonald v. City of West Branch, 466 U.S. 284 (1984). 25. 489 U.S. 468(1989). 26. The question becomes significant only if the state law differs from the USAA, as it did in the case. Volt's contract to do electrical work for Stanford contained an arbitration clause. When a dispute arose, Stanford sued Volt and Volt moved to stay the litigation and compel arbitration. Stanford, which was seeking indemnity from other parties as well as Volt, moved to stay arbitration under California law, "which permits the court to stay arbitration pending resolution of related litigation between a party to the arbitration agreement and third parties not bound by it, where 'there is a possibility of conflicting rulings on a common issue of law or fact.'" 489 U.S. at 471.

236


27. Commonwealth Edison Corp. v. Gulf Oil Corp., 541 F.2d 1263, 1269 (7th Cir. 1976). For other pre-Volt cases, see I. Macneil, R. Speidel, and T. Stipanowich, The Federal Arbitration Act §10.9 (forthcoming) (hereafter Macneil, Speidel, and Stipanowich, FAA). 28. See particularly Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). 29. For two justices this was only a dictum since they did not believe the parties had chosen California arbitration law to govern, 489 U.S. at 473 n.4. Once again the Court found it unnecessary to decide whether USAA §§3 and 4 applied in state courts, in view of its other conclusions. Id. 30. This consists of Chief Justice Rehnquist and five others. 31. Supra note 1. 32. 489 U.S. at 477. 33. 489 U.S. at 479. 34. California law authorizes the court where "there is a possibility of conflicting rulings on a common issue of law or fact" to, inter alia, stay arbitration while litigation goes ahead. Cal. Code Civ. Proc. §1281.2(c). This is the opposite of the rule of the USAA as interpreted in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213(1985). 35. 460 U.S. 1 (1983). The USAA requires that "questions of arbitrability . . . be addressed with a healthy regard for the federal policy favoring arbitration" and that "any doubts concerning the scope of arbitrable issues ... be resolved in favor of arbitration." 460 U.S. at 24-25. 36. 473 U.S. 414 (1985). "[A]s with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability." 473 U.S. at 626. 37. These cases of course establish that, in applying general state-law principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the Act, see Perry v. Thomas, 482 U.S. 483, 493 n.9 (1987), due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration. 489 U.S. at 475-76. 38. 489 U.S. at 476. 39. Justice Brennan and Justice Marshall. 40. 489 U.S. at 482. 41. Justice Brennan noted preliminarily that the USAA "merely requires enforcement of what the parties have agreed to" and they can "write an agreement to arbitrate outside the coverage of the FAA [USAA]." Their doing so "would permit a state rule, otherwise preempted by the FAA [USAA], to govern their arbitration." 489 U.S. at 485. 42. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983). 43. Id. 44. 489 U.S. at 487. 45. Justice Brennan cites both general conflict texts and the Restatement (Second) of Conflicts and a number of arbitration cases.


237

46. 489 U.S. at 491. 47. 489 U.S. at 489 n.9. 48. 350 U.S. 198(1956). 49. 417 U.S. 506(1974). 50. We can also look for a great wave of litigation turning on interpretation of choice of law clauses, its size depending only upon how much particular state arbitration laws differ from the USAA. Whatever else Volt is, it is very likely a great bonanza for the legal profession. And to the extent it is, all the virtues of arbitration —speed, low cost, and so forth —will be swept out to sea and lost. 51. 460 U.S. 1(1983). 52. 465 U.S. 1 (1984). 53. 470 U.S. 213(1985). 54. 482 U.S. 483(1987). 55. Certainly the dissenters are correct that application of the pro-arbitration principle would have led to reversal of the California court's interpretation. Indeed, little in the majority opinion appears to disagree with that conclusion. 56. These fall into a spectrum. At one end are questions, such as that in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), rather clearly governed by specific language of the USAA. At the other end of the spectrum are federal rules simply following the general pro-arbitration stance of Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983), such as Moses Cone itself, which applies the pro-arbitration bias in determining the scope of the arbitration agreement. 57. 489 U.S. at 481-84. 58. The lower courts are in a state of confusion about Volt. See Macneil, Speidel, and Stipanowich, FAA, supra note 27, §10.9.

Chapter 13 Internationalization 1. See Chapters 3 and 4. 2. 47 A.B.A. Rep. 321 (1922). 3. See Chapter 5. 4. See Chapters 7 and 8. 5. Model Draft Treaty for Commercial Arbitration, Art. I, 48 A.B.A. Rep. 321-22(1923). 6. Id., Art II. 7. 47 A.B.A. Rep. 52-53 (1922). 8. Id.; 48 A.B.A. Rep. 388-90(1923). 9. The model treaty is not further mentioned in the A.B.A. reports for over thirty-five years. (Many other countries in the interwar period were adopting League of Nations arbitration treaties. Report of the Comm. on Int'l Unification of Private Law, 1960 A.B.A. Section Int'l & Comp. Law Proceedings 205-7 [hereafter 1960 A.B.A. International].) In 1960, American accession to the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards was first brought to the attention of the A.B.A. Id. at 211.

238


10. See generally, Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 YaleL.J. 1049, 1051-54(1961) (hereafter Quigley, Accession). 11. Art. VI, par. 4, T.I.A.S. No. 1871 (1946). 12. Senate Ex. D., 81st Cong., 2d Sess. (1950). Comparable provisions appear in subsequent treaties with about a dozen countries. Quigley, Accession, supra note 10, at 1052-53. 13. T.I.A.S. No. 3942(1956). 14. Quigley, Accession, supra note 10, at 1053. 15. United Nations Economic and Social Council. 16. U.N. Doc. E/Conf.26/9 Rev. 6/10 (1958). 17. 1960 A.B.A. International, supra note 9, at 210, referring to the Official Report of the United States Delegation on the United Nations Conference on International Commercial Arbitration 2 (1958). 18. The reasons for the negative recommendation were summarized as follows: 1. The convention, if accepted on a basis that avoids conflict with State laws and judicial procedures, will confer no meaningful advantages on the United States. 2. The convention, if accepted on a basis that assures such advantages, will override the arbitration laws of a substantial number of States and entail changes in State and possibly Federal court procedures. 3. The United States lack a sufficient legal basis for acceptance of an advanced international convention on this subject matter. 4. The convention embodies principles of arbitration law which it would not be desirable for the United States to endorse.

Id. 19. Id. at 211. 20. Id. at 233. 21. Id. 22. Id., at 232. 23. September 1, 1970, 3 U.S.T. 2517, T.I.A.S. No. 6997. 24. 9 USC §§201-08. 25. Art. II, par. 3. This results in a rather peculiar anomaly. The Convention is applicable to "the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought" and to "arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought." par. I, §2. Since no award exists when enforcement is sought under Article II of an agreement to arbitration, and it may be unknown whether the award-to-come will meet one of those two tests, it may not be possible to tell whether the Convention governs the enforcement of the agreement to arbitrate. The Second Circuit's interpretation of "not considered as domestic," however, will lead to numerous occasions where it is possible to tell whether the award-to-come will be subject to the Convention, and hence whether the Convention applies to enforcement of the agreement to arbitrate:


239

We adopt the view that awards "not considered as domestic" denotes awards not because made abroad, but because made within the legal framework of another country, e.g., pronounced in accord with foreign law or involving parties domiciled or having their principal place of business outside the enforcing jurisdiction." Bergeson v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983). Although the case was governed by New York law, the dispute was between Norwegian and Swiss parties, and hence, the Convention governed. See Smit, A-National Arbitration, 63 Tul. L. Rev. 629 (1989). 26. See USAA §§203-05. 27. Art. V. 28. Sections 10 and 11. Perhaps most noticeable is the absence in the Convention of any reference to fraud, corruption, partiality and the like in the arbitration process. 29. 1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) ... the . . . agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made. Art. V, par. 1. Since the parties may have chosen law other than the United States or the award may have been made outside the United States this clause may often not serve as a limitation on the "internationalizing" effect of the Convention and United States adherence to it. But the Supreme Court has made plain that it will not allow complete freedom via choice of law clauses to avoid American regulatory law. In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985), the Court said: ... in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy. 30. 2. Recognition and enforcement of an arbitral award may ... be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) the recognition or enforcement of the award would be contrary to the public policy of that country.

Art. V, par. 2. 31. Art. II, par. 1.

240


32. 417 U.S. 506 (1974). This case and the Mitsubishi case discussed below are treated in greater detail in Chapter 6, in the context of their impact on domestic law. 33. 417 U.S. at 520n.!5. 34. Id. 35. 473 U.S. 614 (1985). The Index of Legal Periodicals through April 1989 cites no less than twenty-four Mitsubishi law review case notes. Only Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), has yielded a greater outflow, twenty-six. The seminal cases Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983), and Southland Corp. v. Keating, 465 U.S. 1 (1984), yielded only one and four, respectively. Oh well, the Harvard Law Review missed Palsgraf. 36. The sales agreement contained fifteen articles. The five covered by the arbitration clause treated terms and conditions of direct sales, technical and engineering changes, compliance with customs laws and regulations, trademark and patent rights, and Mitsubishi's rights to discontinue product lines. 37. Soler did not "question the Court of Appeals' application of [the arbitration clause] to the disputes involved ... as a matter of standard contract interpretation." 473 U.S. at 624 n.13. 38. The Court's discussion of the public policy defense is treated in detail in Chapter 6. 39. 407 U.S. 1 (1972). 40. 473 U.S. at 631. 41. See text supra at notes 25-26. This is in sharp contrast to modern American statutes, the very central point of which was provision for enforcement of arbitration agreements since the common law already enforced awards. In them it is the award enforcement provisions that were secondary. 42. The dissent focuses on the language in Article II, paragraph 1, conditioning the duty to enforce arbitration agreements on the dispute's concerning "a subject matter capable of settlement by arbitration." It argues that this "clause plainly suggests the possibility that some subject matters are not capable of arbitration under the domestic laws of the signatory nation, and that agreements to arbitrate such disputes need not be enforced." 473 U.S. at 659. 43. The arbitration panel, sitting in Tokyo, consisted of three Japanese lawyers: a former law school dean, a former judge, and a practitioner "with American legal training who has written on Japanese antitrust law." 473 U.S. at 634 n.18. 44. 473 U.S. at 638. 45. 482 U.S. 220(1987). 46. 490 U.S. 477(1989). 47. Ill S. Ct. 1647(1991). 48. This is subject to the caveat that a major body of collective bargaining law takes the opposite position and that a clash is building between that line of cases and the Court's decisions in Mitsubishi and Shearson. As to all of which, see Chapter 6. 49. 391 F.2d 821 (2d Cir. 1968). 50. Chapter 6 contains a detailed analysis of this handling. 51. See Chapter 6. 52. 346 U.S. 427(1953).


241

53. Cal. Code Civ. Proc. §1297.11-432 (1988); Goldbert and Kolkey, California's Adoption of a Code for International Commercial Arbitration and Conciliation, 10 Loy. L.A. Int'l & Comp. L.J. 583 (1988); Fla. Stat. Ann. §684.01-35 (1986). 54. In the past two years, Florida has taken a giant leap towards becoming a major site for international commercial arbitration. This important step forward has taken several different forms, including the enactment of a highly progressive statute entitled the Florida International Arbitration Act ("FIAA"), the formation of a regional arbitration center known as the International Commercial Dispute Resolution Center ("ICDRC"), and the establishment of a specialized Maritime Arbitration Board ("MAB"). Comment, 19 U. Miami Inter-Am. L. Rev. 363-64 (1987-88). Much of this comment is devoted to the developmental aspects of the "giant leap." 55. 489 U.S. 468 (1989).

Chapter 14 The Road to Damascus 1. The justification for this statement is found in Chapters 7 through 10. 2. 304 U.S. 64(1938). 3. 350 U.S. 198(1956). 4. Id. The case might also have come out differently without all that great a strain on the Erie principle. Only by taking a somewhat narrow view of what constitutes the outcome of a case could the Court conclude that ordering the substantive disputes to be tried before an arbitrator was a different outcome from having them tried before a court and jury. 5. As is seen in Chapter 2, the USAA is inapplicable to nonmaritime cases where the transaction in question does not involve commerce. The Court held that the particular employment contract in Bernhardt did not involve commerce. See Chapter 11. 6. Described in Chapter 11. 7. 465 U.S. 1 (1984). 8. Wiecek captures the anomaly of this situation, albeit greatly exaggerating the exclusivity of the Supreme Court's grasp on this kind of power: The United States Supreme Court is the only institution in human experience that has the power to declare history; that is, to articulate some understanding of the past and then compel the rest of society to conform its behavior to that understanding. No Ministry of State Security, no Thought Police, has ever succeeded in establishing such authority. This power exists irrespective of the degree to which that judicial perception of the past conforms to reality. Even where the Court's history is at odds with the actual past, that judicial history, as absorbed into a decision, and then a doctrine, becomes the progenitor of a rule of law. Wiecek, Clio as Hostage: The United States Supreme Court and the Uses of History, 24 Cal. W.L. Rev. 227, 227-28 (1987-88).

242


9. That the dissent has by far the better of it by any proper historigraphical standard does not alter this fact. 10. Karl Klare asserts that the use of legislative history is nothing but pathology as I am using the word: In light of the weak constraints that legislative history imposes on many politically significant interpretive decisions, most contemporary observers have come to understand arguments about legislative history —like arguments about precedent and institutional competence —to be specialized, stereotyped rhetorical maneuvers that lawyers habitually make, but not a distinct mode of "reasoning" in a determinate manner from general principle to specific result. In a word, most sophisticated modern lawyers understand, though they do not always say, that reasoning from legislative history ultimately rests on political choices. Klare, Traditional Law Scholarship and the Crisis of Collective Bargaining Law: A Reply to Professor Finkin, 44 Md. L. Rev. 731, 784-86 (1985). It is difficult, and somewhat, but not entirely, artificial, to separate reporting of history from use of history. To the extent separation is possible, my concern is with reporting rather than use. One can, however, hardly read Chief Justice Burger's opinion in Southland without thinking it a prime example of both pathological reporting and pathological use. Klare appears to think that, at least respecting use, legislative history is entirely pathological. I differ from him in that I believe that there are degrees of pathology in both reporting and use. For the rest of the heated Klare and Finkin discussion of the nature of legislative history in the context of the NLRA, see Klare, The Judicial Deradicalization of the Wagner Act and the Origins of Modern Legal Consciousness, 1937-1941, 62 Minn. L. Rev. 265 (1978); Finkin, Revisionism in Labor Law, 43 Md. L. Rev. 23 (1984); Finkin, Does Karl Klare Protest Too Much?, 44 Md. L. Rev. 1100 (1985); Klare, Lost Opportunity: Concluding Thoughts on the Finkin Critique, 44 Md. 1111 (1985). 11. In the Preface, I discussed the possibility and limits of positivism in historical writing. 12. 465 U.S. 1 (1984). 13. Even advocates take a serious risk in founding their advocacy on judicially promulgated legislative history— the other side may come up with something a good deal more accurate. Unless the prior judicial account has by judicial fiat become the Official History and acquired the force of law, the more accurate account may still carry the day. 14. There is a certain Reaganesque quality here, irrespective of the political slant of the direction in question — liberals are just as guilty of it as are conservatives. 15. The intention of those enacting the USAA was that arbitration agreements should be treated like other contracts. To the extent that the Court has converted it into a pro-arbitration statute, with presumptions favoring arbitration, the Court has abandoned the consent principle. It is difficult to think of any reason for this on the Court's part other than a desire to keep cases out of court. 16. See Chapter 6. Unlike the overriding of the consent principle, there may very well be reasons other than docket clearing for such an abdication, such as hostility to regulatory legislation.


243

17. Supra note 2. 18. 489 U.S. 468 (1989). 19. See Preface. 20. Letter from Edward Purcell to Oxford University Press (Feb. 24, 1991) (hereafter Purcell, Letter). 21. Even here I have not tried go to the deeper question of the causes of our use of those processes. 22. Purcell, Letter, supra note 20. 23. Jerold Auerbach has come the closest. J. Auerbach, Justice Without Law? 95-114, 125-26 (1983). Professor Purcell would be an ideal candidate to do this, as the elaborations on his three questions suggest. 24. It is unavoidable that some of the story told here suggests possible answers, but those implications are intended to be no more definitive than the investigation of the articulated word justifies. 25. H I S . Ct. 1647(1991). 26. 465 U.S. 1 (1989). 27. 489 U.S. 468 (1989). 28. The AAA is active in developments respecting nonarbitration ADR; the comment in the text refers only to its core-enterprise of arbitration. 29. Ill S. Ct. 1647(1991). 30. 466 U.S. 284 (1984). 31. Erie RR. v. Tompkins, 304 U.S. 64 (1938). 32. 350 U.S. 198(1956). 33. The only exception would be if the law of a third state governs. That could occur only in the unlikely event that the third state has no modern arbitration statute. Even here there would be no difference between the result in federal court and one of the two states whose citizens are involved where that state would also apply the law of the third state. 34. See Chapter 8. 35. For example, Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. §136 et seq.; Multiemployer Pension Plan Amendments Act (MPPAA), P.L. 93-406, Title IV, §4221, as added, Pub.L. 96-364, Title 1, §104(2), September 26, 1980, 94Stat. 1221. 36. 470 U.S. 213(1985). 37. 460 U.S. 1 (1983). 38. See Chapter 7. 39. 473 U.S. 614(1985). 40. 473 U.S. at639n.21. 41. Id.


Bibliography

Monographs Abel, R., ed., The Politics of Informal Justice— The American Experience (1982) American Arbitration Association, A Guide for Commercial Arbitrators (1985) , Arbitration Bibliography (1954) Auerbach, J., Justice Without Law? (1983) Brown, L., and Dauer, E., Planning by Lawyers: Materials On A Nonadversarial Legal Process (1978) Chamber of Commerce of the State of New York, A Brief History of Commercial Arbitration in New York, in Selected Articles on Commercial Arbitration (D. Bloomfield ed. 1927) Cohen, J., Commercial Arbitration and the Law (1918) Corbin, A., Contracts (1962) Dobie, A., Federal Procedure (1928) Domke, M., Commercial Arbitration (rev. ed. 1983) , Commercial Arbitration (1968) Fletcher, C., Arbitrating Securities Disputes (1990) Fuller, L., and Eisenberg, M., Basic Contract Law (3d ed. 1972) Gilmore, G., and Black, C., Law of Admiralty (2d ed. 1975) Harrington, C., Shadow Justice: The Ideology and Institutionalization of Alternatives to Court (1985) Kellor, F., American Arbitration: Its History, Functions and Achievements (1948) Llewellyn, K., The Common Law Tradition—Deciding Appeals (1960)

245

246

Bibliography

Luban, D., The Quality of Justice (Dispute Procedures Research Program Working Papers Series 8, Inst. Legal Stud. U. Wis. 1988) Macneil, I., Speidel, R., and Stipanowich, T., The Federal Arbitration Act (forthcoming) McNeill, W., Mythistory and Other Essays (1986) Marks, J., Johnson, E., Jr., and Szanton, P., Dispute Resolution in America: Processes in Evolution (1984) Mnookin, R., Bargaining in the Shadow of the Law: The Case of Divorce (1979) Parsons, T., Law of Contracts (8th ed. 1893) Robinson, G., Admiralty Law (1939) Sturges, W., Commercial Arbitration and Awards (1930) Weber, M., Economy & Society (G. Roth and C. Wittich ed. 1978) Williston, S., Law of Contracts (rev. ed. 1938) Wright, C., and Miller, A., Federal Practice & Procedure (1987) Articles Allison, The Context, Properties, and Constitutionality of Nonconsensual Arbitration: A Study of Four Systems, 1990 J. Dispute Resolution 1 Baum and Pressman, The Enforcement of Commercial Arbitration Agreements in the Federal Courts, 8 N.Y.U. L.Q. Rev. 238 (1931-32) Bernheimer, 3 Docket 2829 (1925) Bernstein, The Impact of the Uniform Commercial Code Upon Arbitration: Revolutionary Overthrow or Peaceful Coexistence?, 42 N.Y.U. L. Rev. 8 (1967) Burnham, Arbitration as a Condition Precedent, 11 Harv. L. Rev. 234 (1897) Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs. 631 (1952) Cohen, The Law of Commercial Arbitration and the New York Statute, 31 YaleL.J. 147(1921) Cohen and Dayton, The New Federal Arbitration Law, 12 Va. L. Rev. 265 (1926) Comisky and Comisky, Commercial Arbitration: Panacea or Nightmare?, 47 Temple L.Q. 456 (1974) Coulson, Prima Paint: An Arbitration Milestone, 23 Bus. Law. 241 (1967) Edwards, Deferral to Arbitration and Waiver of the Duty to Bargain: A Possible Way Out of Everlasting Confusion at the NLRB, 46 Ohio St. L.J. 23 (1985)

Bibliography

247

Falls, Arbitration Under the New Civil Practice Law and Rules in New York, 17 Arb. J. 197 (1962) Farber, Statutory Interpretation and Legislative Supremacy, 78 Geo. L.J. 281 (1989) Feldman, Arbitration Modernized—the New California Arbitration Act, 34S. Cal. L. Rev. 413(1961) Finkin, Does Karl Klare Protest Too Much?, 44 Md. L. Rev. 1100 (1985) , Revisionism in Labor Law, 43 Md. L. Rev. 23 (1984) Fiss, Against Settlement, 93 Yale L.J. 1073 (1984) Fraenkel, The New York Arbitration Law, 32 Colum. L. Rev. 623 (1932) Gallagher, Book Review, 13 Law & Social Inquiry 132 (1988) Goldbert and Kolkey, California's Adoption of a Code for International Commercial Arbitration and Conciliation, 10 Loy. L.A. Int'l & Comp. L.J. 583 (1988) Gotshal, Arbitration and the Lawyer's Place in the Business Community, 11 Bus. Law. 52 (April 1956) Gwynne, The Oldest American Tribunal, 1 Arb. J. 117 (1937) Hale, Law Making By Unofficial Minorities, 20 Colum. L. Rev. 451 (1920) Heilman, Arbitration Agreements and the Conflict of Laws, 38 Yale L.J. 617 (1929) Hirshman, The Second Arbitration Trilogy: The Federalization of Arbitration Law, 71 Va. L. Rev. 1305 (1985) Isaacs, Book Review, 40 Yale L.J. 149 (1930) Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U.L.Q. 193 Kent, Pioneers in American Arbitration, 17 N.Y.U. L. Rev. 501 (1940) Klare, Lost Opportunity: Concluding Thoughts on the Finkin Critique, 44 Md. 1111 (1985) , Traditional Law Scholarship and the Crisis of Collective Bargaining Law: A Reply to Professor Finkin, 44 Md. L. Rev. 731 (1985) , The Judicial Deradicalization of the Wagner Act and the Origins of Modern Legal Consciousness, 1937-1941, 62 Minn. L. Rev. 265 (1978) Kronstein, Arbitration is Power, 38 N.Y.U. L. Rev. 661 (1963) , Business Arbitration—Instrument of Private Government, 54 Yale L.J. 36 (1944) Lauer, Conciliation and Arbitration in the Municipal Court of the City of New York, 1 J. Am. Judicature Soc'y 153 (1918) Lurie, Private Associations, Internal Regulation and Progressivism: The Chicago Board of Trade, 1880-1923, as a Case Study, 16 Am. J. Legal Hist. 215(1972) Lynch, Deferral, Waiver, and Arbitration under the NLRA: From Status to Contract and Back Again, 44 U. Miami L. Rev. 237 (1989)

248

Bibliography

McChesney, Intellectual Attitudes and Regulatory Change: An Empirical Investigation of Legal Scholarship in the Depression, 38 J. Legal Ed. 211(1988) Macneil, Bureaucracy and Contracts of Adhesion, 22 Osgoode Hall L.J. 5 (1984) , Values in Contract: Internal and External, 78 Nw. U.L. Rev. 340 (1983) Mentschikoff, The Significance of Arbitration—A Preliminary Inquiry, 17 Law & Contemp. Probs. 698 (1952) Peck, A Proposal to End NLRB Deferral to the Arbitration Process, 60 Wash. L. Rev. 355 (1985) Phillips, The Paradox in Arbitration Law: Compulsion as Applied to a Voluntary Proceeding, 46 Harv. L. Rev. 1258 (1933) Pirsig, Toward a Uniform Arbitration Act, 9 Arb. J. 115 (1954) Poor, Arbitration Under the Federal Statute, 36 Yale L.J. 667 (1927) Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049(1961) Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1174(1983) Ray, Protecting the Parties' Bargain After Misco: Court Review of Labor Arbitration Awards, 64 Ind. L.J. 1 (1988) Robbins, Preventing Unnecessary Litigation at the Source, 82 Cent. L.J. 280(1916) Sayre, Development of Commercial Arbitration Law, 37 Yale L.J. 595 (1927) Shell, Substituting Ethical Standards for Common Law Rules in Commercial Cases: An Emerging Statutory Trend, 82 Nw. U.L. Rev. 1198 (1988) Smit, A-National Arbitration, 63 Tul. L. Rev. 629 (1989) Steers, Arbitration at Common Law in Indiana, 5 Ind. L.J. 175 (1929) Sterk, Enforceability of Agreements to Arbitrate: An Examination of the Public Policy Defense, 2 Cardozo L. Rev. 481 (1981) Stone, The Scope and Limitation of Commercial Arbitration, 10 Acad. Pol. Sci. Proc. 501 (1923) Sturges, Some General Standards for a State Arbitration Statute, 7 Arb. J.(N.S.) 194(1952) , Arbitration Under the New North Carolina Arbitration Statute— The Uniform Arbitration Act, 6 N.C.L. Rev. 363 (1927) , Arbitration Under the New Pennsylvania Arbitration Statute, 76 U. Pa. L. Rev. 345 (1927)

Bibliography

249

Sturges and Murphy, Some Confusing Matters Relating to Arbitration under the United States Arbitration Act, 17 Law & Contemp. Probs. 580 (1952) Symposium: Court Annexed Arbitration, 14 Just. Sys. J. 123 (1991) Werner, 32 Proc. Mo. Bar Ass'n 145 (1914) Westwood and Howard, Self-Government in the Securities Business, 17 Law & Contemp. Probs. 518 (1952) Wiecek, Clio As Hostage: The United States Supreme Court and the Uses of History, 24 Cal. W. L. Rev. 227 (1987-88) Wiseman, The Limits of Vision: Karl Llewellyn and the Merchant Rules, lOOHarv. L. Rev. 465 (1987) Student and Other Anonymous Work Note, Out With the Old, In With the New: The Mini-Trial is the New Wave for Resolving International Disputes, 1991 J. Dispute Resolution 111. The Economist, Nov. 10, 1990 Comment, Distinguishing Arbitration and Private Settlement in NLRB Deferral Policy, 44 U. Miami L. Rev. 341 (1989) Note, Further Convolutions in a Convoluted Policy: Olin, Taylor, and NLRB Deferral to Arbitral Decision, 82 Nw. U.L. Rev. 443 (1988) Note, Arbitral Deference and the Right to Make and Enforce Contracts under 42 U.S.C. §1981, 82 Nw. U.L. Rev. 109(1988) Comment, 19 U. Miami Inter-Am. L. Rev. 363 (1987-88) Note, Arbitration After Communications Workers: A Diminished Role?, 100 Harv. L. Rev. 1307 (1987) Note, Resolving the Conflict Between Arbitration Clauses and Claims Under Unfair and Deceptive Practices Act, 64 B.U.L. Rev. 377 (1984) Note, Erie, Bernhardt, and Section 2 of the United States Arbitration Act: A Farrago of Rights, Remedies, and a Right to a Remedy, 69 Yale L.J. 847 (1960) The Supreme Court, 1955 Term, 70 Harv. L. Rev. 83 (1956) Annotation, Validity of agreement to submit all future questions to arbitration, 135 A.L.R. 79 (1941) Note, Problems in Statutory Construction Arising Out of Arbitration Cases, 29 Colum. L. Rev. 195 (1929) Note, 36 Yale L.J. 571 (1927) Annotation, Validity of Agreements to Arbitrate Disputes Generally as a

250

Bibliography

Condition Precedent to the Bringing of an Action, 26 A.L.R. 1077 (1923) Note, Commercial Arbitration Developed in Trade Courts, 1 J. Am. Jud. Soc'y 7 (1923) Note, Arbitration Society of America, 6 J. Am. Judicature Soc'y 59 (1922) Note, Arbitration in the United States, 2 J. Am. Judicature Soc'y 53 (1918) Encyclopedias and Reference Works American and English Cyclopedia of Law (1887) Corpus Juris (1916) Dictionary of American Biography (Supp. 5. 1950-55) Notable American Women (1980) Who Was Who in America (1950), (1960) Organizations: Reports and Proceedings American Arbitration Association, Arb. Times (Summer 1991) , Commercial Arbitration Rules (1990) , 1990 Statistical Report , Annual Report (1987-88) , A Guide for Commercial Arbitrators (1985) , Code of Ethics for Arbitrators in Commercial Disputes (1977) , Report, 7 Arb. J. (N.S.) 201 (1952) , Draft for a State Arbitration Act, 6 Arb. J. 310 (1942) , Press Release, undated, original in author's files American Bar Association, Annual Reports (1920)-(1925), (1928), (1932), (1955)-(1956) , Committee on Commerce, Trade and Commercial Law, 11 A.B.A. J. 153(1925) , Committee on Int'l Unification of Private Law, 1960 A.B.A. Section Int'I & Comp. Law, Proceedings 205 International Seamen's Union of America, Proceedings, 26th Annual Convention (1923) National Conference of Bar Associations, 5 A.B.A. J. 15 (1919) National Conference of Commissioners on Uniform State Laws, Annual Reports (1923)-(1925), (1955) New Jersey State Bar Association Year Book (1923-24) New York State Bar Association Reports (1916)-(1920) Securities Industry Conference on Arbitration, Uniform Code of Arbitration

Bibliography

251

Miscellaneous Amicus Brief for the Chamber of Commerce of the State of New York and the American Arbitration Association, Marine Transit Corp. v. Dreyfus, 284 U.S. 263 (1931) Purcell, E., Letter to Oxford University Press (Feb. 24, 1991) Treaties, Principal Statutes, Legislative Reports, Hearings, and Debates Treaties T.I.A.S. No. 6997 (1970) T.I.A.S. No. 3942(1956) T.I.A.S. No. 1871 (1946) United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, U.N. Doc. E/Conf.26/9 Rev. 6/10 (1958) Federal Statutes Conformity Act, 17 Stat. 196 (1872), U.S. Rev. St. §914 (1874) Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. §136 et seq. Judiciary Act, 1 Stat. 92 (1789), U.S. Rev. Stat. §721 (1874) Multiemployer Pension Plan Amendments Act (MPPAA), P.L. 93-406, Title IV, §4221, as added, Pub.L. 96-364, Title I, §104(2), September 26, 1980, 94 Stat. 1221 National Labor Relations Act, 29 U.S.C. §§151 et seq. Securities Act of 1933, 15 U.S.C. §77 Securities Exchange Act of 1934, 15 U.S.C. §78j United States Arbitration Act/Federal Arbitration Act, 9 U.S.C. §§1-15, 201-08 Uniform Statutes Uniform Arbitration Act (1924) Uniform Arbitration Act (1955) Uniform Laws Annotated Master Edition (1978) State Statutes Cal. Civ. Code §§1298 (1988) Cal. Int'l Comm. Arb. & Concil. Code, Cal. Code Civ. Proc. §1297 Cal. Code Civ. Proc. §1281.2(c) Fla. Int'l Arb. Act, Fla. Stat. Ann. §684.01-35 (1986)

252

Bibliography

1957 Fla. Laws ch. 57-402 111. Rev. Stat. ch. 10 (Hurd 1915-16) Laws of 111. 1917, ch. 202 1925 Mass. Acts ch. 294 Miss. Code Ann. §§11-15-101 et seq. Mo. Rev. Stat. §§595-622 (1919) Mo. V.A.M.S. §435.460 N.Y. Arbitration Law 1920, 1920 N.Y. Laws, ch. 275 N.Y. Code Civ. Proc. (Stover 1902) N.Y. Gen'l Bus. Law §399-c (McKinney 1984) 1931 Or. Lawsch. 36 1929 Or. Laws ch. 350 1925 Or. Laws ch. 186 S.C. Code §15-48-10 (1976) Tex. Civ. Stat. Ann. art. 224-1 9 (Vernon) repealed (Aug. 31, 1987) 12 Vt. Stat. Ann. §5653(b) Wis. Laws 1923, ch. 447 English Statutes Arbitration Act of 1889, 52 & 53 Viet., ch. 49 9&10Wm. 3,ch. 15(1698) Legislative Reports Senate Report No. 536, 68th Cong., 1st Sess. (1924) House of Representatives Report No. 96, 68th Cong., 1st Sess. (1924) Hearings Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Joint Hearings on 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judiciary, 68th Cong., 1st Sess. 31 (1924) Bills Relating to Sales and Contracts to Sell in Interstate Commerce; and a Bill to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 7 (1923)

Bibliography

253

Debates 66 Congressional Record (1925) 66 Congressional Record (1924) 65 Congressional Record (1924) Cases (References are to chapters) A/S J. Ludwig Monwinckels Rederi v. Dow Chem. Co., 25 N.Y. 2d 576 (1970), 10-11 Agostini Bros. Bldg. Corp. v. United States, 142 F.2d 854 (4th Cir. 1944),

11

Aimcee Wholesale Corp. v. Tomar Prods., Inc., 21 N.Y.2d 621 (1968), 6 Aktieselskabet Korn-Og Foderstof Kompagniet v. Rederiaktiebolaget Altanten, 250 Fed. 935 (2d Cir. 1918), 2 Alabama Oxygen Co. v. York Intl., 433 So.2d 1158 (Ala. 1983), vacated, 465 U.S. 1016 (1984), 11 Alexander v. Gardner Denver Co., 415 U.S. 36 (1974), 6 American Airlines, Inc. v. Louisville & Jefferson County Air Bd., 269 F.2d811(6thCir. 1959), 11 American Safety Equip. Corp. v. J. P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968), 6, 13 Astoria Fed. Sav. & Loan Ass'n v. Solomino, 111 S. Ct. 2166 (1991), 6 AT & T Technologies v. Communication Workers of America, 475 U.S. 643 (1986), 5-6 Atlantic Fruit Co. v. Red Cross Line, 276 Fed. 319 (S.D.N.Y. 1921), 7-8 Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728 (1981), 6 Bergeson v. Joseph Muller Corp., 710 F.2d 928 (2d Cir. 1983), 13 Berkovitz v. Arbib & Houlberg, Inc., 230 N.Y. 261 (1921), 7, 9, 11 Bernhardt v. Polygraphic Co. of America, 350 U.S. 198 (1956), 7, 9-12,14 Bremen, The, v. Zapata Off-Shore Co., 407 U.S. 1 (1972), 6, 13 Bunge Corp. v. Perryville Feed & Produce, Inc., 685 S.W.2d 837 (Mo. 1985), 6 California Prune & Apricot Growers' Ass'n v. Catz American Co., 60 F.2d 788 (9th Cir. 1932), 2, 10 Carnival Cruise Lines, Inc. v. Shute, 111 S. Ct. 1522 (1991), 6 Cold Metal Process Co., In re, 9 F. Supp. 992 (W.D. Pa. 1935), 9-10 Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), Preface Commonwealth Edison Corp. v. Gulf Oil Corp., 541 F.2d 1263 (7th Cir. 1976), 12

254

Bibliography

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985), 6, 12, 14 Deep South Oil Co. v. Texas Gas Corp., 328 S.W.2d 897 (Tex. Civ. App. 1959), 10 Delaware & H. Canal Co. v. Pennsylvania Coal Co., 50 N.Y. 250 (1872), 2 Donahue v. Susquehanna Collieries Co., 138 F.2d 3 (3d Cir. 1943), 6, 11 Eisenmeyer v. Sauter, 77 111. 515, 516 (1875), 2 Erie RR. v. Tompkins, 304 U.S. 64 (1938), Preface, 2, 7, 9-12, 14 Eros, The, 241 Fed. 186 (E.D.N.Y. 1916), affd, 251 Fed. 45 (2d Cir. 1918), 2 Fox v. Hempfield R. Co., 9 Fed. Cas. 627 (C.C.W.D. Pa. 1857), 2 French v. Petrinovic, 54 N.Y.S.2d 179 (App. Term 1945), 10 Gilmer v. Interstate/Johnson Lane Corp., Ill S. Ct. 1647 (1991), 6, 14 Guaranty Trust Co. v. York, 326 U.S. 99 (1945), 11 Hammer v. Dagenhart, 247 U.S. 251 (1918), 9 Haskell v. McClintic-Marshall Co., 289 Fed. 405 (9th Cir. 1923), 2 Hunkin-Conkey Constr. Co. v. Pennsylvania Turnpike Cmn., 34 F. Supp. 26 (M.D. Pa. 1940), 10 Jefferson Fire Ins. Co. v. Bierce & Sage, Inc., 183 Fed. 588 (C.C.E.D. Mich. 1910), 2 Karno-Smith v. School Dist. of Scranton, 44 F. Supp. 860 (M.D. Pa. 1942), 10-11 Krauss Bros. Lumber Co. v. Louis Boissert & Sons, 62 F.2d 1004 (2d Cir. 1933), 9-10 Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978 (2d Cir. 1942), 2 Local 19, Warehouse Union v. Buckeye Cotton Oil Co., 236 F.2d 776 (6th Cir.), cert, denied, 243 U.S. 910 (1957), 11 Marchant v. Mead-Morrison Mfg. Co., 29 F.2d 40 (2d Cir. 1928), 10 Marine Transit Corp. v. Dreyfus, 284 U.S. 263 (1932), 10-11 McDonald v. City of West Branch, 466 U.S. 284 (1984), 6, 12, 14 Meacham v. Jamestown, F. & C. RR., 211 N.Y. 346 (1914), 2,9 Mitchell v. Dougherty, 90 Fed. 639 (3d Cir. 1898), 2 Mitsubishi Motors Co. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 414 (1985), 6, 12-14 Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983), 5, 9, 11-14 Murray Oil Prods. Co. v. Mitsui Co., 146 F.2d 381 (2d Cir. 1944), 11 Newcomb v. Wood, 97 U.S. 581 (1878), 2 Nolan v. Whitney, 88 N.Y. 648 (1882), 2 Oklahoma City Assocs. v. Wal-Mart Stores, Inc., 923 F.2d 791 (10th Cir. 1991), Preface, 9 Omnium Freighting Corp., In re, 185 N.Y.S.2d 857 (Sup. Ct. 1958), 10

Bibliography

255

Parry v. Bache, 125 F.2d 493 (5th Cir. 1942), 10-11 Parsons & Whittemore, Inc. v. Rederiaktiebolaget Nordstjernan, 143 N.Y.S.2d 74 (App. Term), affd, 145 N.Y.S.2d 466 (App. Div. 1955), 10 Parsons v. Ambos, 121 Ga. 98 (1904), 6 Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1868), 7 Perry v. Thomas, 482 U.S. 483 (1987), 9, 12 Phelps v. Dolan, 75 111. 90 (1874), 2 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), Preface, 10-12 Pullman, Inc. v. Phoenix Steel Corp., 304 A.2d (Del. Super. Ct. 1973), 11 Rae v. Luzerne County, 58 F.2d 829 (M.D. Pa. 1932), 2 Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109 (1924), 7-11 Red Cross Line v. Atlantic Fruit Co., 233 N.Y. 373 (1922), rev'd, 264 U.S. 109 (1924), 9 Robert Lawrence Co., Inc. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959), 10-11 Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477 (1989), 6, 13 San Carlo Opera Co. v. Conley, 72 F. Supp. 825 (S.D.N.Y. 1946), affd, 163F.2d310(2dCir. 1947),11 Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), 6, 12-13 Scott v. Avery, 5 H.L.C. 811 (1855), 2-3 Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 70 F.2d 297 (2d Cir. 1934), affd, 293 U.S. 449 (1935), 9-11 Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), 6, 12-13 Southland Corp. v. Keating, 31 Cal.3d 584 (1982), rev'd, 465 U.S. 1 (1984),

11

Southland Corp. v. Keating, 465 U.S. 1 (1984), Preface, 2, 5-6, 9-14 Standard Magnesium Corp. v. Fuchs, 251 F.2d 455 (10th Cir. 1957), 70-

11

Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842), 2, 9-11 Textile Workers Union v. Lincoln Mills, 353 U.S. 448 (1957), 7 Thayer v. American Financial Advisors, Inc., 322 N.W.2d 599 (Minn. 1982), 11 Tobey v. County of Bristol, 23 Fed. Cas. 1313 (C.C. Mass. 1845)(#14,065), 6 Underbill v. VanCortlandt, 2 Johns. Ch. 339 (1817), 2 United Ass'n of Journeymen v. Stine, 76 Nev. 189 (1960), 10 United Papermakers Int'l Union v. Misco, Inc., 484 U.S. 29 (1987), 5 United States Asphalt Ref. Co. v. Trinidad Lake Pet. Co., 222 Fed. 1006 (S.D.N.Y. 1915), 2-3

256

Bibliography

United Steelworkers v. American Mfg., 363 U.S. 564 (1960), 5, 7, 12 United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960), 5-7, 12 United Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574 (1960), 5, 7, 12 Van Iderstine Co. v. Barnet Leather Co., 242 N.Y. 425, 152 N.E. 250 (1926), 2 Varley v. Tarrytown Associates, Inc., 477 F.2d 208 (2d Cir. 1973), 9 Volt Information Sciences, Inc. v. Stanford University, 489 U.S. 468 (1989), 9, 10, 12-14 Voutrey v. General Baking Co., 39 F. Supp. 974 (E.D. Pa. 1941), 10 Warren v. Tinsley, 53 Fed. 689 (5th Cir. 1893), 2 Webb v. R. Rowland & Co., 800 F.2d 803 (8th Cir. 1986), 6 Wickard v. Filburn, 317 U.S. 1ll (1942), 9, 12 Wilko v. Swan, 346 U.S. 427 (1953), 6, 11-13 Wilson & Co. v. Fremont Cake & Meal Co., 153 Neb. 160 (1950), 10 Wisconsin Cent. Ry., In re, 74 F. Supp. 85 (D. Minn. 1947), 10-11 Woener, In re, 31 F.2d 283 (2d Cir. 1929), 10 Zip Mfg. Co., 44 F.2d 186 (D. Del 1930), 9-10

Index

AAA (American Arbitration Association), 40-41, 58 A.B.A. (American Bar Association). See International arbitration; UAA (1924); UAA (1955); USAA A.B.A. committee (Committee on Commerce, Trade and Commercial Law). See International arbitration; UAA (1924); USAA Adhesion and one-sidedness. See also Public policy defense concern about Commissioners, 50-51 earliest, 205 n. 10 judicial lack of, under USAA, 71 reformers' lack of, 51, 60, 68, 200 n.24 Senator Walsh, 91, 215 n.48 protections against common law, 68 legislative, 69-71 SEC, 70 state, invalid under USAA, 71,73

"ousting of jurisdiction," relation to, 60-61 rarely successful as a defense, 78-79 ADR (Alternative Dispute Resolution) arbitration neglected by ADR movement, 10 criticism from the left, 67-68 in hierarchies, 6 mediation and negotiation, 4-6 nondispute relations of parties and, 5-6 rediscovery and revived interest in, 3-4, 10 self-help, 4, 6 State law, relation to, 3-6 types, 3-6 Alexander v. Gardner-Denver Co., 65-66, 77 Alternative Dispute Resolution. See ADR American Airlines, Inc. v. Louisville & Jefferson County Air Bd., 137 American Arbitration Association (AAA), 40-41,58

257

258

American Arbitration Foundation, 40-41 American Banker's Association, 217n.20 American Bar Association (A.B.A.). See International . arbitration; UAA (1924); UAA (1955); USAA American Farm Bureau Federation, 92 American Safety Equip. Corp. v. J. P.Maguire&Co.,64, 73, 75-76, 165 Anti-reform. See Reform and reformers Arbitration. See also Adhesion and one-sidedness; Arbitration law; International arbitration; Labor arbitration; New York, Arbitration Act of 1920; Public policy defense; Reform and reformers; UAA (1924); UAA (1955); USAA advisory, 7, 182 n.12 binding, 7-8 compliance with agreements lacking legal enforceability, 27-28 court-annexed, 7 criticism of, 67-68 definition, 7-8 dispensable technique, 9-10 hierarchies, distinguished from dispute resolution within, 8-9 importance of, 10 legalistic views of, 196-97 n.49 neglected by ADR movement, 10 non-collective bargaining arbitration, no good term for, 182 n.16 public policy respecting, ix

Index Arbitration law. See also Adhesion and one-sidedness; Arbitration; International arbitration; Labor arbitration; New York, Arbitration Act of 1920; Public policy defense; Reform and reformers; UAA (1924); UAA (1955); USAA heretical view of, 176-80 modern adhesive effect, 50-51 definition, 15-16 enactments in states, 54-57 irrevocability and enforceability of arbitration agreements key factor, 15-16 "long arm" effect, 51-52, 95 premodern, 15-24. See also New York Code of Civil Procedure; UAA (1924) agreements to arbitrate, damages for breach, 20, 185n.39 federal law, 22-24 Illinois Statute of 1873, 17-18 Illinois Statute of 1917, 31-33 introduction, 15-17 judicial criticism, but refusal to change, 27, 30 label for, difficulty of finding satisfactory, 17 legislation required to reform, 27 limitations of, 20-21 statutory or judge-made, 1517 studies, lack of, 16-17 superseded in 47 states, 57 supportive of arbitration, but limited, 19-21 prognosis, 175-76 proposal, 178-80

Index Arbitration Society of America, 38-41,92,96 Atlantic Fruit Co. v. Red Cross Line, 84-85, 94, 212 n.14 Auerbach, Jerold S., 40, 62 Bailey, Hollis, 44, 49, 123-24 Baker, Newton D., 197 n.52 Barrentine v. Arkansas-Best Freight Sys., Inc., 77 Barrett, JoeC., 56 Baum and Pressman, 126-27 Berkovitz v. Arbib & Houlberg, 84-85, 106, 110, 233n.78 Bernhardt v. Polygraphic Co. of America, 83, 119 cited in Volt, 151 effect in expanding applicability ofUSAA, 234 n.l example of case with ignored choice of law clause, 153 prevalence of state arbitration statutes, 177-78 state arbitration law governs in diversity case, 136-37 Bernheimer, Charles L. AAA, honorary president, 197 n.52 American Arbitration Foundation, 40 biographical note, 189 n.20 National Conference of Bar Associations, appearance before, 41 O'Connell, comments on, 50 proselytizing, 38, 41 reform leader since 1907, 28 USAA commentary on, 123 goals of, summary, 29-30, 190-91 n.37 lobbying, 88 testimony, 88-89, 92-93, 110

259

Bias, author's, viii-ix Board of Contract Appeals, 7-8 Briefs, relation to judicial opinions, 231 n.50 Brown, Louis M., 29 Bureaucratic formalism, vii, 17173 Central Committee to Promote Arbitration, 33 Chamber of Commerce of Chicago, 50 Chamber of Commerce of State of New York active in arbitration very early, 25 American Arbitration Foundation, founded by, 40 Arbitration Committee and Court of Arbitration, 26 co-drafts model arbitration treaty, 159 Cohen general counsel, 28 committee on arbitration, 28 joins forces with New York State Bar Association, 29-30, 33 Rules for the Prevention of Unnecessary Litigation, 29 Chicago Association of Credit Men, 31,33 Cohen, Julius Henry A.B.A. committee, member, 197 n.56 biographical note, 190 n.22 Chamber of Commerce of State of New York, general counsel of, 28 Commercial Arbitration and the Law, 31,38 Kellor's hagiography, omission from, 194 n.36 Massachusetts, denies activities in, 43-45

260

Cohen, Julius Henry (continued) New Jersey, promoting modern act, 41 New York Arbitration Act of 1920, drafter of, 194 n.36 O'Connell, comments on, 50 one-sidedness, views on, 60 UAA (1924), 50-54 USAA brief for congressional committee, 97, 110-14 brief in Marine Transit, 13233 commentary, 124-25, 127 drafter of, 85, 108 lobbying, 88 testimony, 92, 94-95, 110, 112 Commissioners (Commissioners on Uniform State Laws). See Adhesion and onesidedness; UAA (1924); UAA (1955); USAA Commonwealth Coatings Corp. v. Continental Cas. Co., viii Coolidge, President, 101 Corpus Juris, 22 Countercurrents against proarbitration policies, 31-33, 59-80 Credit Association of the Building Trades of New York, 26 Dean Witter Reynolds, Inc. v. Byrd, 73-74, 154, 178 de Sousa Santos, 67-68 Domke, Martin, 15-16, 201 n.52 Dyer, Congressman, 95-96, 101 Eastman, Lucius R., 40-41, 196 n.41, 197 n.51 English Arbitration Act of 1889, 27, 33, 37

Index Entry of judgment clause, v, 208 n.63, 219-20 n.8 Erie RR. v. Tompkins, 109 and bureaucratic formalism, 173 nationalization of USAA, foundation, vi pre-Erie understanding of Marine Transit, 132 post-Erie hindsight view of arbitration, 23 Swift v. Tyson, overruled by, 83, 134 USAA Erie not prevent from governing in diversity cases, 83 transformed by, 135-147, 169, 234 n.l 1921 draft and, 211 n.9 Federal sales act, 90-91,116-17, 215 n.48, n.52 FLSA, early rejection of public policy defense, 62-63 Formalism, bureaucratic, vii, 17173 Formal style, viii Freedom of contract not policy neutral, 234 n.4 Gilmer v. Interstate/Johnson Lane Corp., 76-78, 165, 175, 177 Grossman, Moses H. AAA, honorary president, 197 n.52 Arbitration Society of America, founding of, 38 biographical sketch, 195 n.37 Massachusetts, activities in, 4345 O'Connell, comments on, 50, 53 Guaranty Trust Co. v. York, 135

Index Hickey, Congressman, 95 Hinkley, John, 54 History context and causation, 173-75 legislative, nature, vii, 170-71 reporting and use, 242 n.10 of USAA, example of bureaucratic formalism, 172 value to modern lawyer, v Hoover, Herbert, 92, 197 n.52, 214n.45 Hough, Judge Charles M., 27, 30 Hughes, Charles Evans, 53, 197 n.52 Illinois. See Arbitration law, premodern Insurance, not intended to be covered by USAA, 90, 215n.47 International arbitration A.B.A.,58, 159, 161 bilateral arbitration treaties, 160 model arbitration treaty, 159-60 New York Chamber of Commerce, 159 New York Convention, 160-66 effect, generally, 162-66 effect on domestic law, 165-66 history, 160-62 United States adopts, 162 public policy defense, 72-73, 7778, 152-53, 163, 179 state international arbitration acts, 166 Isaacs, Nathan, 205 n.13 James, Francis B. A.B.A. committee, 85, 197 n.55 federal sales act, 215 n.48 USAA, testimony, 95, 108

261

Kellor, Frances Arbitration Society of America, activities, 39 biographical sketch, 194 n.40 Cohen omitted from hagiography, 194 n.36 proselytizing, describes, 38-39 Kendrick, Senator, 92, 216 n.4 Kronstein, Heinrich, 62, 64-65, 67, 206 n.38 Labor arbitration dominates collective bargaining relation, 57 public policy defense, 65-66, 7778, 89-90, 176, 207 n.47 Seamen's Union, concerns, 8990 Llewellyn, Karl, viii London Court of Arbitration, 30, 191 n.40 MacChesney, Nathan biographical sketch, 199 n.8 mentioned, 56 personal animus alleged, 201 n.40 UAA (1924), 49, 52-54 McDonald v. City of West Branch, 176, 207 n.42, 235 n.24 Marine Transit Corp. v. Dreyfus, 131-33, 233n.80 Massachusetts, 43-45, 56 Mentschikoff, Soia, 56, 206 n.22 Miller, Jesse A., 124 Mills, Congressman, 88, 91 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. international antitrust not too complicated for arbitrators, 77-78 internationalization of law, example, 163-64

262

Mitsubishi v. Soler (continued) public policy defense, 72-74, 7778, 151-52, 163-64, 179 student notes, large number, 240 n.35 subject to congressional supersession, 179 Volt, relation to, 151-52 Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 139, 152, 154, 178, 203 n.86, 240 n.35 Municipal Court of the City of New York, 26 National Conference of Bar Associations, 41, 197 n.54 National Conference of Commissioners on Uniform State Laws. See Commissioners under Adhesion and onesidedness; UAA (1924); UAA (1955); USAA New Jersey, reformers secure modern arbitration statute, 4243 New Jersey State Chamber of Commerce, 217 n.20 New York Arbitration Act of 1920 drafting, 31 English law, relation to, 37 formal requirements, early draft, 35-36, 193 n. 17 incomplete arbitration statute, 37 irrevocability and enforceability respecting future disputes, most important, 35 provisions, summary of, 35-36 relation to USAA, 106 significance, 36, 194 n.27

Index source of words valid, irrevocable, and enforceable, 22021 n.27 Stone, reservations about, 33 USAA, 1921 A.B.A. draft, similar, also incomplete, 86 Chamber of Commerce of State of. See Chamber of Commerce of State of New York Code of Civil Procedure, 26, 3436, 221 n.30 Convention. See International arbitration State Bar Association, 28-31, 33 North Carolina, enactment of nonmodern act, 54 O'Connell, Joseph Francis adhesive character of arbitration agreements, objection, 5051 biographical sketch, 198 n.74 personal animus alleged, 201 n.40 reformer who switched sides, 43 role in enactment of Massachusetts statute, 43-45 UAA (1924), 50-51,53-54 O'Connor, Justice comment on clarity of USAA legislative history, 121 error in Southland opinion, 187n.79 Olson, Chief Justice Harry, 32, 33 Oregon, enacts modern arbitration statute, 45-47, 54-55 "Ouster of jurisdiction," 22, 24, 60-61 Paton, Thomas B, American Banker's Association, 217 n.20 Perry v. Thomas, 154, 219 n.2 Phillips, Phillip G., 61-62

Index Piatt, William H. H. A.B.A. committee, 197 n.55 Missouri commissioner, 44 UAA(1924), 49, 53-54 USAA letter to Senate committee, 99100,119-20 lobbying, 88 testimony, 89-90, 92 Pirsig, Maynard E., 56 Positivism, limited possibility of, viii Preventive law, 29 Prima Paint Corp. v. Flood & ConklinMfg. Co.,vii 138-39, 227 n.54 Public policy defense. See also Adhesion and one-sidedness critics favoring public policy defense, 61-65, 67-68 international arbitration, 72-73, 77-78, 152-53, 163-64, 179 judicial denial of defense, 62-63, 71-78 judicial upholding of defense, 63-66 labor arbitration, 65-66, 77-78, 89-90, 207 n.47 relation to "ouster of jurisdiction," 60-61 resurgence of almost certain, 79 scholarly disinterest in public policy defense, 63 two types, 59-60 USAA invalidates state public policy defenses, 71, 73, 139 Red Cross Line v. Atlantic Fruit Co. A.B.A. communications, 99, 119-20 Cohen cites in brief, 132 Cohen refers to, in testimony, 94 Marine Transit, cited in, 131-32

263

questions decision in Atlantic Fruit Co. v. Red Cross Line, 212 n.14 state court jurisdiction of maritime arbitration, 211 n. 12, 222-23 n.58, 233 n.79 Reform and reformers. See also Arbitration law; International arbitration; New York, Arbitration Act of 1920; Public policy defense; UAA (1924); UAA (1955); USAA academics not in forefront, 27 countercurrents, 31-33, 59-80 goals of reformers, 28-30 arbitrator freedom to determine and apply law also important, 33, 192 n.60 irrevocability and enforceability central concern, 28 judicial correction, preference of reformers for, 31, 191 n.48 legislation, move to reform by, 30 Massachusetts, 43-45 New York, 25-27, 34-37 personal nature of some opposition to reform, 201 n.40 proselytizing, 38-39, 42-45, 50, 216 n.4 revival and slowdown of reform, 55-58 sources of, 25-28 successes in various states, 54-57 Robert Lawrence Co. v. Devonshire Fabrics, Inc., 137-38, 257 n.54 Rose, Alexander, Arbitration Society, 96-97, 111 Scherk v. Alberto-Culver Co., 7273, 153, 163-64 Scots law of arbitration, 189 n.14 Scott v. Avery, 20, 27

264

Seamen's Union, 89-90 Shearson/American Express, Inc. v. McMahon, 76, 165, 235n.l7,240n.35 Southland Corp. v. Keating, 71 Justice O'Connor's dissent, 121, 187 n.79 legislative history, poor quality, vii, 170-71, 220 n.25 student notes, only four, 240 n.35 tension created with states, 175 USAA choice of law clauses, 150-155 integrated statute, 115-116, 220 n.25 nationalizes American arbitration law, vi, 73, 124, 137-49 pro-arbitration policy, 203 n.86 supersedes state law and governs in state courts, vi, 73, 124,137-49 supersedes state public policy defense, 73, 124, 137-49 State, spelled with capital refers to foreign state, 182 n.3 State law. See also Arbitration law; Public policy defense; UAA (1924); UAA (1955); names of particular states rebirth of state arbitration law?, 150-55 USAA supersedes state law and governs in state courts, 73, 124, 137-49 Stengle, Charles I., 92 Sterk, Stewart, 64, 68-69 Sterling, Senator expanding diversity jurisdiction, 90 introduces bills, 88, 92

Index "long arm" effect of USAA, 95 USAA is A.B.A.'s legislation, 107-8 Stone, HarlanF., 33, 38 Sturges, Wesley first scholarly treatise on American arbitration law, 184 n.29 New York and English law, error respecting, 37 reformer competes unsuccessfully with scholar, 198 n.87 UAA (1955), 56 USAA, 125 Swift v. Tyson, 23-24, 132, 134, 224 n.84 Thompson, George Jarvis, 127 UAA (1924) (Uniform Arbitration Act, 1924). See also UAA (1955) adhesive character of arbitration agreements, 50-51 enactment A.B.A., 41-42, 49-50, 52-54 commissioners, 41-42, 48-53, 55 debate couched in terms of regional partisanship, 50-52 "long arm" effect and provisional and special remedies, 51-52 passed in five states only, 54-55 Commissioners withdraw approval as Uniform Law, 55 UAA (1955) (Uniform Arbitration Act, 1955), 55-57. See also UAA (1924) Uniform Arbitration Act, 1924. See UAA (1924)

Index Uniform Arbitration Act, 1955, 55-57. See also UAA (1924) United States Asphalt Ref. Co. v. Trinidad Lake Pet. Co., 22, 27,30 United States Claims Court, 7 United Steelworkers v. Warrior & GulfNav. Co.,57, 234 n.5 USAA (United States Arbitration Act). See also Adhesion and one-sidedness; Arbitration law; International arbitration; Labor arbitration; Public policy defense; Reform and reformers choice of law clauses, 150-55 commentaries, early, 122-27, 132-33 diversity cases governs where interstate, 83 not govern where intrastate, 136-37 dropping of name USAA from act, 211 n.3 enactment, 92-101, 216 n.3 A.B.A. role, 41-42, 84-101 campaign, 41-42, 84-101 jurisdictional amount, 99-100 "long arm" effect, 95 no opposition, 92-93, 95-96 supporters, 92-101 goals, summary of, 29-30 heretical view of, 176-80 history of, reasons for writing, v-vi integrated statute, 105-7, 11516, 220 n.25 judicial interpretation. See also International arbitration; Public policy defense Bernhardt to Prima Paint, 136-37

265

Burger, Chief Justice, opinion in Southland, 139-47 early, 127-33 Erie to Bernhardt, 134-36 Prima Paint to Southland, 138 Southland, 139-147 transformation of, 134-55, 234 n.l legislative history, analysis, 10221 A.B.A., 108-9, 119 Cohen testimony and brief made plain USAA to apply only in federal courts, 11115 Congressional debate, little, 120-21 context, all-important, 107111 federal sales act, relation to USAA, 116-17 forum-remedial nature of USAA clearly understood, 110-11, 117-19 integrated statute, 105-7, 11516 legal background essential element of legislative history, 109 New York Arbitration Law of 1920, relation to, 106 opposition, lack of, 115-17 reform movement itself essential element of legislative history, 109, 222 n.38 rubber-stamped legislation, 107-111 structure of bills, 102-7 supporters made plain USAA to apply only in federal courts, 111-15

266

USAA (continued) "valid, irrevocable, and enforceable," derived directly from New York Arbitration Law of 1920, 106 "valid, irrevocable, and enforceable," meaning in New York Arbitration Law of 1920, 220-21 n.27 prognosis, 175-76 proposal, 178-80 rebirth of state arbitration law?, 150-55 referred to in book as USAA, not FAA, 181 n.2 supersedes state law and governs in state courts, 73, 124, 13749 two stories, not one, 83 transformation of, 134-55, 234 n.l Vance, Wilson J., New Jersey State Chamber of Commerce, 217 n.20 Volt Information Services v. Stanford University, 150-55, 175

Index Walsh, Senator apparently absent from 1924 hearings, 217 n.9 concern about adhesive aspects of USAA, 50, 90 explains USAA to Senate, 101 inquires about arguments against USAA, 89 opposed Federal Rules of Civil Procedure, 233 n.76 Washington, W. H., UAA (1924), 54 Werner, Percy, 28 Wilko V. Swan, 63-64, 71, 148-49, 166 Williston, Samuel federal sales act, drafted by, 91 Parsons on Contracts, edition by, 22, 127 USAA not drafter of, 108 treatise, 127 Wisconsin enacts modern arbitration statute, 55 enacts nonmodern arbitration statute, 48

American Arbitration Law: Reformation--Nationalization--Internationalization

International Arbitration: Law and Practice

Arbitration Law in America: A Critical Assessment

Investment Arbitration and the Law of Countermeasures

Arbitration Law in America: A Critical Assessment

Binding Arbitration

American Indian Law Deskbook

American Public School Law

Creation american common law

On philosophy in american law

Race, Racism & American Law

Geography, Environment, and American Law

West's Encyclopedia of American Law

Fault in American Contract Law

West's Encyclopedia of American Law

Arbitration Practice in Construction Contracts

Arbitration Awards: A Practical Approach

Law and War, An American Story

Values and assumptions in American labor law

American Law in the 20th Century

American Public School Law, 6th Edition

English-Russian Dictionary of American Criminal Law

Trial Consulting (American Psychology-Law Society Series)

Race, Citizenship, and Law in American Literature

The Formative Era of American Law

Punishing Hate: Bias Crimes under American Law

Speech and Silence in American Law

Race, Law, and American Society: 1607-Present

Enterprise and American Law, 1836-1937

American Law in the 20th Century

American Arbitration Law: Reformation--Nationalization--Internationalization

International Arbitration: Law and Practice

Arbitration Law in America: A Critical Assessment

Investment Arbitration and the Law of Countermeasures

Arbitration Law in America: A Critical Assessment

Binding Arbitration

American Indian Law Deskbook

American Public School Law

Creation american common law

On philosophy in american law

Race, Racism & American Law

Geography, Environment, and American Law

West's Encyclopedia of American Law

Fault in American Contract Law

West's Encyclopedia of American Law

Arbitration Practice in Construction Contracts

Arbitration Awards: A Practical Approach

Law and War, An American Story

Values and assumptions in American labor law

American Law in the 20th Century

American Public School Law, 6th Edition

English-Russian Dictionary of American Criminal Law

Trial Consulting (American Psychology-Law Society Series)

Race, Citizenship, and Law in American Literature

The Formative Era of American Law

Punishing Hate: Bias Crimes under American Law

Speech and Silence in American Law

Race, Law, and American Society: 1607-Present

Enterprise and American Law, 1836-1937

American Law in the 20th Century

Recommend Documents