American Arbitration Law: Reformation--Nationalization--Internationalization

American Arbitration Law

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AmericanArbitrationLaw

Reformation -Nationalization -

Internationalization

IAN R. MACNEIL

New York OxfordOXFORD UNIVERSITY PRESS1992

Oxford University PressOxford New York TorontoDelhi Bombay Calcutta Madras KarachiKuala Lumpur Singapore Hong Kong TokyoNairobi Dar es Salaam Cape TownMelbourne Auckland

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Copyright © 1992 by Oxford University Press, Inc.

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Library of Congress Cataloging-in-Publication DataMacneil, Ian R.American arbitration law : reformation, nationalization,internationalization / Ian R. Macneil.p. cm. Includes bibliographical references and index.ISBN 0-19-507062-31. Arbitration and award—United States—History—20th century.I. Title.KF9085.M33 1992 347.73'9-dc20[347.3079] 91-42367

9 8 7 6 5 4 3 2 1

Printed in the United States of Americaon acid-free paper

Preface

Genesis

Work on this book started not long after the decision in SouthlandCorp. v. Keating (U.S. 1984),1 about the time my colleague RichardSpeidel and I were starting on a legal treatise on the United StatesArbitration Act (USAA).2 It soon became apparent that we couldnot write a proper treatise for present day lawyers without a fullinvestigation of the events leading to the enactment of the USAAin 1925.

A recent case illustrating this is Oklahoma City Assocs. v. Wal-Mart Stores, Inc. (10th Cir. 1991).3 There, the absence of an entryof judgment clause in an arbitration agreement led the court torefuse enforcement of the agreement under the USAA. This resultis bad law stemming quite directly from a lack of judicial under-standing of the historical development of the USAA.4 Nothing inthe opinion suggests that counsel for the party seeking to enforcethe agreement presented the court with a picture of that historicaldevelopment.

It also became apparent that no such investigation is possiblewithout a detailed understanding of the activities of the arbitrationreform movement starting about a decade before the enactment ofthe USAA. In turn no understanding of the activities of the reformmovement is possible without considering the older law the reform-ers sought to reform.

To educate ourselves sufficiently to write a proper modern trea-tise 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 arepreceded, however, by a chapter putting arbitration into the con-text of the present day alternative dispute resolution movement.They are also followed by a postscript looking back at the signifi-cance of the story told and forward to the future of Americanarbitration law.

Part I describes the reformation of American arbitration law.Part II describes the process and consequences of nationalizationof American arbitration law from its foundations in Erie v. Tomp-kins (U.S. 1938)5 to its triumph in Southland Corp. v. Keating(U.S. 1984).6 Part III describes the internationalization of Ameri-can arbitration law.7

These accounts seek through the events described to search outat the level of the articulated word what the participants thoughtthey were doing, what they said they were doing, and what theywere actually doing. This is the level at which occurs most legalanalysis of the products of courts and legislatures. Descriptions ofthis kind are examples of what Professor Edward Purcell calls "therelevant history for purposes of legal argument and authoritativejudicial exposition."8 Academic historians may pause at such nar-rowness, and properly so for many purposes. Nonetheless, for rea-sons too complex to treat here, it is a staple in the American judi-cial 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 itpertains to the USAA, bears heavily on present day decisions and,hence, is of major significance in the current law of arbitration.

Prefacee

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 qualityof legislative history as written through the adversary process. AsProfessor William Wiecik recently put it:

The historian who considers the uses to which the United StatesSupreme Court has subjected the past comes to think that historyought to be brought within the coverage of the [Federal Insecticide,Fungicide, and Rodenticide Act], treated as if it were an insecticidetoxic to humans, and required to bear this warning label: "Caution:Inept or improper use of this product may be dangerous to yourcivic health."

For the past half-century, historians, judges, and lawyers havebemoaned the ways that the Court has misunderstood, misapplied,or otherwise abused the past on its way to formulating doctrines forthe present.11

A related factor provides a third reason for this study. When thecourts distort legislative history, historical public policy is distortedas well. This is by no means to say that the courts should always begoverned by historical public policy. But inadvertent distortion ordeliberate lies about history always means that a stated public pol-icy basis of decision is at least partially a false one. Where legisla-tive history is truly the tail end of the dog, this may have no veryserious public policy consequences. (I am, however, sufficientlyold-fashioned to think that this is bad in its own right, completelyapart from its practical effect on any given law.) Legislative his-tory, however, seldom lacks at least some impact. When it is re-ferred to it generally plays a genuine, even if sometimes subsidiary,role in judicial decision making. Moreover, even where the decisionwould have been the same with an accurate historical analysis, theinaccurate analysis is likely to play important roles in the futuredevelopment of the law. This will be seen repeatedly in Part II.

The fourth reason for telling the arbitration story concerns fun-damental dynamics of our legal dispute resolution system itself.The common law method of lawmaking dominates much of thatsystem, even respecting law founded in legislation, such as theUSAA. That is to say, the law develops largely, or even entirely,through judgments in litigated cases. In modern conditions thisresults all too often in a kind of mindless bureaucratic formalism.12

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viii Preface

This formalism is a modification of what Karl Llewellyn calledthe Formal Style of judicial opinion:

[In the Formal Style] the rules of law are to decide the cases; policyis for the legislature, not for the courts, and so is change even inpure common law. Opinions run in deductive form with an air orexpression of single-line inevitability. "Principle" is a generalizationproducing order which can and should be used to prune away those"anomalous" cases or rules which do not fit, such cases or rules haveno function, except, in places where the supposed "principle" doesnot work well, to accomplish sense —but sense is no official concernof a formal-style court.13

I refer to this formalism as bureaucratic because of the bureau-cratic complexity of the rules to which it is typically applied; anygiven case typically is enmeshed not in just one statute or regulationinvolving complex bureaucratic rules, but often in more, perhapsmany.

Nowhere does this mindless bureaucratic formalism seem moreprevalent than in the work of the Supreme Court of the UnitedStates. And there are few more vivid examples than the Court'shandling of the USAA.

Positivism and Bias

As I have said elsewhere,14 I believe genuine positivism in socialobservation to be impossible, and hence reject the idea that anysocial observation can be either entirely accurate or truly "neutral."Only degrees of objectivity in social observation can exist. More-over, such objectivity as can be achieved is always melded withwhatever else the observer is up to.15 I have, nevertheless, tried inthis book to be as objective an observer as I can be. There are twoexceptions, the headings, where I have had a bit of fun with thezealous evangelists of arbitration, and the latter part of the Post-script,16 where I have turned overt advocate. The reader will, view-ing the effort through his or her own subjective notions of objectiv-ity, decide whether I have succeeded or failed.

In the spirit both of the foregoing and of Commonwealth Coat-ings Corp. v. Continental Casualty Co. (U.S. 1968),17 let me reveal

Preface ix

my biases as forthrightly as possible by summarizing my own viewsof arbitration: I am not a devoted promotor of arbitration. Rather,arbitration seems to me an often useful technique for dispute reso-lution. It is one that should, as a general proposition, be availableif two conditions are met: (1) all parties really wish to bind them-selves to use it; (2) the context, particularly the power relations ofthe parties, justifies giving effect to their consent to be so bound.

As a corollary general proposition, where the two conditionsare met, the State18 should provide normal contractual remediesreinforcing arbitration agreements. In dealing with arbitrationagreements, as with other contracts, the State should pay attentionto efficiency, in both the technical economic and ordinary sense ofthe word. But the power to enter this kind of contract —to arbi-trate — can no more be unlimited than can be other powers of con-tract.

The State is thus obliged to keep an eye on what it is doing whenit enforces contracts to arbitrate. The State should not pretend,as has typically been the case with arbitration proponents, thatarbitration is, any more than other social behavior, always, orperhaps even usually, reflective of neutral social principles. Thekinds of issues Jerold Auerbach raises'about arbitration,19 as wellas the other subjects he treats, can never properly be overlooked.Arbitration is always melded into a particular culture and will al-ways reflect existing currents of power; it could be socially neutralonly if those currents were in equipoise; this never happens.

In sum, I believe that the work of the arbitration reform move-ment, upon which this work focuses heavily, has been somethingof a Good Thing, but like all Good Things, hardly the SummumBonum Free of Flaws suggested by its past and present partisans.

Acknowledgments

I wish to thank the following for financial support during the writ-ing of this book: National Institute for Dispute Resolution and thefollowing named funds at Northwestern University School of Law:William M. Trumbull, C. C. Linthicum, Edwin Walsh, and Ed-ward B. Berglund. I should also like to express appreciation to theFaculty of Law and its law library and the University Library at

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x Preface

the University of Edinburgh, to the Eastman Library of the Ameri-can Arbitration Association, and to the Library of NorthwesternUniversity School of Law.

Research assistants and secretaries who have been very helpfulinclude Melissa McGonigal, Michael Terrien, Shirley Scott, EricAndersson, Zoran Konstantanovic, Jean Raby, Krystyna Obu-chowicz, John Stocker, Jane Amdahl, Susan Wheatley, and ShaneNugent.

Comments of anonymous reviewers, especially those of EdwardPurcell, 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 hasworked hard on the book itself.

As I took on the writing of this work it developed a life of itsown. As a legal scholar digging primarily into the dry legal detailsof the story, I could nonetheless sense the deep passions, commit-ments, and prejudices stirring the participants. This lent an excite-ment to my task I had surely never expected. I hope I have capturedat least a tiny bit of that excitement for the reader.

Edinburgh I. R. M.January 1992

Contents

1. Introduction to Alternative Dispute Resolutionand Arbitration, 3

The Academy Rediscovers ADR, 3Arbitration Introduced, 7

Definition, 7Distinguished from Dispute Resolution Within

Hierarchies, 8A Dispensable Technique, 9

ADR—Revived Interest, 10

PART I REFORMATION OF AMERICANARBITRATION LAW

2. Before the Enlightenment, 15

Premodern Arbitration Law in America: Introduction, 15The Illinois Statute of 1873, 17Largely Supportive of Arbitration, 19Weaknesses—Nonenforcement of A rbitration

Agreements, 20Exceptions to Nonenforcement, 20

Arbitration and Our Father in Washington, 21Confusion in the Cases, 21Swift v. Tyson (U.S. 1842) and the Judiciary Act

of 1789, 23

xii Contents

3. The Beginning of Reform, 25

The Coming of the Evangelists: 1911-20, 25New York, New York, 25Judicial Criticism, English Law, and Academic Silence, 27The Evangelists, 28The Quest, 28The Reform Horse is Spurred; It Jumps, 30

Neopaganism Among the Illinois, 31The 1917 Illinois Statute, 31The Reform View: No Step Forward;

One Step Backward, 33

4. Reform Gathers Momentum, 34

The Conversion of New York: What Hath GodWrought?: 1920, 34

New York Before Reform, 34The 1920 New York Act, 35Significance of the 1920 New York Act, 36The 1920 New York Act and English Law, 37

Education of the Masses; Organization of theMother Church: 1920-26, 38

Organizing and Proselytizing, 38Rivalry, 40Merger, 40

Picking Up Speed: 1920-25, 41The Evangelists Capture the A.B.A., 41The Conversion of New Jersey, 42Partial Victory in Massachusetts, 43The Strange Case of Oregon, 45

Converting Our Father in Washington: 1921-25, 47

5. After Adversity, Reform Triumphs, 48

Schism! Treachery: The Commissioners on UniformState Laws: 1923-25, 48

Early Actions of the Commissioners, 48Year of Decision for the Commissioners: 1924, 49Daniel is Eaten in the Lion's Den, 51The Commissioners Recapture the A.B.A., 52

Contents xiii

The Evangelists Become the Established Church andConsolidate Their Position: 1925-91, 54

The Reformers Pull Ahead of the Anti-Reformersin the States, 54

Slowdown and Revival in Reform, 55The Long Haul: Picking Off the States, 56Labor A rbitration: King of the Mountain, 5 7Triumph of the A merican A rbitration Association, 58

Tomorrow the World! Evangelism Triumphs afterLong Struggles, 58

6. Countercurrents: Neopaganism Refuses To Die, 59

Public Policy Defenses Against Arbitration, 59Public Regulation of Business, 61

Initial Critiques, 61The Courts Begin to Side with the Critics:

Wilko v. Swan, 63Kronstein Returns, 64Thunder on the Labor Front, 65Arbitration and the Left, 67

One-sidedness in the Making of Arbitration Agreements, 68The Countercurrents are Damned and Dammed: 1974-91, 71

International Context Overrides Wilko Doctrine, 72State Wilko-type Limitations Go Down the Drain, 73Wilko Eroded, then Overruled, 73One-sidedness in the Federal Courts, 78Damned 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, 84The 1921 USAA Draft, 85

Arbitration Provisions, 85Federal Provisions, 86Comment, 87

xiv Contents

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

8. The USAA: Enactment, 92

Hearings: January 1924, 92We, the People, 92Charles L, Bernheimer: Leadoff Batter, 93Julius Henry Cohen: Heavy Hitter, 94Opposition Anyone?, 95Alexander Rose: Cleanup Man, 96Cohen Brings His Pen to the Batter's Box, 97

House Judiciary Committee Report: Fast Work, 97On the Floor of the House: February 1924, 98Communications to Congress after the House Report, 99Senate Committee Report: May 1924, 100The Final Touches: Victory!, 100

9. The USAA: Analysis of Legislative History, 102

The Bills Which Became the USAA: Structure, 102Basic Principles, 102Core Implementation of Basic Principles, 102Supplemental Implementation of Basic Principles, 103Regulatory Provisions, 104Miscellaneous Provisions, 104An Integrated Statute, 105

The All-Important Context, 107Rubber-stamped Legislation, 107In the Beginning Was the Reform Movement, 109The Legal Background, 109

The Hearings: What Was Said and What Was Not Said, 111What Was Said (and Written), 111No Opposition: The Dogs Which Didn't Bark, 115

The House Judiciary Committee Report, 117Later Communications to Congress, 119The Senate Report, 120On the Floor of Congress, 120

Contents xv

10. The USAA: Interpreted as Congress Intended, 122

Commentaries: 1925-38, 122State Cases: Twenty Years of Silence, Then aFew Murmurs: 1926-59, 127Federal Cases: 1925-38, 131

11. The USAA: As Amended by the Supreme Court, 134

From Erie to Bernhardt: 1938-56, 134The Gathering Storm: Erie Begins to Bite: FromBernhardt to Prima Paint: 1956-67, 136Nationalization Triumphs: From Prima Paint toSouthland and Beyond: 1967-91, 138

The Struggle in the States, 138Southland: History be Damned!, 139

12. The Legal Consequences, 148

What Hath God Wrought This Time? The GreatTransformation: 1967-91, 148Rebirth of State Arbitration Law or Just MoreConfusion? The Supreme Court Decides Volt: 1989, 150

PART III INTERNATIONALIZATION OF AMERICANARBITRATION LAW

13. Internationalization, 159

A Good Start Soon Dies: 1922, 159Bilateral Treaties: 1946 and Thereafter, 160The New York Convention: 1958, 160The United States Adopts the Convention: 1970, 162Internationalization Moves Ahead: Effect ofthe Convention, 162State International Arbitration Acts: 1986-91, 166

xvi Contents

POSTSCRIPT

14. The Road to Damascus, 169

Looking Back, 169Legislative History Is Pathological History, 170Bureaucratic Formalism, 171Context and Causation, 173

Looking Forward, 175A Heretical View, 176

A Proposal, 178

Notes, 181Bibliography, 245

Index, 257

American Arbitration Law


1Introduction toAlternative Dispute Resolutionand Arbitration

The Academy Rediscovers ADR

ADR—Alternative Dispute Resolution—has for a number of yearsbeen one of the hottest of all hot topics in the legal academy. Aswith each new generation and sex, so too this academic generationand ADR: it thinks it discovered the whole thing. Like sex, how-ever, ADR is as old as humanity itself, and the academic ADRmovement is largely one of rediscovery by the academy. Althoughthat movement has discovered nothing fundamental and new, itsdevelopment has paralleled development of techniques outside theacademy differing in important details from those commonly usedin the past. The mini-trial in its many variants is an example ofspecial new techniques involving either negotiation, mediation, oraspects of arbitration or all three.1

Also like sex, most of the interest in ADR is found outside theacademy. For a good many years the commercial and financialworld has felt increasingly beleaguered by the costs of litigation. Ithas always tried to reduce such costs by such traditional techniquesas negotiation. Now, however, it is increasingly turning to use ofmediation of various kinds, arbitration, and other ADR tech-niques.2

The fact that little is really new in ADR is obscured by the

3

4 American Arbitration Law

very phrase, Alternative Dispute Resolution. The word alternativemeans alternative to dispute resolution processes of the State3—thejudges, juries, administrative dispute resolvers, and the like of theState legal system. Thus the term ADR presupposes that the pri-mary, fundamental dispute resolution system is that provided bythe State, alternative methods being secondary, supplemental, andprobably suspect.

This statist view of dispute resolution simply turns the worldupside down, whether we look to history or to present socioeco-nomic behavior. Historically the truly alternative dispute resolutionmethods are those of State law. State law is the Johnny-come-latelyon the scene, because the State itself is a relatively recent develop-ment.

When we look realistically at the way disputes are resolved cur-rently in even the most State-saturated society, it is obvious thatState dispute resolution techniques play only a backup role. Fromtwo teenagers bickering in the backyard to disputes among giantcorporations, State techniques, if pertinent at all, come to the foreonly if all else fails.4

State law does, of course, play a primary role in establishing therights governing relationships, whether or not State legal mecha-nisms become involved in the dispute. That law is the creator ofthe operating legal structure of property and liberty rights, con-tract, and regulation. In governing such relationships, where thefocus is on structure rather than on resolving disputes concerningoperation of the structure, State law and the law of ordinary hu-man behavior are often so close as to be indistinguishable. But therole of State law here is quite different from its role as an actual orpotential resolver of particular disputes.

In any society, the primary methods of resolving differences thathave risen to the level of disputes are unilateral exercises ofpower—hereafter called self-help—negotiation,5 and binding deci-sions by third parties. No socioeconomic activity can long existwithout the first two of these techniques, and no hierarchical socio-economic activity can exist without the last.

Mention should also be made of mediation, in which a thirdperson assists the parties toward a negotiated settlement of thedispute with no power to bind them by a decision, a very commonmethod. 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 ofbindingness, it is virtually impossible for a mediator not to putpressure on the parties to settle, sometimes a great deal of it. Itmay be noted that this pressure is not necessarily equally distrib-uted between the parties.

Mediation is one of the favorites of the ADR movement, whichhas spawned a great variety of mediation techniques. One of thenew ones is the mini-trial, the decision in which is often entirelyadvisory.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 ofState law,7 but the processes themselves need not, and in the total-ity rarely do, involve activation of State dispute resolution pro-cesses. Even more rarely do they involve full activation, that is,carrying the dispute through to judgment, and still less often, toappeal.

These so-called alternative methods are generally vastly moreefficient and effective than are State dispute resolution processes.As to the justice of their outcomes, they are extensions of thenondispute relations of the participants. They thus tend to yieldjustice more or less commensurate with the justice of the relationsthemselves. Professor David Luban has made this point respectingADR generally:

A pervasive disagreement about the quality of justice in ADR isthis. Proponents of ADR argue that ADR resolves disputes morejustly than either litigation or unmediated negotiation, while criticssuspect that ADR programs simply cool out legitimate grievancesand thereby perpetuate a system that is fundamentally unjust.

Though this tension is real, the dichotomy is not, for an ADRprogram may resolve disputes justly (in one sense of the word) andcool out legitimate grievances, thereby perpetuating a system that isfundamentally unjust (in another sense). Indeed, the better the ADRsystem is at resolving disputes justly (in the first sense), the moreeffectively it will cool out legitimate grievances and perpetuate thesystem, which may itself be unjust (in the second sense).8

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


leave-it basis extends typically to the actual implementation of theADR technique. That is to say, if a dispute does arise the buyer islikely to accept the seller's implementation of its own ADR process,like it or not.

Similarly, participants in hierarchical organizations are subjectto their hierarchical structures, with whatever justice or injusticethere is generally in the particular structure. For example, if anemployee has a dispute with another employee10 over whom he orshe has no effective superior control, the resolution of that disputeby someone superior to both will tend to reflect the patterns ofjustice of day-to-day nondispute behavior in the organization.

Disputes are nonetheless a particularly nasty part of relation-ships, and the actual implementation of an ADR process may wellbe viewed as more unjust than the fact that such implementationwas always a possibility. For example, we would certainly thinkthe actual smashing of kneecaps for nonpayment by a drug seller'sthugs to be more unjust than the prior situation in which the buyersimply knew such an ADR technique might be used.

State law cannot eliminate self-help and negotiation as alterna-tive dispute resolution techniques in socioeconomic relations with-out eliminating the relations themselves. Nor can it eliminatethird-party dispute resolution within hierarchical relations withoutdestroying their hierarchical nature. The most it can do is regulatethese behaviors.

Negotiation is particularly difficult to regulate. Perhaps thegreatest single endeavor to do so in American law is the good faithbargaining requirement of the National Labor Relations Act andanalogous state laws. This effort has involved creation of largeadministrative bureaucracies, only marginally effective in forcinggood faith bargaining on recalcitrant employers and unions.

Regulation of self-help and of negotiation may take the form ofpositive prohibitions, such as criminal sanctions for the smashingof kneecaps. Alternatively or cumulatively, State regulation maytake the form of negative sanctions, that is, refusing to give legaleffect to the resolution of the dispute achieved by the misusedADR.

In sum, a wide range of so-called alternative dispute resolutiontechniques constitute the basic ways in which people in societyresolve disputes, State law methods being largely backups when allelse fails.

A Iternative Dispute Resolution and A rbitration 1

Arbitration Introduced

Definition

Arbitration of the type treated in this book has these characteris-tics: (1) the parties choose to have a dispute or disputes decidedby a third party, called an arbitrator;11 (2) the parties choose thearbitrator or a method for his or her selection; (3) the arbitratorhears the dispute; (4) the arbitrator makes a binding award; (5) thearbitrator's decision is, subject to very limited grounds of review,final and enforceable by State law in the same manner as a judg-ment.

It may be noted that dispute resolution lacking any or all of thesecharacteristics exists and is sometimes called arbitration. Where theparties do not choose arbitration, but have it imposed on them,the process is usually called mandatory arbitration. This is mostcommon in labor relations, particularly those of public bodies andtheir employees.

The parties may be able to choose a method of dispute resolu-tion, but not the resolver or method of selecting the resolver. Forexample, in federal government contracts, aggrieved contractorsgenerally have a choice between having a dispute decided adminis-tratively (Board of Contract Appeals) or judicially (United StatesClaims Court). Nonetheless, they have no right to choose who sitson those bodies.

Very rarely arbitration is conducted without a hearing, evidencebeing submitted only in writing. Binding appraisals, especially ininsurance, which State law often treats differently from arbitra-tion, are quite commonly conducted without hearings.

Third-party decisions may be advisory only, unbinding even in amoral sense. This is a common characteristic of mandatory court-annexed arbitration. There constitutional requirements typicallypreclude taking final decision-making power away from juries.Thus, even though required to arbitrate first, the party adverselyaffected by the arbitration decision has no legal or extra-legal obli-gation to abide by it and can insist on a de novo trial before ajury.12 Also, even though a decision may be binding in terms ofvarious non-State ties that bind, it may, by party agreement, notbe binding in terms of State enforcement.

Finally, bindingness is a matter of degree in terms of review andconsequent legal enforcement by the State. For example, decisions


of federal Boards of Contract Appeals on issues of law are farmore open to judicial review than are arbitrators' decisions on suchissues.

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 arbitrationwith all five of the characteristics set out above.

Distinguished from Dispute Resolution Within Hierarchies

Arbitration differs from third-party dispute resolution within exist-ing hierarchies. First, in arbitration the parties do not start out asparticipants in a hierarchy, but create the hierarchical relationshipwith the arbitrator by their agreement. This must not, of course,be taken too literally. Parties always bring different kinds of powerto the making of an agreement. To the extent that in any sense thepower of one is greater than the power of the other they are alreadyin a hierarchical relationship. It may be noted that one may be ontop 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 ina typical existing hierarchy a superior's resolution of disputes be-tween inferiors is simply an adjunct to his or her ordinary controlof affairs. It may be noted, however, that nothing prevents a hier-archical structure from establishing internal arbitration proce-dures. If, for example, one views the franchise relationship as asingle hierarchical one, rather than simply as a contract betweenfranchisor and franchisee, the use of arbitration (quite common) isan example of such internal arbitration.

Third, the extent and nature of the "hearing," if any, a partygets in a dispute within an existing hierarchy is entirely dependenton how that hierarchy operates. In other words, in terms of hierar-chies generally, an infinite variation is possible.

In view of the foregoing, no generalization is possible respectinghearings respecting disputes within hierarchies. Similarly, no gener-alization can be made respecting the bindingness of the superior'sdecision, respecting either non-State ties or State enforcement. Atone extreme the decision may be final and binding both within thehierarchy and without, including being enforceable by State law.


For example, where a firmly entrenched management decides withthe concurrence of the board of directors to build a new plant inHartford rather than Savannah — a hotly disputed issue at middlemanagement levels —there is on one to gainsay the decision.13

At the other extreme a decision within a hierarchy may be subjectto immediate overruling by a higher superior. For example, a su-pervisor's ordering an employee to work overtime might be over-ruled immediately by the shift manager's decision that such orderviolated a collective bargaining agreement. The higher superiormay also be the State, although it can seldom act immediately. Forexample, if a supervisor fires an employee, and the employee'spleas with higher management to overrule the decision fail, theemployee may seek reinstatement on the grounds of illegal racialor sexual discrimination.

A Dispensable Technique

While third-party dispute resolution within hierarchies is essentialto their existence, arbitration of the type treated in this book is anADR technique that is not essential to socioeconomic relations.Even collective bargaining arbitration, the most common and moststrongly State-reinforced arbitration in this country, is not essentialto the continued existence of collective bargaining relations be-tween unions and employers. True, its absence would change thoserelations markedly, but the existence for many decades of suchrelations without arbitration in the United Kingdom is proof posi-tive that they can exist. Thus arbitration, unlike self-help, negotia-tion, and third-party dispute resolution within hierarchies, is dis-pensable.

The ability in general of socioeconomic relations to survive andoften to prosper without the use of arbitration creates a very differ-ent relationship between arbitration and State law than do manyother so-called ADR techniques. Assuming the State is not out todestroy the relationships altogether,14 it cannot prevent parties torelationships from ever engaging in self-help, negotiating to resolvedisputes, or using third-party resolution of disputes within hierar-chies. Nor can it, without damaging the relations, simply refuse togive effect to the outcomes of such processes of dispute resolutionwhere State law recognition is important to the relations. It can,


however, prohibit arbitration, or more likely, refuse to give effectto its outcome, without necessarily doing major damage to therelations. If it does so, the parties will, to the extent that statereinforcement is important, simply use some technique the Statewill reinforce, such as its own judicial processes.

In view of the foregoing, questions of policies of State law re-specting self-help and negotiation on one hand and arbitration onthe other differ markedly. The State is more circumscribed respect-ing dispute resolution by self-help and negotiation in particulartypes of relations than it is respecting arbitration. Even regulationof the former must be carefully designed so as not fatally to dam-age the relation, and prohibition is out of the question as long asthe State wishes the relation to continue. On the other hand, regula-tion or even prohibition of arbitration — although not costless — isunlikely to destroy the relationships in question. State decisionmakers are therefore considerably freer to take into account thequality of justice achieved by arbitration in deciding how and howmuch to regulate it or even prohibit it in appropriate cases.

ADR-Revived Interest

If the current ADR movement has discovered little new, what ithas done is to create a great deal of academic interest in the aca-demically long neglected subject of non-State dispute resolutiontechniques. Traditional arbitration has not, however, been a hotarea of currently chic ADR; it has been around too long to befashionable in this year's Easter Parade. Instead to the extent thatthe ADR movement has focused on arbitration, that focus hasbeen heavily on new types, for example, mandatory court-annexedarbitration.15

It is unfortunate that conventional arbitration has been the Cin-derella of ADR. All the issues of effectiveness and justice concern-ing ADR writers are raised by traditional arbitration, just as muchas by newer or newly discovered ADR techniques. Moreover, itsuse is widespread and increasing. It is a subject worthy of central,rather than peripheral, attention.

While the ADR movement as such has somewhat bypassed tradi-tional arbitration, neither legal academia in general, nor the State


legal system, nor the world at large, has done so. Collective bar-gaining arbitration has been an essential aspect of the labor lawtaught throughout American law schools for half a century. Non-collective bargaining arbitration,16 the subject of this book, is lessevident in the curriculum, but by no means nonexistent. Lawreview articles on both collective bargaining arbitration and com-mercial arbitration abound. With or without academic attention,arbitration is a burgeoning activity throughout much of our socio-economy, and the law of arbitration is a major area of the law.


IReformation ofAmerican Arbitration Law


2Before the Enlightenment

Premodern Arbitration Lawin America: Introduction

Once upon a time, say, at the turn of the century, arbitration wasneither a new nor an uncommon practice in the United States,particularly in such great commercial and financial centers as NewYork1 and Chicago.2 A robust and active law of arbitration alsoexisted.3 This arbitration law was both statutory and judge-made,although arbitration statutes were in effect in most states.4 It iseasy to lose sight of these older statutes; almost all have beenreplaced 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 ofart respecting arbitration statutes. The key characteristic distin-guishing nonmodern from modern is that the latter make simpleexecutory agreements to arbitrate disputes — particularly future dis-putes—irrevocable and fully enforceable and the former do not.Enacting this characteristic into legislation was the prime goal ofthe reform movement treated in subsequent chapters; the terminol-ogy is a product of that movement. So engrained in our thinking isthe association of "modern" with such "enforceability" that thecurrent edition of Domke, Commercial Arbitration, a leading arbi-tration treatise, uses the letter "M" to identify statutes providingfor enforceability of agreements to arbitrate future disputes in itslist of general arbitration statutes in the United States.5

IS15

16 Reformation of American Arbitration Law

Earlier, Domke supplied a more extensive definition in the formof the elements essential to a modern statute. It is one providing:

1. irrevocability of any agreement to submit future disputes toarbitration;

2. power of a party, pursuant to a court directive, to compel arecalcitrant party to proceed to arbitration;

3. provision that any court action instituted in violation of anarbitration agreement may be stayed until arbitration in theagreed manner has taken place.

4. authority of the court to appoint arbitrators and fill vacancieswhen the parties do not make the designation, or when arbi-trators withdraw or become unable to serve during the ar-bitration;

5. restrictions on the court's freedom to review the findings offacts by the arbitrator and his application of the law;

6. specifications of the grounds on which awards may be at-tacked for procedural defects, and of time limits for suchchallenges.6

The first four of these elements are aspects of the irrevocabilityand enforceability of arbitration agreements, that is, the modernelement of a modern arbitration statute. As will be seen, manyolder nonmodern arbitration statutes commonly contained most orall of the fifth and sixth of these elements.7

Returning to the past, as the premodern arbitration statutes werelargely in the tradition of the common law, they now tend to blendin with that common law. Only very careful examination of oldand sometimes fairly inaccessible law could separate the two. Noone, however, appears to have done an in-depth study of develop-ing nineteenth-century arbitration legislation comparing it tojudge-made arbitration law.8 No proper base of scholarship thusexists from which to differentiate the two types of old law. Andindeed, some of the things we think of as judge-made, such asenforcement of awards, may, at least in the United States, be large-ly statutory in origin.

The lack of scholarship on this subject is quite curious. Arbitra-tion legislation challenges code pleading as the most extensivenineteenth-century legislative intervention into the workings of the

Before the Enlightenment 17

judicial system (geographically, arbitration legislation is the clearwinner) and was certainly one of the most pervasive and earlylegislative interventions into discrete freedom (power) of contract.I suspect that the scholarly omission is explained in part by thereform movement and its progeny of modern arbitration statutes.These modern statutes have been promoted in ways suggesting thatboth the old judge-made and old statutory law of arbitration areobsolete and apparently only of antiquarian interest. In fact, muchof that law has simply been carried into the modern statutes. More-over, in any event, the old law is of more than mere antiquarianinterest. Without knowing more about this background, we canfully understand neither the reform movement itself nor, moreimportantly, what the "real" law was in the minds of businessmen,lawyers, judges, and legislators before the reform movement castits ideological veil over the scene. Understanding both is, I believe,quite significant to a full grasp of what has happened in recentyears and is still happening to American arbitration law.

Due to the lack of existing research into premodern arbitrationstatutes or easy ways of conducting it, one is driven —in referringto the whole American corpus of the day—to lump together bothstatutory and judge-made law. For an overall label one must eitherspeak infelicitously of "common law arbitration," meaning both,or of "premodern arbitration law."9 Both are inaccurate terms, thefirst for obvious reasons, the second because much of so-calledmodern arbitration law was also found in the old law, especiallyon its statutory side.

Examining one of the early statutes in some detail will help bothto counter the inherent bias of the labels "common law" or "pre-modern" and to reveal the richness of the old arbitration law. TheIllinois statute of 1873,10 in effect and unamended until 1917, is agood example.

The Illinois Statute of 1873

Under the Illinois act, parties could agree to refer issues in pendingsuits to arbitration;11 during the reference the suit was stayed.12 Ifthe parties were unable to agree to the names of three impartialarbitrators, each party chose one, and the court appointed the


third.13 When no suit had been brought, the parties could agree ina signed and sealed writing to submit any existing controversy toarbitration and to agree to judgment on the award.14 The act re-quired arbitrators to take an oath to determine the matters beforethem according to the principles of equity and justice.15 Althoughthe arbitrators could administer oaths to witnesses, accept deposi-tions in evidence, and the like, power to subpoena witnesses forarbitration proceedings resided only in court clerks and justices ofthe peace.16 Arbitrators did, rather surprisingly, have power topunish for contempt committed in their presence during arbitrationhearings.17 Awards were required to be given in signed writings andto be delivered to the parties.18 Contrary to the old common lawrule, only a majority, not unanimity, of the arbitrators was re-quired for an award to be effective.19 If a party did not complywith the terms of an award, the other party had one year in whichto petition the court named in the submission.20 If there were noexceptions to the award, the petitioning party was entitled to finaljudgment on it, to the costs of arbitration, and to execution on thejudgment.21 Where performance of the award required somethingother than paying money, the court could enforce the award byrule and attachment or by contempt.22 The court was empoweredto set aside the award for legal defects in the award itself or in theproceedings, and for fraud, corruption, other undue means, orarbitrator misbehavior.23 The court was also empowered to modifyor correct the award for miscalculation or misdescription, for deci-sions on matters not submitted (provided the decisions did notaffect the merits of the decision on matters that were submitted),and for formal imperfections (provided the imperfections did notaffect the merits of the controversy) where, had the errors or de-fects been in a jury verdict, the court could have disregarded ormodified them.24 The courts were also granted authority to compelarbitrators to proceed and report.25 Errors and appeals from thelower court proceeded in the same manner as in other cases.26 Feeswere established for arbitrators,27 witnesses, and law officials.28

The 1873 Illinois statute was thus a clear legislative recognitionof arbitration as an acceptable, indeed desirable, approach to dis-pute resolution, as well as the establishment of a comprehensivebureaucratic structure for its utilization.


Largely Supportive of Arbitration

In sum, contrary to modern folklore, and as the almost-modern1873 Illinois statute suggests, the premodern statutory law of arbi-tration was largely supportive of that institution, as was the com-mon law. As to subject matter, almost any kind of dispute couldbe submitted to arbitration.29 Arbitration awards were enforceableby actions at law,30 and in appropriate cases, by specific perfor-mance in equity.31 This was true whether the award was madepursuant to an agreement to arbitrate an existing dispute32 or pur-suant to an agreement in a contract to submit future disputes toarbitration.33 Common law arbitration awards barred actions onthe causes that had or should have been submitted to the arbitra-tors. The courts necessarily policed arbitrations, but allowed arbi-trators broad leeway in making their awards, far broader respectingboth fact and law than would normally be accorded to lowercourts.

An early nineteenth-century New York case captures the prevail-ing spirit:

If every award must be made conformable to what would have beenthe judgment of this Court in the case, it would render arbitrationsuseless and vexatious, and a source of great litigation; for it veryrarely happens that both parties are satisfied. The decision by arbi-tration is the decision of a tribunal of the parties' own choice andelection. It is a popular, cheap, convenient, and domestic mode oftrial, which the courts have always regarded with liberal indulgence;they have never exacted from these unlettered tribunals, this rus-ticum forum, the observance of technical rule and formality. Theyhave only looked to see if the proceedings were honestly and fairlyconducted, and if that appeared to be the case, they have uniform-ally and universally refused to interfere with the judgment of thearbitrators.34

The foregoing picture is hardly that of an unrelieved judicial orlegislative hostility to arbitration. Yet the latter is the picture ofcommon law arbitration to which we have become accustomed eversince the arbitration reform movement focused attention on itsvery real and serious, but also very limited, weaknesses.35

t


Weaknesses—Nonenforcement of Arbitration Agreements

The weaknesses consisted of historical baggage, particularly on theequitable side, which handicapped arbitration agreements. Theseweaknesses centered on the relative lack of enforceability of suchagreements before an award was made, whether submission agree-ments pertaining to existing disputes or agreements to submit fu-ture disputes.36 Such an agreement did not bar a party from breach-ing it and bringing a judicial action or suit on the cause giving riseto the dispute. The court would not stay such an action or suitpending arbitration. Moreover, revocation by one party at any timebefore an award had been rendered — even after the arbitrationhearing—terminated the power of the other party to proceed witharbitration and deprived arbitrators of any power to make anaward.37 True, such a revocation was a breach of the arbitrationagreement, but it was a breach for which only damages, not spe-cific performance,38 were available, and these were largely ineffec-tive.39 And finally, American courts generally did not follow thepromising route suggested by the judgments in the House of Lordsin Scott v. Avery (H.L. 1855)40 that arbitration could, by an appro-priate clause in the agreement, successfully be made a conditionprecedent to any action. Instead, they limited that route to agree-ments relating only to specific questions, not to the entire cause ofaction.41

Exceptions to Nonenforcement

There were, however, important exceptions to the nonenforceabil-ity of executory arbitration agreements. First, a fairly wide rangeof agreements for third-party determinations were quite commonlyclassified as not providing for arbitration and, hence, not subjectto the limitations of enforceability peculiar to arbitration agree-ments. These included setting prices and fixing valuations;42 provi-sions in various kinds of construction contracts for the architect,engineer, and others to interpret plans, to ascertain compliancewith the contract, and even to determine damages for default ordefective performance;43 and provisions for appraisal of loss ordamages to property in insurance contracts.44 Such clauses wereviewed as establishing valid conditions precedent to recovery.45


Second, with respect to existing disputes, parties could also agreein court to arbitration and could secure a rule of court ordering thearbitration.46 Such a rule was enforceable against a subsequentlyreluctant party, who could not effectively revoke the agreementexcept with leave of court for sufficient cause.47 The availability ofthis procedure varied,48 and it was useless to bind anyone to arbi-trate future disputes. Nevertheless, the number of appellate casesdiscussed in Corpus Juris suggests that it was by no means anunimportant aspect of arbitration practice at the time in question.49

This may, in part, have been due to its additional advantage overordinary arbitration in that judgment could be entered directly onthe award,50 rather than the winner having to bring an action orsuit on the award if the loser failed to perform the award.51

Finally, a number of jurisdictions had enacted statutes providingfor the irrevocability of submission agreements relating to existingdisputes.52

Thus, even respecting the key defects in the American arbitrationlaw of seventy years ago as perceived by contemporary reformers,53

an accurate picture of the times is hardly that of the unrelievedgloom one might gather from their writings both before and afterthe successes of the reform movement.54 Nevertheless the problemsthey addressed were real and serious hindrances to an effectivearbitration 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 fromstate statutes, the common law of Nowhere.56 That is to say, it wasevidenced by a great hodgepodge of English, state, and federalcases. These were hardly in universal harmony, and the law ofsome states certainly differed in significant respects from the lawof other states, even without the intervention of statutes. Giventhis, federal cases were bound to be in occasional disagreementwith the cases (and statutes) of some states. And, as will be seen,the federal courts largely saw themselves as applying federal, notstate, arbitration law. Nonetheless, the federal law was largely inaccord with the views commonly prevailing in the state courts and


legislatures at the time, including those pertaining to the importantlimitations discussed earlier. Thus, for example, the structure andpresentation of such studies as Corpus Juris57 and Williston's 1893edition of Parsons58 show no evidence of a body of federal arbitra-tion law substantively distinct from prevailing state law.59

Even though no distinctive body of federal arbitration law ex-isted, federal courts in individual cases had to use the law of some-where, and sometimes consciously had to choose which some-where. A review of the late nineteenth century federal cases revealstwo lines of thinking in making this choice: jurisdiction and reme-dies. The ideas were not necessarily kept separate and were ratherfuzzy. But both lines led to the adoption of the principle that lawof the federal forum governed arbitration.

In the latter nineteenth century, early federal cases applying statelaw60 were either ignored, skirted, or overruled.61 In 1898, the courtin Mitchell v. Dougherty (3d Cir. 1898)62 used traditional ouster ofjurisdiction arguments in refusing to enforce an executory agree-ment to arbitrate disputes. In doing so, it refused to analyze Penn-sylvania cases supporting enforcement because federal law gov-erned:

The question before us is not as to the enforcement of the contractin accordance with the law of the place where it was made, but is asto whether a court of the United States should, because of the par-ties' 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 andafter the enactment of the United States Arbitration Act in 1925.65

Indeed there were perhaps more such cases than appear: whenevera federal court based its decision on ouster of jurisdiction66 it mayhave been thinking of that argument not only in terms of policyrespecting arbitration but also in terms on the limitations of statelaw 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 courtwas sitting in admiralty.68 The arbitration contract in Asphalt Re-fining was governed by the law of England, which provided bystatute for stays of suits brought in violation of arbitration agree-


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 lawof New York because the question in issue was governed by generalfederal law, not state law. Nor was the court bound by Englishlaw, because the question was one of remedy not of right, and thelaw 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 onewould have thought pertinent to such decisions: the Judiciary Actof 178972 as interpreted in Swift v. Tyson (U.S. 1842)73 and the1872 Conformity Act?74 (Both still had many years of life followingenactment of the first modern arbitration act in New York in 1920and 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 sub-stantive law governing diversity cases in federal courts.75 The Con-formity Act provided:

The practice, pleadings and forms and modes of proceedings inother than equity and admiralty causes in the circuit and districtcourts, shall conform, as near as may be, to the practice, pleadings,and forms and modes of proceeding existing at the time in likecauses in the courts of record of the State within which such circuitor district courts are held, any rule of court to the contrary notwith-standing. . . . 76

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


ceded by state arbitration statutes. Under either line of reasoningequity and admiralty causes would be in some special realm oftheir own.

Such expectations are doomed to disappointment. It is not until1932 that a case can be found approximately following the forego-ing neat pattern,78 and even it is more complicated. Both the ousterof jurisdiction route and the "remedy-not-a-right" route evaded theConformity Act, but without, however, adopting a position thatthe question was substantive and hence governed by federal generallaw under Swift. These routes became particularly vital when theissue concerned applicability of a state arbitration statute, ratherthan common law cases. Swift did not prevent the enforcement ofstate statutes in federal courts pursuant to the Judiciary Act of1789.79 And the Conformity Act did not prohibit following stateprocedure just because it was set out in state statutes. Both routesallowed the federal courts to avoid state arbitration statutes in spiteof both the Judiciary Act of 1789, as interpreted in Swift, and theConformity Act.80

In sum, at the time with which we are now concerned, it wasclear that in federal courts a general federal law governed the keyarbitration questions. This was true whether the case was in federalcourt because of its admiralty jurisdiction or its diversity jurisdic-tion, and whether the case was one in law or equity. And it wastrue whether the otherwise applicable state law was statutory orjudge-made. But the reasons for this rule were far less clear andwere certainly not worked out systematically relative to either theJudiciary Act of 1789 or the Conformity Act. This theoretical con-fusion was to play a considerable role in the story told here.

3The 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 thatthe reform movement first flowering in New York had many roots.Undoubtedly the most important was the actual practice of arbitra-tion, including the custom of including clauses relating to futuredisputes and abiding by those clauses in spite of their unenforce-ability at law. New York had long been a center of arbitrationactivity,1 especially among members of financial and trade associa-tions of various kinds. The Chamber of Commerce of the State ofNew York and its institutional forebears had been active in arbitra-tion since 1768.2

Where arbitration agreements are common many factors maycause people to abide by them even when they are legally unen-forceable before the award. The most obvious, apart from simpleintegrity, is the immediate self-interest of having the dispute re-solved by the method each party wanted in the first place and isquite likely to continue to want (at least until the award is an-nounced). When that is insufficient, other pressures of interdepen-dence of various kinds may lead to compliance with the agreement:fear of harm to continuing relations with the other party by break-ing one's word, threats of termination of membership in trade asso-ciations,3 and other possible pressures.4

A contemporary description of the various reasons for goingalong with a legally unenforceable agreement is offered by a 1917

2525


circular of the Credit Association of the Building Trades of NewYork:

... it often transpired that an actual delinquent on finding that hisoppressive and unfair dealings were about to be exposed throughthe relentless investigations [of the association's Arbitration Com-mittee], would at such stage almost invariably agree when repre-sented at our hearings, to leave the decision of the case to the Com-mittee. This willingness, besides being prompted by the naturalfeeling arising in men's minds when actually confronted by the influ-ence of a Board of Conciliation, is increased on learning that arbitra-tion will be decided by representative individuals in the industry whoknow many times more about building matters than men selectedhaphazard to serve as jurors in court cases. That the arbitrations arefree from red tape and free from cost, also influences the agreementto abide thereby.5

The widespread presence of such bindingness not uncommonlyleads to pressures to create State law enforcing the obligationsagainst the occasional backslider who ignores the extralegal en-forcement.

It may be noted that to the extent the reform movement camefrom this source, it was truly an internal, grass-roots6 movement,not of "the people," but of the commercial interests using arbitra-tion.7

Closely related is the second source of the reform movement,New York's history of institutional and legal reinforcement of arbi-tration. For example, in 1861 New York enacted "a law whichmade the decisions of the New York Chamber's Arbitration Com-mittee binding and established them as bases for Judgment in aCourt of Record."8 In 1874 New York established a "Court ofArbitration in connection with the Chamber. Under the law, theGovernor appointed the arbitrator" and as clerk whomever thechamber had selected.9 This system functioned, but with increasingjudicialization, for a number of years. There were, however, criti-cisms10 of the system and when the incumbent arbitrator died in1900 the system died with him. Another example was conciliationand arbitration in the Municipal Court of the City of New York.11

Active legislative support of arbitration had long been an accus-tomed part of the New York scene, as demonstrated by New York'smature, comprehensive arbitration statute.12

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 lawjudges whose opinions criticized the defects of the common lawsystem, sometimes excoriatingly so. At the same time they staunch-ly or cravenly, depending on one's viewpoint, upheld both staredecisis 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 CharlesM. Hough, who carefully picked apart all the reasons advanced forjudicial refusals to give effect to executory arbitration agreements,found each totally without merit, then concluded that he wasbound by Supreme Court precedent to refuse to stay the suits pend-ing arbitration.

A final source of the reform movement was English law,14 bothjudge-made and statutory. The lodestar of the former was the Houseof Lords decision in Scott v. Avery,15 which allowed parties effec-tively to agree that arbitration would be a condition precedent to thebringing of an action for breach of the contract containing the arbi-tration clause. The importance of this case to the reform movementis demonstrated by Julius Henry Cohen's extensive treatment in hisattack on the American law of arbitration.16 Respecting the Englishstatutory law, the reformers were in a bit of a quandary. Their basicposition was that the common law courts, first the English andthen the American, had simply erred in their understanding of thecommon law. The courts, rather than the legislatures, thereforehad 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 ofthe reformers. On the other hand, American judges were showingno signs of relenting, however critical they were of the status quo,as Judge Hough's decision in Asphalt Refining so clearly demon-strated. Moreover, the common law defects were often enshrinedin state legislation, including that of New York. As will be seen,the reformers came, however reluctantly, to the conclusion thatlegislation was the route to be followed. And in this the EnglishArbitration 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

rm


force at work: forward-thinking professional scholars writing criti-cally of the defects of the common law arbitration system. Al-though the law reviews chimed in after the reform movement waswell underway and its first successes achieved, neither law schoolfaculty nor student editors can be accused of having been in thevanguard.19

The Evangelists

From the foregoing it will be seen that the reform movement wasnot someone's flash inspiration, but a coalescing of forces longabuilding, especially in New York. Nevertheless, someone or somebody had to start the movement as a movement. The someoneevidently was Charles L. Bernheimer,20 who had been studyingarbitration since the panic of 1907.21 The body was the Chamberof Commerce of the State of New York, the general counsel ofwhich was Julius Henry Cohen, who became the second someoneof the reform movement.22 In 1911 the chamber appointed a specialcommittee on arbitration under Bernheimer's chairmanship;23 thiscommittee became one of the main ball carriers of the reformmovement.

The committee's first step was to draw up new plans for thechamber's own conduct of arbitration.24 The result was that thechamber was soon leading from the strength of an organizationsuccessfully engaged in the arbitration business in the modern ur-ban context. In 1914 the chamber was joined in its efforts by theNew York State Bar Association, which appointed a Committeeon the Prevention of Unnecessary Litigation.25 Also in 1914, theNew York chamber learned of a proposal of Percy Werner ofthe Missouri bar to create voluntary tribunals to be manned bylawyers.26

The Quest

At this point we should pause in the story and ask just what thereformers wanted. One thing is crystal clear, they wanted elimina-tion of the rule of revocability of arbitration agreements relatingto both existing and future disputes.27 I have been unable to findany direct contemporary proof of this statement for the early years,


say 1911 to 1915, but there is much indirect proof. First, we canbegin to infer such an intention from some of the roots out ofwhich the movement seems to have sprung. In 1916 the chairmanof the Bar Association committee28 is quoted as saying that "one ofthe most beneficial results of the committee's deliberations is likelyto be the discovery of some workable scheme of arbitration andconciliation as a means of preventing litigation."29 The earliest clearstatement I have found among the reformers30 is written in 1918 asif Cohen had believed in this principle for a long time. Also, aswill be seen, this is the theme on which the reformers have focusedever since.

Another thing seems fairly clear, namely that the reformers sawthe reform of arbitration as part of a broader package of legalsimplification and responsiveness to commercial needs in generaland avoidance of litigation in particular.31 For example, in 1916the Chamber of Commerce of the State of New York adopted a setof "Rules for the Prevention of Unnecessary Litigation,"32 de-scribed as "a few common sense rules of business which experiencehas proved to be valuable in the prevention of unnecessary litiga-tion."33 Although these included two or three pages on arbitration,the bulk of these "rules" was taken up with Prevention of Litigationat the Source (fourteen pages) relating to a wide range of matters,34

much of it devoted to what Professor Louis M. Brown calls preven-tive law.35

We must be careful here. Little of public record is availableconcerning this period. And it is speculative to draw inferencesabout the period from later expressions. One can, of course, seeshifts during the early period, such as the change of name of thestate bar committee in January 1917 from the Committee on thePrevention of Unnecessary Litigation to the Committee on Arbitra-tion,36 but what these changes may have signified is no longer clear,if it ever was. Nonetheless, Charles Bernheimer's 1923 summary ofthe purposes of the proposed United States Arbitration Act proba-bly provides some idea of the reformers' views in the earlier period:

a. To reduce the cost to the consumer, without taking it out ofthe producer.

b. To reduce the law's delay and consequently what amountsvirtually to a denial of justice.


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 thestate bar joined forces, Judge Hough, with his decision in AsphaltRef. Co. v. Trinidad Lake Pet. Co. (S.D.N.Y. 1915),38 gave theforces of reform a powerful incentive toward legislative action.After that decision the reformers could view the courts only aspermanently and mulishly preserving the revocability rule, al-though as late as 1918 Cohen still limited his plea to reform by thejudiciary.39

The Asphalt Refining decision aroused not only the New Yorkreformers, but also the London Court of Arbitration, concerned(without cause it may be said) that Americans could enforce awardsagainst British subjects, but not the other way around.40 The re-formers made good use of these communications from the centerof the Empire.41

The state bar committee and the Chamber of Commerce commit-tee commenced to work increasingly closely. By 1917 their effortswere those of cooperative riders of a bicycle built for two. Thestate bar committee in 1917 presented to the bar association theChamber of Commerce Rules for the Prevention of UnnecessaryLitigation. It also presented a proposed by-law and rules relatingto arbitration for the state bar association itself, modeled on thoseof the New York Chamber of Commerce.42 The purpose of thesewas "making it easy for opposing lawyers to submit their clients'differences to another lawyer of their own selection whenever theyand their clients shall think it best to do so."43 There was alsoincreasing emphasis on the problem of revocability and future dis-putes. The state bar committee now became the Committee onArbitration and was charged "to consider the advisability of legisla-tion for the recognition and enforcement of agreements for futurearbitration of controversies between the parties and if they deem


such legislation advisable to prepare a bill for that purpose andpresent it to the legislature."44

In addition, the reformers took to print, the most ambitiouscontribution being provided in 1918 by Julius Henry Cohen whenhis book, Commercial Arbitration and the Law, was published bythe well-known house of D. Appleton.45

In 1919 the state bar committee reported that it had becomeconvinced that the doctrine of revocability was an anachronismand should be eliminated as soon as possible.46 Although the com-mittee thought judicial reversal was the best course, it neverthelesspresented to the state bar association a proposed arbitration bill.47

In 1920 the Chamber of Commerce committee combined with threestate bar committees48 to draft the statute enacted that year in NewYork.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 move-ment. About 1916 the Chicago Association of Credit Men hadbecome active in promoting arbitration.50 Apparently on their own,in 1917 they induced the Illinois legislature to enact a revised arbi-tration law." This law retained many of the features of the 1873act,52 which it repealed, but made a number of changes, two ofwhich were extremely important.

First, the 1917 law provided that unless a contrary intentionwas expressed in the submission agreement, statutory arbitrationsubmissions were irrevocable.53 Since the statute applied only toexisting controversies, this was not as sweeping as it might havebeen, but its effect was nonetheless significant; now all agreementsrelating to existing controversies, not just those made as rules ofcourt, were irrevocable.

Second, section 6 of the new law provided that arbitrators couldon their own motion, and must at the request of a party, "submitany question of law arising in the course of the reference for the

m

32 Reformation of A merican A rbitration Law

opinion of the court" and that such opinion would bind the arbitra-tors in making the award. Similarly, they could on their own mo-tion, and must at the request of a party, state their award "in theform of a conclusion of fact for the opinion of the court on thequestions of law arising and such opinion shall finally conclude theproceeding."

This provision was suggested to the credit men by Chief JusticeHarry Olson of the Municipal Court of Chicago:

Chief Justice Olson saw an opportunity for linking the court with arbi-tration in a way beneficial to both. Arbitration, with its expert triers ofquestions of fact, was seen to be positively superior to court procedurewith its uninformed jurors and their reliance upon expert witnesses.The weak spot in arbitration appeared to be when mixed questions oflaw and fact were involved and recourse would need be had to a courtif the questions of law were to be expertly disposed of.

This difficulty has been met in a way in England, but Chief JusticeOlson believed a more direct and simple cooperation could beworked out. So the revised act was drafted with this in view, andunder it questions of law are readily submitted to a court havingjurisdiction of the subject matter. He announced preparedness toassign ad hoc for prompt disposition a judge of special qualifica-tions. Under this system the court works hand in hand with arbitra-tors and the system promises to result in a very complete and perfectservice.54

Other changes made by the new act were: (1) statutory arbitra-tion submissions no longer had to be sealed, a signed writing wasnow sufficient;55 (2) arbitrators were given the authority to issuesubpoenas, enforceable by the court through attachment or con-tempt;56 (3) while the arbitrators gained the power to take deposi-tions,57 their power to punish for contempt in their presence duringhearings was omitted; (4) for some reason or other, fees, althoughcontinued for arbitrators and law officials, seem to have been dis-continued for witnesses.58

The 1917 law failed to constitute a modern arbitration statute intwo main respects.59 Most important, it did not apply to agreementsto arbitrate future disputes. Moreover, while it duly restricted thecourt's freedom to review arbitrators' fact findings, it effectivelystripped them of their power to apply the law (and, in large mea-sure, to determine it).


The Reform View: No Step Forward;One Step Backward

In the eyes of the reformers, failure to provide for enforcement ofagreements to arbitrate future disputes tore out the heart of anyputative reform statute. But section 6, with its shifting of determi-nation and application of law from the arbitrator to the courts,was also anathema to the reformers. True, less is to be found inreform discussion of this issue than of revocability, but this reflectsonly a lesser need to raise the issue, not its lesser importance.60

American law, unlike law under the English Arbitration Act of1889,61 already conferred broad power on the arbitrators to deter-mine and apply the law;62 hence that aspect required little or nochange to achieve the goals of the reformers. That making arbitra-tion agreements irrevocable, especially for future disputes, consti-tuted a vast extension of such arbitrator power to determine thelaw, did not, however, entirely escape notice. Harlan F. Stone, forexample, although not focusing clearly on the precise issues raisedby section 6, had marked reservations about the broad powersconferred on arbitrators by the New York Arbitration Law of1920.63

The reformers could hardly have been happy with this Illinoislaw, coming as it did just when New York State's Chamber ofCommerce and Bar Association were beginning to raise real steamfor a modern arbitration law.64 Worse, the Chicagoans were verypleased with themselves and set out to proselytize their position.Judge Olson became the chairman of a new Central Committee toPromote Commercial Arbitration, which took over the workstarted by the Chicago Association of Credit Men.65 This CentralCommittee operated by sending explanations of the advantages ofarbitration to trade associations and urged them to adopt a resolu-tion favoring it. The very first suggested "Whereas" in its circularwas: "the revised Arbitration Act of the State of Illinois provides asimple and practical method for adjudicating controversies arisingin the course of business," and so forth.66 By August 1918, nineassociations had followed, and the Journal of the American Judi-cature Society reported ominously (for the reformers), "The Cen-tral Committee is continuing its missionary work . . . "67

4Reform 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 mustexamine what was there before the 1920 act. As already mentioned,New York had long had a comprehensive arbitration statute con-tained in its Code of Civil Procedure.1 It provided, among otherthings, that parties could by a writing, duly acknowledged orproved, and certified, in like manner to a deed to be recorded,submit to arbitration any existing controversy that might be thesubject of an action.2 The common law rule of revocability wasmodified to the limited extent that the submission could not berevoked after the allegations and proofs of the parties had beenclosed and the matter finally submitted to the arbitrators for deci-sion.3 In submissions under the code, arbitrator unanimity was notrequired for an award to be effective; a majority would do unlessthe submission agreement provided otherwise.4

The parties could provide in the submission that a judgment of acourt of record was to be rendered on any award made pursuant tothe submission.5 Any party to the submission could apply for acourt order confirming the award, which the court was required toissue, except for specified authority to vacate or modify the award.6

Judgment was entered on such orders,7 and the judgment was giventhe same effect as judgments in actions.8

34

Reform Gathers Momentum 35

The court was authorized to vacate the award on showing ofsuch circumstances as corruption, partiality, specified kinds of pro-cedural misconduct, and "where the arbitrators exceeded their pow-ers, or so imperfectly executed them, that a mutual, final, and def-inite award, upon the subject matter submitted, was not made."9

Where the court vacated the award and the time within which thesubmission required the award to be made had not expired, thecourt was given the discretion to direct a rehearing by the arbitra-tors.10 The court also had authority to modify or correct the award

in specified circumstances.11The Code of Civil Procedure also dealt with procedural matterssuch as time for hearing, adjournments, swearing of arbitrators,power of arbitrators to compel attendance of witnesses, fees, au-thentication 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 sub-missions to qualify under the statute.13

The 1920 New York Act14

Readers familiar with current New York law of arbitration willrecognize how much of it was brought forward from the statutegoverning long before the 1920 act was passed.15 What, then, didthe 1920 act do?

The most important change was that a written contract to settlea controversy thereafter arising was valid, enforceable, and irrevo-cable, save upon such grounds as exist at law or equity for therevocation of any contract.16 Similarly, validity, enforceability, andirrevocability were conferred on submissions of existing controver-sies complying with the Code of Civil Procedure. This led to theodd result that an informal, even unsigned, writing to arbitratefuture controversies was valid, whereas even a signed writing toarbitrate an existing controversy, if not acknowledged, and soforth, 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 toprevent death or appointment of a committee (for lunacy, etc.)from invalidating submissions occurring before death or appoint-ment of the committee.19 It applied not only to submissions made

TTi


as prescribed in the new law, but to others as well,20 presumablyinformal writings (respecting existing controversies) and possiblyoral submissions. But to have this effect, the submission was re-quired to contain a stipulation authorizing the entry of judgmentupon the award.

Giving teeth to the provision for irrevocability was a new rightto petition the courts for an order directing arbitration to proceedas provided in the contract or submission.21 This in turn was bol-stered by the court's authority to appoint an arbitrator or arbitra-tors where a party failed to do so.22 Moreover, the courts wereauthorized to stay proceedings brought in violation of an arbitra-tion agreement or submission complying with the ArbitrationLaw.23 The invalidation by Code of Civil Procedure §2385 ofany provisions for "penalty, forfeiture, or damages" upon revo-cation of a submission to arbitration was repealed.24 Such provi-sions presumably were now to be governed thereafter by commonlaw principles respecting liquidated damages, penalties, and forfei-tures.

Finally, it should be noted that Code of Civil Procedure §238625

was left intact, thereby presumably preserving common law arbi-tration in New York for agreements complying neither with thenew law nor the code.

Significance of the 1920 New York Act

Earlier I have stressed the largely favorable nature of prereformAmerican arbitration law, the absence of enforcement of agree-ments to arbitrate future disputes being the only general excep-tion.26 My doing so should not, however, be allowed to obscure theimmense significance of statutes providing for legal enforcement ofsuch agreements. As an anonymous reviewer of a draft of thiswork said:

[O]ne cannot overstate the significance of the single salutary reformwhich made possible the extension of arbitration beyond the tradeassociations which were its main breeding ground and led to itswholesale employment in standardized agreements of all kinds. This,in turn, raised a whole host of new questions regarding public policylimitations and one-sidedness which were not a problem when arbi-


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

The 1920 New York Act and English Law

Since English law was often to the forefront of the minds of thereformers, a word is in order about the relation between the NewYork act of 1920 and the English Arbitration Act of 1889.28 It issimply wrong to assert, as Wesley Sturges did, that the New Yorkact (or those following it) were "similar to" the English act.29 Onlythose mesmerized by irrevocability would make such a statement.The New York act did indeed adopt and implement irrevocabilityas to both existing and future disputes, as did the English act.30

Nonetheless, after that the similarity ceases; there is no comparisonbetween the details, or even some of the key principles, of thesetwo acts. It is not feasible here to compare the two acts in detail,but among other things the following should be noted. The Englishact was a comprehensive statute consolidating and reforming thelaw of five statutes passed over a period of nearly two hundredyears; the New York act was a largely single issue (irrevocability)statute forming an add-on to a more comprehensive statute. TheEnglish act made a complying agreement the equivalent of an orderin court;31 the New York act did not. The English provisions forappointment of arbitrators32 were quite different from the NewYork provision. Like the 1917 Illinois statute,33 the English actcontained an extremely important provision34 allowing arbitratorsat any stage to put questions of law to the court, and empoweringthe court to direct the arbitrators to do so. The New York act, incontrast, had no such provision and left intact the Code of CivilProcedure provisions for merely limited judicial review. The En-glish act was much more detailed respecting procedure than wasthe New York act, even when combined with the Code of CivilProcedure. In short, with the sole exception of irrevocability, theNew York act was not patterned on the English act.

In spite of, perhaps because of, the limited changes achieved bythe New York act, there can be no question but that passage of theNew York act on April 19, 1920, was the first great breakthroughfor the arbitration reform movement. It had captured the greatestcommercial and financial state of the Union.


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 ofa major campaign to educate the public —at least certain parts ofthe public —about arbitration. But the campaign went into highgear with the "rather drab event of enacting a modern arbitrationlaw in 1920 in the state of New York."36 The passage of the statuteled in 1922 to Moses H. Grossman's37 organizing of the ArbitrationSociety of America.38 It was this society that "put on an educationalcampaign that carried arbitration to the people in a new waythroughout the country."39

Frances Kellor,40 a later arbitration reformer, describes the cam-paign:

. . . [Arbitration made front page headlines in the press. It wentout to luncheon and to dinner; receptions were held in its honor,and forums were dedicated to its exposition. It became the subjectof conference, debate, and instruction. It frequented exclusive clubsand found its way into homes, churches, schools and theatres. Itpassed the exclusive portals of law offices, banks, and corporationboard rooms. It came out of dry law books, where only the difficul-ties were recorded, and found a place in general as well as specialperiodicals, books, and pamphlets. Sometimes arbitration wore eve-ning clothes; at other times it appeared in overalls, or in a professor'sgown; but always it aroused curiosity and interest.41

During "Arbitration Week" in 1923, Charles L. Bernheimer "ar-ranged a program in which more than fifty trade and commercialorganizations participated."42 During the first eighteen months ofits 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, thenDean of Columbia University Law School, commented in 1923:

Zeal for the arbitration principle which has been hitherto devoted tosecuring the enactment of legislation is now being turned into otherchannels. A well developed propaganda is being directed towardinducing merchants to make the widest use of arbitration as the


simplest, the least expensive, the most expeditious and the mostsatisfactory method of disposing of controversies between businessmen. . . . There is in all this propaganda a very substantial elementof well intentioned exaggeration and there is in consequence a veryreal danger that the benefits which may be hoped for from thisuseful reform will be seriously impaired by the reaction with inevita-bly follows exaggerated claims for the merits of any reform howeveruseful and desirable it may be.

Arbitration is not a universal panacea for the evils of litiga-tion. . . .

The time has come when in the promotion of the arbitration prin-ciple we should look realities in the face. If we wish to promote thecause of arbitration and make it a really useful device for avoiding,in suitable cases, the loss of time and money involved in litigation inthe courts, we shall cease urging arbitration on merchants as a legal"cure-all." We shall frankly inform them that arbitration, like othermethods of litigation, has its advantages and its disadvantages, andthat he who does not make intelligent and discriminating use of it islikely to be disappointed in the choice of his remedy.44

Frances Kellor summarized her perceptions of the results ofthe society's activities during its four years of life from 1922 to1926:

. . . [It] substantially changed the pattern of arbitration. It broughtarbitration out of its austere juridical arena into the limelight as aninstrumentality which people themselves could use generally for thevoluntary settlement of many kinds of differences. It made arbitra-tion procedures readily accessible to the people through the estab-lishment and operation of a commercial arbitration tribunal. It cre-ated a new leadership through panels of arbitrators and tradegroups. It directed public attention to a hitherto drab and obscuresubject. It flung a challenge of self-regulation to private enterprise.It opened the eyes of lawyers to a new practice in arbitration tribu-nals. It envisioned the dawn of a new profession by starting a panelof arbitrators and beginning their education. It brought arbitrationto the people in a simple yet dramatic way and stimulated theirfaith in this age-old method of solving differences and maintainingfriendships. It introduced into the American way of life a new insti-tution for building and maintaining good faith, goodwill, and confi-dence in human relations.45


Rivalry

Meanwhile, in 1925 the Chamber of Commerce of the State ofNew York had founded the American Arbitration Foundation,with Charles L. Bernheimer as president. Two observers, one,Frances Kellor, a contemporary and an arbitration reformer, theother, 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 Societyand Bernheimer's Arbitration Foundation.

Kellor viewed the foundation as a challenge to the "new ideasand challenging program" of the society.46 "The more conservativepurpose of the Foundation was to spread the use of arbitrationthrough study and the dissemination of knowledge concerning it,to co-operate with other organizations, to co-ordinate law and arbi-tration practice, to improve arbitration law and to furnish adviceand provide facilities and funds for the furtherance of the greatcauses of arbitration, mediation, and conciliation."47 She saw thisas without public appeal and lacking the "democratic approach tothe people" of the society and its efforts to build "a membershiporganization that would include many people and institutions,large and small."48

Auerbach, on the other hand, sees the relations between thesociety and the foundation largely in terms of the relation betweenarbitration and the legal system, particularly in terms of a strugglebetween "businessmen who preferred to exclude lawyers" and "law-yers who resented the diversion of disputes into non-legal chan-nels." He sees Grossman and the society as champions of the legal-istic approach49 and Bernheimer and the foundation as championsof "non-legal commercial arbitration," where "businessmen re-tained the power to resolve disputes according to trade practicerather than legal principle."50

Merger

According to Auerbach, the disputants agreed, appropriatelyenough, to resolve their differences by arbitration. That is, thesociety and the foundation each chose three representatives, andthe six in turn "selected Lucius R. Eastman, a businessman and


lawyer, as their chairman."51 It took them a year, but in 1926 theyagreed to merge the society and the foundation into the AmericanArbitration 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 forbench and bar. Lawyers and judges were conspicuously presentin the new Association. . . . The institutional framework for thelegalization of commercial dispute settlement was securely inplace."53

Picking Up Speed: 1920-25

The Evangelists Capture the A .B.A.

Even before the New York act was passed, indeed drafted, thereformers had gone nationwide. In 1918, Charles Bernheimer ap-peared before the National Conference of Bar Associations urgingthe associations forming the conference to extend the principle ofcommercial arbitration. The conference was later reported to havemade such a recommendation.54 It was, however, success in NewYork which became the occasion for the reformers to launch thereform campaign nationwide in a substantial way. At its 1920 an-nual meeting, the American Bar Association directed its Committeeon Commerce, Trade and Commercial Law55 to consider and re-port at the next annual meeting "upon the further extension of theprinciple of commercial arbitration."56 The committee returned in1921 with drafts of a Uniform State Act on Arbitration and atentative draft of a federal act, Arbitration of Disputes in Admi-ralty and Interstate and Foreign Commerce.57 Both were patternedon the New York act, and hence did away with revocability withrespect to both existing and future disputes. The association ap-proved the Uniform State Act and its referral to the National Con-ference of Commissioners on Uniform State Laws.58

In 1922 the A.B.A. committee returned with revisions of bothacts (and with a proposed treaty to be negotiated with foreigncountries to make international commercial arbitration effective).59

The proposed acts were renamed the Uniform Act for CommercialArbitration60 and the United States Arbitration Act,61 respectively.The committee treated these two proposed statutes as a package in


its report.62 It explained that there was "great satisfaction on thepart of business men with the principles and procedure of the NewYork Law and that it is desired that these principles should bemade effective in interstate commerce, intrastate commerce andforeign commerce."63 It went on to state: "It is highly desirable thatthe federal statute and the uniform state statute should dovetailand fit each with the other."64 Although the committee was pre-pared to go ahead with the United States Arbitration Act directly,a death had prevented sufficient consideration of the proposedUniform Act for Commercial Arbitration by the Commissionerson Uniform State Laws. Accordingly the committee recommendedapproval of the United States act65 and reference of the UniformAct to the commissioners.66 The association approved the commit-tee's recommendations.67

The Conversion of New Jersey

The reformers conducted their campaign on two other importantfronts. One, to be treated in Chapters 7 through 9, led to theenactment of the United States Arbitration Act in 1925. The otherwas in state legislatures. Their initial move along the second linewas geographically the easiest, across the Hudson. In 1922 a billfollowing the pattern of the A.B.A. committee's Uniform Act (andtherefore the New York act) was submitted to the New Jersey legis-lature, where it passed the Assembly. It was, however, introducedtoo late in the session to be passed by the Senate.68 The followingyear the bill was reintroduced. The Committee on Legislation ofthe New Jersey State Bar Association reported the bill favorably tothe association's Executive Committee on February 13, 1923.69 Aspecial 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 ArbitrationLaw of New York State, and to answer the question of JudgeSkinner, regarding the success of this statute in the State of NewYork. Mr. Cohen delivered a very interesting address."71 The legis-lative committee's recommendation was unanimously approved,possibly without discussion.72 The secretary was directed to informthe legislature of the approval and "to certify the exact vote."73 The


legislation was duly enacted, and New Jersey thereby became thesecond state with a modern arbitration statute.

Partial Victory in Massachusetts

The reformers now moved east to Massachusetts. The only ac-counts I have found of the action in the Bay State are the highlypartisan comments of Joseph Francis O'Connell74 and the re-sponses of Julius Henry Cohen played out on a later battle-ground.75 Piecing together what happened in Massachusetts on thebasis of these heated discussions is not easy, although some thingsare clear.

One fact is that O'Connell was initially a reform partisan. Hewas Chairman of the Committee of the National Conference ofCommissioners on Uniform State Laws, which in 1923 unani-mously recommended a uniform arbitration law patterned on theNew York act. His committee's report referred to Cohen's book oncommercial arbitration,76 as "a brief, yet comprehensive, discussionof the principles involved in this proposed Arbitration Act and thedifficulties to be met in framing a law which will overcome theprejudices and precedents of the Courts." It went on to describe itas "a very complete and satisfactory discussion."77

Another fact is that O'Connell later switched sides, the finalswitch occurring perhaps as early as August 1923 when the Com-mittee of the Whole of the National Conference of Commissionerson Uniform State Laws approved a draft uniform law excludingfuture disputes from its coverage. Unclear, however, is just howand why O'Connell dropped the reform cause. In 1925 he referredto having been "swept off my feet" by Cohen and Bernheimer thefirst year, but after talking with the rest of the conferees [Commis-sioners on Uniform State Laws] I have come back to my moor-ings."78

Another thing that seems clear is that some of the New Yorkreformers played a promotional role relating to the act Massachu-setts enacted in 1925. From the subsequent interchange betweenCohen and O'Connell, it seems most likely that it was Judge Gross-man and the Arbitration Society rather than Bernheimer, Cohen,and the American Arbitration Foundation that carried on this par-ticular campaign. O'Connell's account in September 1925:


They came up to Massachusetts two years ago. Judge Grossmanannounced at the Harvard Club, at a meeting that he had $40,000to spend to put the bill through. Well, you can imagine when thelegislature heard that there was $40,000 to put that bill through-itdid not get through.

Last year they came again. In the meantime they had gone downto the Chambers of Commerce and Boards of Trade in Milford andall the little towns around Massachusetts, and the State Board ofTrade, and they talked to them about arbitration. They said; "Youcannot do business unless you get this clause in." . . . They held ameeting, two or three meetings. It finally came to a hearing beforethe Judiciary Committee last February. I attended the meeting and Itold 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. Thecommittee, after listening to the proponents of the act for a wholeday, decided unanimously to have the bill withdrawn. Then they gotbusy, probably not Mr. Cohen, but nevertheless that organizationin which he is very prominent, they got hold of Governor Fullerand they said, "Send this bill back"; and it was sent back. When aGovernor gets interested in a thing, of course, naturally it will gothrough.79

Earlier in the discussion, Cohen denied being at the legislativehearing in Massachusetts or having a representative there,80 andwent on:

It was said on this floor that we had gone to Massachusetts andurged the passage of the Massachusetts law. I challenged that state-ment at once, because I knew that Mr. Hollis Bailey, who is aCommissioner on Uniform Laws, and is a member of our committeehad not gone near the legislature of Massachusetts; and you heardthe other commissioner from Massachusetts [O'Connell] say that hedid go near them, and tried to persuade them not to do the thingthey did. I know Mr. Piatt, another Commissioner on UniformLaws, had not gone to Massachusetts. I know that Mr. Smith hadnot 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 descriptionabove, made a few minutes later, of the conduct of Judge Gross-


man and others in propagandizing Massachusetts. Judging fromthe dialogue O'Connell seems to have confused the two groupsof New Yorkers, and Cohen saw no need to disabuse him of hismistake.

The reform effort in Massachusetts was only partially successful.Although the 1925 Massachusetts act was a modern statute cover-ing agreements to arbitrate future disputes, it provided that, "Anyquestion of law may, and upon the request of all parties shall, bereferred by the arbitrator or arbitrators to the court to which thereport is to be made."82 This was not as bad from the reformersstandpoint as the Illinois provision,83 which allowed either party todemand submission of questions of law to the court and to havethe award stated in the form of a conclusion of fact for submissionto 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 oftenbeen claimed as a victory by the reformers.84 But the Oregon statuteenacted on February 24, 1925, by no means clearly made agree-ments to arbitrate future disputes enforceable. The key languageprovided only that:

§1. All persons desiring to settle by arbitration any controversy,suit or quarrel, except such as respect the title to real estate, maysubmit their differences to the award or umpirage of any person orpersons mutually selected.

§2. Said agreement to arbitrate shall be in writing, signed by theparties, and may, at the option of the parties, be by bond in anysum, conditioned that the parties entering into said submission shallabide by the award.

§3. If any suit or proceeding be brought upon any issue arisingout of an agreement which contains a provision for arbitration ofthe same matter in controversy in such suit or proceeding, then,upon application, any judge of a court of record, upon being satis-fied that the issue involved in such suit or proceeding is referrable toarbitration, shall abate the action so that arbitration may be had inaccordance with the terms of the agreement; . . . 85


Section 3 clearly supports the reformer's claims to have capturedOregon in 1925, because it certainly seems to contemplate andprovide for agreements to arbitrate future disputes. But the statutemust be read against the background of judicial hostility (and legis-lative acquiescence in that hostility) to enforcing arbitration offuture disputes. Read against that background, sections 1 and 2are, deliberately or inadvertently, opaque. If this statute was in-tended to be a modern one, it is difficult to understand why section1, establishing the validity, enforceability, and irrevocability ofarbitration agreements, does not make that clear. Other leadingstatutes already had: the New York and New Jersey statutes, aswell as the proposed reform statutes, which had then been in thenational arenas of the A.B.A. and the National Conference ofCommissioners 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 theperiod 1925 to 1929, an amendment of section 2 in the latter yearsuggests the existence of that puzzlement and an abortive effort toclarify. Section 2 as amended provided:

§2. (a) Written Agreement. The parties themselves, or those per-sons who might lawfully have controlled a civil action in their behalffor the same subject-matter, must sign and acknowledge a writtenagreement, specifying particularly what demands are to be submit-ted, the names of the arbitrators and court by which the judgmenton their award is to be rendered, and may, at the option of theparties, be by bond in any sum, conditioned that the parties enteringinto 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 submis-sion providing for arbitration, described in section 2 hereof, shallpetition the circuit court, or a judge thereof, for an order directingthat such arbitration proceed in the manner provided for in suchcontract or submission. . . . 86

The changes in subsection (a) certainly suggest that agreements toarbitrate future disputes were not intended to be enforceable, butsubsection (b) especially the phrase "contract or submission" stillleaves the matter in some doubt.87 It was not until 1931, the yearafter Professor Sturges's treatise was published, that Oregon clearlyjoined the ranks of the reformers.88


Converting Our Father in Washington: 1921-25

While the reformers were busy proselytizing the masses and begin-ning to convert state legislatures, they were also engaged in a vigor-ous four-year campaign to enact the United States Arbitration Act.The campaign achieved its objective when the USAA was passed in1925.89 We shall examine this campaign and its outcome in detailin Chapters 7 through 9.

5After Adversity, Reform Triumphs

Schism! Treachery: The Commissionerson Uniform State Laws: 1923-25

Early Actions of the Commissioners

The picture of the years 1920 through 1925 has thus far been oneof unmitigated success for the reformers, with the pioneering NewYork statute starting the period and the United States ArbitrationAct ending it. We now go back a bit to consider the one realsetback the reformers encountered. The foundations of this setbacklay in the forces behind the 1917 Illinois rejection of irrevocabilityof agreements to arbitrate future disputes.1 Illinois was followed in1923 by its neighbor to the north, Wisconsin, which copied the1920 New York act, "excepting only those sections . . . which dealwith written agreements to arbitrate future disputes."2

Worse news for the cause of reform came from the Commission-ers on Uniform State Laws, whom we left in 1922 with a draftuniform law following the New York act referred to them by theAmerican Bar Association.3 At first all seemed to go well. At theannual Conference of the Commissioners in August 1923, the Arbi-tration Committee (which the commissioners had established in1921) referred a second tentative draft to the conference, followingthe lines of the A.B.A. draft.4 This was accompanied by an enthusi-astic 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 excludingfrom its coverage future disputes.7 This eviscerated draft was sentto the Arbitration Committee for further consideration, and thepresident of the conference, Nathan William MacChesney,8 wasasked to "make a report of progress to the American Bar Associa-tion."9

MacChesney promptly reported to the A.B.A. at its August 1923annual meeting that the conference had considered the draft re-ferred by the A.B.A. and "has drafted an Act which was debated,section by section, last week and to a large extent perfected," buthad recommitted it to the conference committee "for further con-sideration so that the final draft as approved by the Conferencemight more nearly comply with the standard of legislation hereto-fore maintained by the Conference and be entirely free from errorsand defects."10 He did not, however, mention that the commission-ers had deleted future disputes, the reformers' keystone, from thecoverage of the act. This was somewhat disingenuous under thecircumstances, since the A.B.A. was asked to, and did, adopt thereport and concur in the recommendations." But the omissioncould hardly have misled the reformers. Two commissioners whohad 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 Piattat least was present at the A.B.A. session in which Nathan Mac-Chesney delivered his report.13

Year of Decision for the Commissioners: 1924

In 1924 the arbitration committee of the Conference of Commis-sioners submitted a third tentative draft retaining the exclusion offuture disputes and adding the Illinois provision for submission ofquestions of law to the courts and for the award to be stated as aconclusion of fact upon demand of either party.14 In addition, anew section limited the appearance before arbitrators to the parties,regular employees of the parties, and lawyers.15 Another new provi-sion required the arbitration agreement to "state the question orquestions in controversy with sufficient definiteness to present oneor more issues of questions upon which an award may be based."16

When the committee report with its third tentative draft of the


uniform act reached the commissioners for discussion and decisionon July 1, 1924, the struggle began to heat.

From the beginning, the discussion among the commissionerswas couched in terms of New York and New Jersey against therest of the country, and particularly against the Middle West. TheChamber of Commerce of Chicago and businessmen of the heart-land were represented to be solidly in favor of the Illinois act andopposed to extending irrevocability to agreements relating to futuredisputes.17 A related concern was the belief that even in New Yorkand New Jersey only a small group of interests favored the "NewYork" approach. This was emphasized later by the vote of the NewYork commissioners in favor of the uniform act.18 The expressionof this concern in rather personal terms still suggests even in thedusty pages available to us some of the heat involved in the strug-gle. Joseph Francis O'Connell, who shepherded the committee re-port through the conference, remarked:

It does seem that it would be wrong for us to impose upon thisConference the views of New York and New Jersey, that we knoware the result of the activities of a small group. I have nothing butthe highest respect in the world for Mr. Julius Henry Cohen. Iregard him as a very able man, a very eloquent man, a very convinc-ing man, and he has given a great deal of time and thought to thisparticular subject, but I fear he has addressed it entirely from theangle 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 thatJudge Grossman is representing practically the same element in thebusiness world that Mr. Cohen does. Now then, is that small group,with their desires for expedition, going to prevail against the forty-six states in this Union who feel that they have got the interests ofall their population to safeguard and to look after."

Relationships with the A.B.A. were also an important consider-ation.20 But the view prevailed that the A.B.A. Committee on Com-merce, 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-NewJersey (and soon to be, federal) approach to arbitration.21

On the merits, concern was expressed —as it had been by SenatorWalsh at hearings on the USAA the year before22 — about the adhe-sive aspects of arbitration contracts. The majority of the committee


was unconvinced by arguments that such agreements were freelyentered. Once again O'Connell's comments are exemplary of theprevailing view on the committee:

Under the New York Act you are called upon to agree in advancethrough a clause that is in the contract, most often in small type,that all controversies of any nature, kind or description are to betaken 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 major-ity of the committee that this is wrong in principle, to call upon mento agree in advance to arbitrate any difficulties that might arise,particularly in view of the fact that that would be done in mostinstances without any realization on the part of the contracting par-ties as to what they were really doing. Of course, we all agree thatmen ought to know what they are doing when they are signingcontracts, but we all know from a practical experience that the finetype of contracts whilst entirely binding, is seldom read, and we dofeel that it is a giving up rights that the American people reallyregard as sacred and they shouldn't be called upon to do so.23

The issue of adhesion contracts and one-sidedness is treatedmore extensively in Chapter 6. It is appropriate to note here, how-ever, that throughout their long campaigns, the reformers almostentirely ignored the adhesive argument.24 For example, in quotingO'Connell's foregoing comments about arbitration agreements insmall print, Wesley Sturges appended this footnote: "It should notbe overlooked that the statutes which embrace future-disputesclauses as well as agreements to arbitrate existing controversies arepredicated 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 ofJulius Henry Cohen himself, who gave an extensive talk largelyalong expected lines.26 Questions following his presentation re-vealed another concern of the commissioners, what we might callthe "long arm" effect of the arbitration statutes. They were worriedabout people being hauled from coast to coast to participate invol-untarily in arbitrations.27 Cohen denied such effect, to the skeptic


reception of at least one commissioner who thought that enactmentof uniform arbitration laws would have precisely that result.28

Concern was also expressed about the loss of provisional andspecial remedies, such as injunctions, resulting from arbitrationagreements. Cohen agreed that safeguards were needed in this re-spect, although he by no means conceded an absence of such safe-guards under the New York statute.29 He thus expressed only mildconcern about explicit treatment of such issues in the uniform act.In the upshot the conference adopted a provision authorizing thecourts at any time before final determination of the award to takesuch steps as it deemed "necessary for the preservation of the prop-erty 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 thecommissioners to the A.B.A. This time he briefly described thedifference between the proposed uniform law and the New Yorkand New Jersey laws33 and moved that the A.B.A. concur in therecommendation of the Uniform Arbitration Act for enactment bythe states. Julius Henry Cohen rose to a point of order that theUniform Act could not be considered without having been printedand distributed thirty days in advance of the meeting as requiredby the A.B.A. Rules and By-Laws. He was sustained by the chair,and the act was then rereferred to the commissioners.34 Shortlythereafter in the same session, the A.B.A., on motion of the chair-man of its Committee on Commerce, Trade and Commercial Law,reaffirmed its support of the New York-style federal arbitrationact, then pending in Congress.35

That afternoon the Executive Committee of the Conference ofCommissioners met and was advised of the A.B.A. action respect-ing the Uniform Act. The Executive Committee requested the Arbi-tration Committee to meet with Cohen (at his own expense) andthose whom he suggested and to report to the Executive Committeeat its midwinter meeting. Whatever negotiations occurred betweenthe Arbitration Committee and Cohen changed no one's mind, andin February 1925 the Executive Committee sent the act back to the


Arbitration Committee to report again to the annual conference.Nathan MacChesney was requested to conduct a summit meetingwith A.B.A. President Charles Evans Hughes to try to resolve theconflict between the work of the conference and that of theA.B.A.'s Committee on Commerce, Trade and Commercial Law.36

The Arbitration Committee remained steadfast, and reported theUniform Act to the 1925 annual conference in the same form as in1924.37 At the meeting, Joseph O'Connell described Cohen's suc-cess in blocking A.B.A. approval the year before38 and reviewedthe issues again briefly. His colleague from Massachusetts, HollisR. Bailey, made one more stab at pointing out —quite correctly—that by officially supporting the federal act, the A.B.A. —not justits committee — had already committed itself to arbitration actscovering future disputes.39 O'Connell then launched into a longand passionate speech, most of it an account of the methods bywhich Charles L. Bernheimer and Julius Henry Cohen, and to alesser extent, Moses H. Grossman, had succeeded in New York,New Jersey, Congress, and Massachusetts.40 The conference thenvoted 30-5 to reaffirm the Uniform Act.41

The first skirmish at the A.B.A. came nine days later over aseemingly innocent resolution offered to the annual meeting by W.H. H. Piatt, Chairman of the Committee on Commerce, Tradeand Commercial Law, to make "due acknowledgement to the com-mercial organizations throughout the United States for their splen-did cooperation in support oP' the newly enacted federal arbitra-tion act.42 MacChesney suggested that if the resolution was "to betaken as reaffirmation by this Association of the policy involved inthat act" it should be put over until the discussion of the UniformAct. Expressing the same view, O'Connell moved to lay the motionon 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 withthe threat of a point of order from Cohen, but this time Cohenrefrained from actually raising it, even though the chairman indi-cated 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 federaland uniform acts by Cohen, interrupted periodically by O'Connell


on points of privilege and with complaints about the length of timeCohen was taking. This was followed by a shorter presentation,again with little new in it, by O'Connell, interrupted this time byW. H. H. Piatt for personal privilege. One member, W. H. Wash-ington, from Tennessee, remarked on "the smoke and fury of thebattle we have witnessed here."46 An older member, John Hinkleyof Maryland, expressed his belief "that this is one of the mostmomentous debates that this Association has ever had presented toit," and then went on to make an impassioned plea not to oust thecourts of jurisdiction.47

Efforts were made to refer UAA (1924) to the commissioners orto the Executive Committee of the A.B.A.48 MacChesney movedto lay the pending motion to rerefer on the table.49 The point oforder mentioned at the start raised its head and disappearedagain.50 The motion to lay the rereferral on the table carried.

Then the dam broke. MacChesney renewed his original motionfor approval of the act; it was seconded; many voted aye; manyvoted nay; a division was called, and 175 ayes recorded, 26 noes.51

The A.B.A. had approved the nonmodern UAA (1924) proposedby the commissioners.

This day, as it turned out, was the high-water mark of the anti-reform movement, although, as in many prolonged struggles, thatwas not apparent for some years.52

The Evangelists Become the Established Churchand Consolidate Their Position: 1925-91

The Reformers Pull Ahead of theAnti-Reformers in the States

With the two most important citadels, New York and the UnitedStates, captured along with New Jersey and Massachusetts, thereformers were freed to concentrate their attention on other states.At first it was a neck-in-neck race with the anti-reform Commis-sioners on Uniform State Laws. The reformers captured Californiaand Pennsylvania in 1927.53 But the commissioners' UAA (1924)was adopted in Nevada in 1925 and in Utah, Wyoming, and NorthCarolina in 1927.54 These were, however, not only the first, butalso the last enactments of UAA (1924).55 Oregon, as we have seen,


was claimed by the reformers as of 1925, but was not actually inthat camp for certain until 1931. By that time the reform movementhad picked up Louisiana, 1928; Arizona, Connecticut, New Hamp-shire, and Rhode Island, 1929; and Ohio and Wisconsin, 1931.56

Thus, in 1931 the score by states was Reformers 13, Commissioners4. Modern arbitration law was solidly entrenched and has neverbeen dislodged since.57

Slowdown and Revival in Reform

Legislative reform came to a halt during the 1930s. Nor did thecourts rush to the rescue in those states not having adopted modernarbitration statutes; common law arbitration remained much as ithad been before.

Nineteen-forty-one saw what may have looked like the beginningof a modest revival on the legislative front when Michigan enacteda modern act, followed in 1943 by Washington.58 But that wasthat, and through 1956 no more states joined those with modernarbitration statutes.

Two low-key, but nonetheless important, events in the early1940s paved the way for a revival of arbitration reform. In 1942the AAA published a "Draft for a State Arbitration Act,"59 al-though "in view of the war situation, no further action wastaken."60 The next year the Commissioners on Uniform State Lawswithdrew the much scorned UAA (1924) from its list of approveduniform laws.61 Both events were important preludes to the mostimportant development in the revival of reform: the final capitula-tion of the Commissioners on Uniform State Laws, who in 1955adopted a modern Uniform Arbitration Act (UAA 1955).

A decade after tabling its wartime proposal, undeterred by amere police action in Korea, a distinguished AAA subcommitteebrought forth a revision of the 1942 AAA draft to serve "as abasis for discussions with Bar Association Committees and otherinterested bodies in various states in order to create more generalinterest in the improvement of the respective state arbitrationlaws."62 These drafts, patterned on the by-then much amended NewYork 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-


form State Laws had in 1951 established a committee, chaired byMaynard E. Pirsig,64 to prepare a draft Uniform Arbitration Act.65

In 1954 the first draft was presented to the conference.66 Bothduring preparation of the draft and after its presentation, sug-gestions came from the AAA, Wesley Sturges, and Soia Ment-schikoff.67 The draft was also subject to scrutiny by attorneys rep-resenting labor unions, employees, business firms, managementgroups, and trade associations.68 After revision the commissionersadopted the Uniform Arbitration Act on August 20, 1955.69 Presi-dent Joe C. Barrett of Arkansas presented the act to the conferencefor approval to the 1955 A.B.A. meeting. In sharp contrast tothe tumultuous debates over UAA (1924) thirty years before,70 theA.B.A. approved the reformer's UAA (1955)71 with no discussion.72

One last small flurry of controversy occurred the following yearconcerning an amendment to UAA §12, the main purpose of whichwas to delete a provision explicitly allowing judicial review of arbi-trator decisions if contrary to public policy. The conference ap-proved the amendment, as did the A.B.A. after an attempt wasmade 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 powerfulweapon in the final push of the reformers in the states. Minnesotaadopted it in 1957; Wyoming followed in 1959. In 1960, Massachu-setts, which already had a modern statute, enacted UAA (1955),thereby doing away with the rights of parties to Massachusettsarbitrations to take questions of law from the arbitrators.74 In1961, Illinois, Nathan William MacChesney's old bastion of anti-reform, capitulated and adopted UAA (1955). By the end of the1960s, nine more states had joined the modern ranks by enactingUAA (1955), and one, Florida, had enacted a modern non-UAAstatute.75 These additions, together with the admission of Hawaiias a state,76 brought the total of modern arbitration states totwenty-eight, more than half the total and including all the majorcommercial and financial states except Delaware.

During the 1970s eight more states, including Delaware, fell inline by adopting UAA (1955), thus bringing to thirty-six the states


with modern arbitration acts.77 At the present time forty-sevenstates have adopted modern arbitration statutes, a majority theUAA.78 Thus only three states—Alabama, Mississippi,79 and WestVirginia —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 itsown in many ways distinct from that of commercial arbitration, isuntreated in this book. Nevertheless, it requires noting that theimmense progress of labor arbitration during and after the NewDeal years undoubtedly played a significant role in the successof the movement to reform commercial arbitration. By 1960 thearbitrator of labor grievances had long since become the king ofthe collective bargaining relation as it had developed under theNational Labor Relations Act.80 The official coronation came thatyear when the Supreme Court bestowed the crown in the form ofthree cases decided on the same day.81 These cases established thatarbitration is the favored method of dispute resolution in laborrelations and that any doubt respecting arbitrability of particulardisputes will be resolved in its favor.

Just as no modern arbitration statute has yet been repealed with-out replacement by another modern statute, so too the dominanceof the labor arbitrator remains intact.82 Indeed, current NationalLabor Relations Board decisions to extend greater deference toarbitrators respecting various unfair labor practices83 have recentlyadded new jewels to that crown.84

The legal establishment of a strong public policy favoring laborarbitration rubbed off on commercial arbitration. In United Steel-workers v. Warrior & Gulf Nav. Co. (U.S. I960),85 Mr. JusticeWhittaker, dissenting, attempted to use commercial cases reflectinga grudging approach to arbitration to stem the tide in favor ofliberal approaches to labor arbitration. He failed. And in failing,he may also have contributed to the demise of stringent approachesto commercial arbitration itself. It was he, after all, who firsttreated as interchangeable the law of commercial arbitration andlaw of labor arbitration, at the very time the Court was liberalizingthe latter. At any rate, the years since 1960 have certainly seen a


general judicial extension of the strong proarbitration approach inlabor cases to commercial arbitration law, particularly under theUSAA.86

Triumph of the American Arbitration Association

One of the most important developments in the arbitration sagahas been that of the AAA, which following the lines of the head-ings of this book, might well be called the St. Peter's of the Ameri-can arbitration world. From its well supported, but small, begin-nings in the 1920s, it has grown to be a major factor in the disputeresolution system of this country. The AAA has thirty-five of-fices,87 located in virtually every major center in the country, andpanels of over 60,000 arbitrators.88 Its fees in 1990 were $32.1million,89 a figure not including fees paid arbitrators.90 From 1983to 1990 the number of cases filed with the AAA rose from 39,000to over 60,000.91 The 13,603 commercial cases filed in 1990 in-volved claims and counterclaims amounting to $2.25 billion.92 Inaddition, the AAA carries on a wide range of education and train-ing programs, as well as widespread promotional efforts.

Tomorrow the World! Evangelism Triumphsafter Long Struggles

In 1922 the reformers had completed their tripartite plan—uniformact, federal act, and international treaty—by submitting a modeltreaty to the A.B.A. through the Committee on Commerce, Tradeand Commercial law.93 Although the A.B.A. approved the treatyunanimously,94 it was to be nearly fifty years before the goal ofAmerican participation in an international arbitration treaty wasachieved. In 1970 Congress implemented the International Arbitra-tion Convention. The tale of this saga appears in Chapter 13.

6Countercurrents: NeopaganismRefuses to Die

Public Policy Defenses Against Arbitration

We have already seen in action both simple resistance to changeand active countercurrents to the reform movement. The formerwas manifested both by the long years of effort required for theearly reform victories and by the almost complete dearth of newenactments of modern arbitration statutes from 1931 through 1956.The strongest of the active countercurrents we have seen was thatleading from the 1917 Illinois anti-reform act to the nonmodern1

UAA (1924) and to the enactment of UAA (1924) in a number ofstates in the 1920s.

This chapter focuses on active countercurrents, rather than onsimple resistance to change or mere inertia manifested by courtsand legislatures. It should be noted, however, that the increasinglegalization2 and lawyerization of arbitration, accompanying thearbitration reform movement,3 which continues to this day, hasdoubtless been a significant factor in the elimination of resistanceby 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 arbi-tration can be an improper means by which business escapes publicregulation. The other, the micro countercurrent, is a narrow aspectof that belief relating to one-sidedness in the making (and perfor-

59


mance) of arbitration agreements. These defenses, particularly thefirst, are often referred to as the public policy defense against theuse of arbitration.

A third countercurrent, thus far out of the mainstream, is found,particularly in the last decade or so, in writings of various kindsbased on a variety of radical premises and addressed to alternativedispute resolution generally.4

The beliefs underlying the two main public policy defense coun-tercurrents may very well have played a role in earlier common lawhostility to unexecuted arbitration agreements, a hostility that wasgreater respecting agreements to arbitrate future disputes. But gen-erally speaking, whatever policies were in fact being implementedby such concepts as ouster of jurisdiction were seldom articulatedby the courts.

Julius Henry Cohen, who had studied common law arbitrationextensively, expressed his views that the underlying reason for thecommon law approach was concern about one-sidedness:

But the fundamental reason for it, when you come to dig into thehistory of it —the real fundamental cause was that at the time thisrule was made people were not able to take care of themselves inmaking contracts, and the stronger men would take advantage ofthe weaker, and the courts had to come in and protect them. Andthe courts said, "If you let the people sign away their rights, thepowerful people will come in and take away the rights of the weakerones." And that still is true to a certain extent. A judge told merecently —one who is in sympathy with this measure and who ap-proves it, but in the privacy of his own chambers he told me re-cently—"Cohen, you understand what the difficulty in this matteris; when England is in possession of shipping, you can understandwhy our people do not want to go over there and arbitrate theirdifferences over there."5

It may be noted that the receptivity of the courts to enforcingawards while refusing to enforce executory arbitration agreementssuggests relatively little concern about the public regulation prob-lem generally, but a great deal of concern about one-sidedness.(Once a dispute has arisen a subsequent agreement to arbitrate islikely to reflect a genuine view of each party that its interests willbe best served by arbitration—something that cannot be said aboutmany predispute agreements.)

Countercurrents 61

Although Cohen focused on one-sidedness, both the subsequentcountercurrents are reflected in a 1904 prereform case in Georgia:

The mere executory agreement to submit [to arbitration] is generallyrevocable, otherwise nothing would be easier than for the moreastute party to oust the courts of jurisdiction. By first making thecontract, and then declaring who should construe it, the strong couldoppress the weak, and in effect so nullify the law as to secure theenforcement of contracts usurious, illegal, immoral, or contrary topublic policy.6

In view of the general silence of the common law courts aboutthe "real" reasons for the common law hostility to executory arbi-tration agreements, it would not do to try to infer too much aboutwhat were their underlying reasons.7 This caution is also mandatedby the courts' application of such abstract principles as ouster ofjurisdiction in many cases where neither the public regulation argu-ment8 nor the one-sidedness argument9 would have been very per-suasive.

Turning to the reform era, one of the countercurrents, concernabout one-sidedness, probably surfaced early in the reform move-ment, at any rate, no later than 1923.'° I have, however, foundlittle early trace of the public regulation concern.11 This is hardlysurprising; the 1920s were far from propitious times to argueagainst the reformers on the basis of a need to regulate business.Moreover, the debates were largely among businessmen and busi-ness lawyers, people unlikely to oppose reform on such grounds.Far more likely to appeal to such people were the freedom ofcontract sentiments expressed by Cohen:

Whatever course [the parties] saw fit to adopt was no matter ofpublic concern, and affects no question of public policy, and if theysaw fit to make an agreement, otherwise valid, that they wouldforbear 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 focusedon excessive legalization of arbitration13 and an alleged paradox inthe "legal enforcement of voluntary proceedings."14 But it was "in


the full flush of New Deal liberalism" that the critics "launched afrontal assault against [arbitration] as a bastion of business powerinsulated from social responsibility and contrary to the public in-terest."15

The problem, freshly perceived by New Dealers for whom corporatebusiness was the enemy, was . . . the immunity [arbitration] pro-vided business from public regulation. To them, arbitration symbol-ized the deficiencies of the laissez-faire economy; law, constantlycriticized by liberals since the turn of the century for retarding prog-ress, was now rediscovered as an instrument of reform that protectedthe public interest against private rule-making. . . .

Combining broad rhetorical strokes with tightly reasoned policyanalysis, Phillips16 attacked "business propagandists" who had trans-formed 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 nonethe-less erroneous, business philosophers." ... A public system ofcourts was a fundamental social necessity in a democratic society:"there alone the public . . . can find protection." Phillips defendedthe "socialized orderly process of the law" against "the laissez-faireindividualism of lay arbitration." Law —standardized, public, andorganic — expressed social policy; arbitration, which shielded tradepractices from public scrutiny and permitted powerful interests toinsulate their disciplinary procedures, substituted private will forsocial control.17

Sporadic attacks continued, influenced, according to JeromeAuerbach, by observation of "[t]he growth of German businesscartels, and their complicity with the Nazi regime."18 The next criticmentioned by Auerbach was Heinrich Kronstein, whose articleBusiness Arbitration—Instrument of Private Government,19 drawson European experience as well as American in expressing concernabout arbitration.20

Almost as if to emphasize the dangers, during this period atleast one court held an employee bound by an agreement requiringarbitration of claims arising under a regulatory statute, the FairLabor Standards Act (FLSA). The court said:

[W]e see nothing in the wording of the Fair Labor Standards Actwhich precludes arbitration of claims arising under it. No doubt it

Countercurrents 63

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

The court showed no awareness whatever of the dangers to regula-tory legislation from enforceable predispute arbitration agree-ments.

The issues raised by Phillips and Kronstein barely reappeared in1952 in just one of the many articles in a wide-ranging symposiumon arbitration in Law and Contemporary Problems. On the lastpage of an article largely oriented toward private autonomy inestablishing binding arbitration, Kenneth Carlston very brieflysummarized the Phillips and Kronstein views. He immediately re-turned, however, to the need for businessmen and lawyers to takeinto account specified "realities" in order to achieve "the full poten-tialities of the arbitration process in commerce."22 This mild men-tion of possible concern was far outweighed in the symposium byan article sympathetic to self-regulation in the securities industry23

and overwhelmed by the majority of articles in which modern arbi-tration was simply a given.24

The Courts Begin to Side with the Critics:Wilko v. Swan

Limited, but nonetheless important, judicial recognition of con-cerns similar to those of Phillips and Kronstein came the year fol-lowing the symposium in the important Supreme Court case ofWilko v. Swan (U.S. 1953).25 There the Court held that a customerof a brokerage house was entitled to litigate his claim for fraudunder the Securities Act of 1933, in spite of an agrement to arbi-trate future disputes contained in the margin agreement.26 Theopinion aims mainly at one-sidedness. The Court, however, alsoexpresses a more general concern about the ability of arbitrators toignore the law.27 This concern is closer to the public regulationconcern. (The two tend naturally to merge where the issue is fraud,as in Wilko.)


It was two 1968 antitrust cases that, fifteen years after Wilko,first articulated clearly and extensively the regulatory concernabout arbitration. Both the Second Circuit, in American SafetyEquip. Corp. v. J. P. Maguire & Co. (2d Cir. 1968),28 and the NewYork Court of Appeals, in Aimcee Wholesale Corp. v. TomarProds., Inc. (N.Y. 1968),29 held that public policy precludes en-forcement of agreements to arbitrate future disputes involving anti-trust claims and defenses. Although the American Safety opinionraises 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 regula-tory countercurrent in terms of these and subsequent antitrust cases:

Arbitrators cannot be expected to sacrifice the most equitable resolu-tion of the dispute between the parties in favor of the economicneeds of society as expressed in the antitrust laws. This is not becausearbitrators are any less capable or unbiased than judges or becausethey have fewer resources at their disposal, but because the task ofarbitration is inconsistent with the purposes and functions of theantitrust laws. Arbitrators are entrusted with the responsibility ofworking justice between the parties as it appears to them and withoutexplaining their conclusions. Antitrust laws, by contrast, have littleto do with justice between the parties. Thus, there is a choice to bemade. Either arbitrators should be permitted to resolve disputes thatimplicate antitrust issues as they do other disputes — unbound byrules of law and at the possible sacrifice of antitrust policies —orthey must be prohibited entirely from arbitrating such disputes.There is no middle ground consistent with the arbitration process asit has developed in this country.31

The principles as enunciated by the courts in the antitrust casesapply to other regulatory areas as well, or at least they did untilrecent Supreme Court decisions to the contrary.32 For example,Sterk dealt with the following: family law, antitrust law, patentlaw, securities law, ERISA claims, usury, liquidated and punitivedamages, bankruptcy, and other areas.33

Kronstein Returns

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

Countercurrents 65

[Arbitral systems organized and administered by private groupswithin our society have grown up under our legal framework; thesegroups, by steps at first imperceptible, or rather tolerated, underthe tugs and pulls of an oligopolistic and pluralistic society, andthen inexorably, because their acquired strength met only passiveopposition, formulated rules of their own having the same bindingforce as those enacted by legislatures or formulated by courts. Thearbitrators have deemed themselves competent to decide their ownjurisdiction and the legality of the underlying agreement, have ex-tended the coverage of the arbitration clause, and have generallyassumed a quasi-judicial posture with attendant immunities fromany look-in by judicial authorities, congressional committees andadministrative agencies. Finally, this entire process of rule-making,acquisition of jurisdiction and extension of coverage has joined withmodern domestic and international rules of conflict of laws to enablethe private power groups to select the law most favorable to theirinterests on validity, interpretation and execution of the contractualpromises.35

It may be noted that Kronstein distinguished sharply betweentraditional arbitration and institutional arbitration. The formerconcerns "occasional disputes between individuals or corporationsdoing business in much the same markets," with arbitrators selectedfor their expertise and good sense and as needed for a particulardispute, the awards not being precedent.36 Kronstein asserted thattraditional arbitration can justifiably be placed in a framework ofan exclusive "monopoly of rule making by legislators and rule-interpretation by courts [which] takes into account the mores ofthe people in all the regulation of their behavior."37

Institutional arbitration differs from traditional arbitrationthrough the introduction of institutions, such as trade or arbitra-tion associations, which administer the arbitration, often withthemselves as the arbitrator. The substantive rules, procedures,and tribunals of such associations totally or partially transformarbitration into lawmaking of the kind Kronstein describes.38

Thunder on the Labor Front

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


ment claimed to have been fired on racial grounds. The unionprocessed his grievance through arbitration, but the arbitratorfound that the employee had been fired for good cause. The em-ployee brought a suit under the Civil Rights Act of 1964. TheSupreme Court held that the adverse arbitral decision did notbar the suit. (It may be noted, however, that although the Courtdenied full preclusive effect to the award, the award was not a to-tal nullity respecting the statutory claim. The Court held that judi-cial deference to the award "must be determined in the court'sdiscretion with regard to the facts and circumstances of eachcase.")40

Alexander has been followed in two other Supreme Court deci-sions, one in 1981 and one in 1984, extending the principle respec-tively to claims under the FLSA41 and to civil rights claims under42U.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 statu-tory law.43

(2) In collective bargaining arbitration there is a risk that the"interests of the individual employee may be subordinated to thecollective interest of all employees in the bargaining unit."44

(3) The Court has expressed concern abut the capacity of arbi-tration to deal adequately with the statutory rights at stake. Ar-bitration is an informal procedure and not the equivalent of ad-judication in courts respecting either fact-finding or keeping ofa complete record. Further, the arbitrator's role is limited to effect-ing the intention of the parties rather than effecting the require-ments of enacted legislation. The "specialized competence of arbi-trators pertains primarily to the law of the shop, not the law of theland."45

Only the second of these concerns clearly distinguishes non-col-lective bargaining arbitration governed by the USAA from collec-tive bargaining arbitration governed by the Labor ManagementRelations Act. Nonetheless, as will be seen below, the Court hasnow rejected Wilko v. Swan (U.S. 1953)46 and with it most of thearguments the Court used in the collective bargaining cases startingwith 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 sin-gled out for attack during the late 1960s and early 1970s when somuch of the American legal system was subjected to attack fromthe radical left. The radicals apparently had bigger and more con-spicuous game in mind. At any rate, I have found no one pickingup and running with Kronstein's criticisms, which have been citedin law reviews only rarely.49 This remains the case with criticismfrom the left—radical or nonradical—today. Although markedconcern about informal justice, including negotiation,50 has beenexpressed," arbitration has not been singled out for any particularconcern. Indeed it seems to have aroused less concern than someother forms of alternative dispute resolution.52 Arbitration doesnot, of course, escape criticism, but it is just one item among moreglobal concerns, as the following comment of de Sousa Santossuggests:

Many disputes that are intended to be processed by the new informalsettings share two characteristics: There are structural differences insocial power of the parties, and they occur repeatedly. Landlord-tenant and merchant-consumer disputes are examples. In such casesmediation or arbitration becomes repressive because the setting lackscoercive power to neutralize the power differences between the par-ties. Repressive mediation leads to repressive consensus, which, Isubmit, will more and more characterize the exercise of capitaliststate power.53

The macro regulatory political criticism may thus be seen to haveexpanded to broader vistas than those of Kronstein. But anotherthread 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 statuteor case law principle at issue has aims other than promoting justicebetween the parties. . . . [PJublic policy should prevent enforcementof arbitration agreements when the dispute involves statutes or otherlegal rules designed to achieve ends other than doing justice betweenthe parties to a dispute. . . . Only when the dispute involves a statuteor legal rule with a ... purpose, focusing on interests other thanthose of the parties to the dispute, is arbitration inappropriate.55


The marked difference between these approaches reflects the dif-ference between those such as de Sousa Santos who question theliberal (capitalist) system and those such as Sterk who start fromits premises. But, as will be seen shortly, the specific problem ofone-sidedness and repression concerning de Sousa Santos is also aconcern of Sterk.

One-sidedness in the Making of Arbitration Agreements

As noted earlier, the concern about one-sidedness in agreeing toarbitrate future disputes arose early in the reform movement. Thisis not surprising, if, as may have been the case, it was an importantfactor behind the common law hostility to executory arbitrationagreements. Recognition of problems of one-sidedness by the re-formers themselves, however, went no further than their standardview that agreements to arbitrate should be treated just like othercontractual agreements. Thus their 1920 New York act providedthat arbitration agreements "shall be valid, enforcible and irrevoc-able, save upon such grounds as exist at law or in equity for therevocation of any contract."56 Their 1925 USAA had similar lan-guage.57 Arbitration agreements were thus burdened with whateverprotections against one-sidedness that law and equity provided con-tracts in general, but no more.

Early twentieth century American contract law and equity arefar from renowned for the protections they afforded against one-sidedness. Nonetheless, such principles as fraud, duress, undue in-fluence, and capacity were significant and direct restraints on un-fettered freedom of contract. In addition, covert protection wasoften 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 anti-reform advocates. Later, principles in general contract law, suchas unconscionability and limitations on the effectiveness of con-tracts of adhesion,58 were developed and became potential or actualprotections against one-sidedness in arbitration agreements.

Professor Sterk has defined the one-sidedness issue in terms ofclasses of people who are peculiarly subject to imposition by a classof which the other party to an arbitration agreement is a member.59

Countercurrents 69

The "susceptibility to imposition may be the product of unequalbargaining power, or of unequal transaction costs that make itlikely that one party will draft an agreement that the other will signwithout first questioning or reviewing the agreement's arbitrationclause."60 This is a modern way of looking at the matter, but none-theless pertinent.

Concerns about the imposition of arbitration agreements on per-sons either unaware of them or unable, or at least unlikely, toobject to them has produced a wide range of limitations on theavailability of arbitration beyond the limits afforded by generalcontract law. The origins of all these lie in legislation, either explic-itly or by judicial inference.

Probably the most common form of limitation is exclusion ofparticular kinds of contracts or disputes from the general arbitra-tion act, without adopting a special modern arbitration act dealingwith the subject. Of the forty-seven states with modern arbitrationstatutes, one or more has excluded at least one of the followingclasses of contracts or disputes: employer-employee, collective bar-gaining, medical malpractice or suits between doctors and patients,personal injury, insurance, title or other real estate claims, con-sumer contracts,61 leases, loans, contracts of adhesion, unconscion-ability, workmen's compensation, constitutional and civil rights,62

agreements to require state residents to submit to arbitration out-side the state.

A second type of limitation takes the form of additional formalrequirements for the creation of a binding arbitration agreementbeyond the writing (but no signature) requirement of the standardreform statute such as USAA.63 These additional requirementshave included the following: (1) a statement adjacent to orabove the space provided for signatures in ten-point capital letters,"THIS CONTRACT CONTAINS A BINDING ARBITRATIONAGREEMENT WHICH MAY BE ENFORCED BY THE PAR-TIES;"64 (2) notice that the contract is subject to arbitration mustbe typed in underlined capital letters or rubber-stamped promi-nently, on the first page of the contract;65 (3) a specified notice inten-point bold capital letters (or eight-point if in red); this noticeincludes extensive description of the rights to a court or jury trial,to discovery, and to appeal, which are surrendered by agreeing toarbitration, a statement about the bindingness of the arbitration


agreement, and a statement of voluntariness and of having readthe provision, all to appear immediately before the signature line.66

Perhaps the most extensive formal requirements are those incustomer-broker contracts in the securities industry. These Securi-ties Exchange Commission (SEC) regulations are of particular in-terest concerning one-sidedness since they constitute a sophisticatedview of what is necessary to counter one-sidedness. Predispute arbi-tration agreements between brokers and customers must meet re-quirements as follows: Both the clause and the following state-ments must be highlighted; arbitration is final and binding; partiesare waiving judicial remedies, including the right to jury trial; pre-arbitration discovery is generally less than and different from judi-cial discovery; the award need not include factual findings or legalreasoning and appeals from arbitrator rulings are strictly limited;the arbitration panel will typically include arbitrators affiliatedwith the securities industry. A statement that the agreement con-tains an arbitration clause and indicating its page and paragraphlocation must be highlighted immediately before the signature line,and must be separately initialed by the customer. A copy of theagreement must be given the customer and receipt acknowledgedon the agreement or by separate document. The agreement maynot contain conditions limiting or contradicting rules of any self-regulatory organization (e.g., exchanges), limiting the ability of aparty 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 one-sidedness offered by formal requirements is limited by the powerpositions in which the party so protected finds him, her, or itself.While contracts of adhesion may sometimes be more resistible thanpeople think,68 certainly in many instances there is simply nochance of avoiding their terms except by refraining from enteringany transaction at all with the other party. In many circumstancesthis may mean refraining from entering that type of transactionwith anyone. For example, securities brokers must be registeredwith exchanges to carry on their profession, and exchanges requirearbitration of disputes between brokerage houses and their brokeremployees.69 Without an arbitration agreement, there is no employ-ment 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 classesof persons or persons engaged in particular activities in which theyare dependent on others. The grandparent case of this type is Wilkov. Swan (U.S. 1953), already discussed in connection with the pub-lic regulation concern.70 But as will be seen below, all the grandpar-ent'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 prohibit-ing binding arbitration clauses, in that instance in franchise con-tracts. Since, however, it was held invalid under the SupremacyClause and the USAA, the California statute and other state stat-utes of this nature are now valid only respecting agreements notinvolving commerce —few and far between.72

In sum, the state legislatures and administrative agencies such asthe SEC have demonstrated considerable concern about the poten-tial misuse of binding arbitration agreements. The state legislatureshave done this often in the very process of approving modern gen-eral arbitration statutes.

The Countercurrents Are Damned and Dammed: 1974-91

The foregoing suggests a picture of considerable legislative andjudicial concern about the power of arbitration and a need to limitit in various ways. A combination of two developments, however,has smashed this picture. One is the Supreme Court's general rejec-tion of the public policy and one-sidedness limitations in casesgoverned by the USAA. This progression, which has virtually elim-inated both limitations under the USAA and even raised questionsrespecting its continuing viability in collective bargaining arbitra-tion, is treated in the remainder of this chapter.

The other development is the Supreme Court's nationalizationof American arbitration law whereby the USAA, rather than statelaw, now governs most arbitration in America. The progression ofthis nationalization is treated in Chapter 11 and its consequencesin Chapter 12. This extension of USAA coverage, coupled with theSupreme Court's rejection of the public policy and one-sidednesslimitations, has largely wiped out those limitations in Americannon-collective bargaining arbitration.


International Context Overrides Wilko Doctrine

The erosion in the Supreme Court of what may be summarized asthe "public policy" limitation on the use of arbitration began withScherk v. Alberto-Culver Co. (U.S. 1974),73 where the Court, in a5-4 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 of1934.75 The plaintiff was an American company that purchasedthree German and Liechtenstein enterprises, along with their trade-marks, from a German citizen. The contract was negotiated in theUnited States, England, and Germany, signed in Austria, andclosed in Switzerland. The contract provided that arbitration wouldtake place in Paris under the rules of the International Chamber ofCommerce.

In ordering the case to proceed to arbitration, the Court distin-guished Wilko on the following grounds: American federal securi-ties laws clearly governed Wilko, whereas uncertainty about theapplicable law existed in Scherk, both at the time the agreementwas made and at the time of the decision in the case.76 In suchcircumstances a provision specifying a forum is "an almost indis-pensable precondition to achievement of the orderliness and pre-dictability essential to any international business transaction."77

Such a clause also avoids the possibility of a dispute being submit-ted to a forum hostile to "one of the parties or unfamiliar with theproblem area involved."78 In addition, it prevents "unseemly andmutually destructive jockeying by the parties to secure tactical liti-gation advantages."79 "An agreement to arbitrate before a specifiedtribunal is, in effect, a specialized kind of forum-selection clausethat posits not only the situs but also the procedure to be used inresolving the dispute."80 Quoting The Bremen v. Zapata Off-ShoreCo. (U.S. 1972),81 the Court upheld this specialized forum-selectionclause: "We cannot have trade and commerce in world marketsand international waters exclusively on our terms, governed by ourlaws, and resolved in our courts."82

In 1985 the Court extended the Scherk principle in MitsubishiMotors Corp. v. Soler Chrysler-Plymouth, Inc. (U.S. 1985),83 acase involving claims under the Sherman Act and AutomobileDealers' Day in Court Act. (Although the Supreme Court had never

Countercurrents 73

addressed the applicability of the public policy defense to antitrustcases, a leading court of appeals case, American Safety Equip.Corp. v. J. P. Maguire & Co. (2d Cir. 1968),84 had done so andwas 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 corpora-tion, itself a joint venture between Chrysler, an American corpo-ration, and Mitsubishi, a Japanese corporation. The dealer alsoentered a sales procedure agreement with both CISA and Mitsubi-shi. The claimant was a Puerto Rico corporation, the automobiledealership established by the agreement was located in Puerto Rico,and the cars purchased under the supply agreement were to bedelivered there. The dealership contract contained no arbitrationclause; the sales procedure agreement contained an arbitrationclause governing specified classes of disputes between Soler andMitsubishi, but not between Soler and CISA.

The facts of Mitsubishi are distinguishable from those in Scherkin two respects. First, the whole relationship in Mitsubishi was farmore American than that in Scherk. Second, unlike Scherk, noquestion arose whether American legislation under which theclaims arose governed the relationship. No one disputed, or couldpossibly successfully have disputed, that American antitrust lawgoverned the relationship. The decision in favor of arbitration thusrepresented a considerable extension of the Scherk principle.85

State Wilko-type Limitations Go Down the Drain

Ten years after Scherk the Supreme Court decided SouthlandCorp. v. Keating (U.S. 1984)86 where, among other things, theCourt upheld arbitration under a state franchise law to which thestate court had applied the Wilko principle as a matter of statelaw. Thus by implication the Supreme Court clearly rejected anygeneral principle that certain types of regulatory claims are inher-ently unsuitable for arbitration.

Wilko Eroded, then OverruledA 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


Court's continuing allegiance to Wilko on the domestic scene.There a customer had sued his broker for alleged violations of thefederal Securities Exchange Act of 1934 and of state law. DeanWitter did not challenge the nonarbitrability of the federal claims,but sought to have the state claims severed and referred to arbitra-tion. Since many of the disputed factual questions were pertinentto both federal and state claims, the preclusive effect of an arbitraldecision on the state claims might very well effectively decide thefederal claims.89 Because of this threat to the Wilko principles, thelower courts refused to order arbitration of the state claims.

The Supreme Court reversed. It avoided the necessity to chal-lenge Wilko directly by minimizing the potential preclusive effectof arbitration awards, saying "that the preclusive effect of arbitra-tion proceedings is significantly less well settled than the lowercourt opinions might suggest."90 In fact, said the Court, "it is farfrom certain that arbitration proceedings will have any preclusiveeffect on the litigation of nonarbitrable federal claims."

It may be noted that the Court said only that the law of award-preclusion was unsettled and that it was not certain that therewould be preclusive effect respecting the nonarbitrable federalclaims. It thus allowed the possibility of arbitral preclusion of aclaim nonarbitrable under Wilko. This is more serious than may atfirst appear, because the Court's description of the law of arbitralpreclusion is very weak indeed.91 Among other things, the Courtignored that awards are subject to summary confirmation underthe USAA; that the effect of such confirmation is a judgment; andthat such judgment "shall have the same force and effect, in allrespects, 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 beenrendered in an action in the court in which it was entered."92

Three months after Byrd, the Court decided Mitsubishi MotorsCorp. v. Soler Chrysler-Plymouth (U.S. 1985).93 There, as notedearlier, the Court extended the international exception to Wilko toa contract to be performed in the United States and clearly gov-erned by American antitrust laws. More important to the develop-ment of domestic law, however, the Court in Mitsubishi attackedWilko's basic public policy foundation. Since Wilko had involvedsecurities laws and Mitsubishi involved antitrust laws, the attackwas not direct, but that made it no less devastating.

Countercurrents 75

The Court first set out the several arguments94 of the court ofappeals in American Safety Equip. Corp. v. J. P. Maguire & Co.(2d Cir. 1968),95 which had extended the Wilko doctrine to antitrustcases.

First, private parties play a pivotal role in aiding governmental en-forcement of the antitrust laws by means of the private action fortreble damages. Second, "the strong possibility that contracts whichgenerate antitrust disputes may be contracts of adhesion militatesagainst automatic forum determination by contract." Third, anti-trust issues, prone to complication, require sophisticated legal andeconomic analysis, and thus are "ill-adapted to strengths of the arbi-tral process, i.e., expedition, minimal requirements of written ra-tionale, simplicity, resort to basic concepts of common sense andsimple equity." Finally, just as "issues of war and peace are tooimportant to be vested in the generals, . . . decisions as to antitrustregulation of business are too important to be lodged in arbitratorschosen from the business community — particularly those from aforeign community that has had no experience with or exposure toour law and values."96

The Court rejected the first argument, saying that "[S]o long asthe prospective litigant may effectively vindicate its statutory causeof action in the arbitral forum, the [antitrust] statute will continueto serve both its remedial and deterrent function."97 The Court hadalready concluded that the litigant could do so, having alreadyrejected the other arguments.

The Court rejected the second argument without addressing theadhesion point directly, saying that the "mere appearance of anantitrust dispute does not alone warrant invalidation of the selectedforum on the undemonstrated assumption that the arbitrationclause is tainted."98 The Court stated only that:

A party resisting arbitration of course may attack directly the valid-ity of the agreement to arbitrate. . . . Moreover, the party may at-tempt to make a showing that would warrant setting aside theforum-selection clause —that the agreement was "[a]ffected byfraud, undue influence, or overweening bargaining power"; that "en-forcement would be unreasonable and unjust"; or that proceedings"in the contractual forum will be so gravely difficult and inconve-nient that [the resisting party] will for all practical purposes be de-prived of his day in court."99


The third argument, that antitrust cases were too complex forarbitration was also rejected. Among other factors, the Courtnoted that the subject matter of the dispute may be taken in ac-count in the appointment of arbitrators and that the parties orarbitrators could use experts.

In rejecting the final argument, the Court rephrased it in a man-ner emphasizing what is the true core of the public policy defense—that arbitrators will not sufficiently enforce public policy: "[W]ealso reject the proposition that an arbitration panel will pose toogreat a danger of innate hostility to the constraints upon businessconduct that antitrust law imposes."100

Mitsubishi's manhandling of American Safety, and indirectly ofWilko, even though in theory limited to the international scene,101

in fact rang Wilko's death knell. The case died hard, however, itsexecution 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 upheldenforcement of arbitration of claims arising under both the Securi-ties Exchange Act of 1934 and the Racketeering Influenced andCorrupt Organizations Act (RICO). In doing so, it unblushinglytransferred the Mitsubishi arguments from the international con-text to the national context. It explicitly refrained, however, fromoverruling Wilko, thereby leaving Securities Act of 1933 Act claimsdangling in a breeze of uncertainty.103 That thread was cut twoyears later in Rodriguez de Quijas v. Shearson/American Exp.,Inc. (U.S. 1989).104

The latest Supreme Court word on the public policy defense isGilmer v. Interstate/Johnson Lane Corp. (U.S. 1991),105 involvinga claim by a broker under the Age Discrimination in EmploymentAct. The Court held that the arbitration was governed by theUSAA.106 It also held that ADEA claims are arbitrable under theUSAA, rejecting the following arguments: arbitration panels willbe biased, limited discovery in arbitration will make proof of viola-tion difficult, lack of a written opinion will result "in a lack ofpublic knowledge of employers' discriminatory policies, an inabil-ity to obtain effective appellate review, and a stifling of the devel-opment of the law,"107 alleged inability of the arbitrators to grantbroad equitable relief and provide for class actions, and unequalbargaining power between employers and employees.

Countercurrents 77

Of particular importance is the Court's rejection of the argumentthat Alexander v. Gardner Denver Co. (U.S. 1974)108 and its prog-eny preclude arbitration of employment discrimination claimswhere the USAA governs. The Court distinguished those collectivebargaining cases on three grounds. First, according to the Court,the employees in Alexander had not, via the collective bargainingagreement, agreed to arbitrate statutory claims, only contractualclaims. Thus the arbitrators were not authorized to resolve thestatutory claims. Second, in collective bargaining arbitration, theunion represents the employee, thereby giving rise to a "tensionbetween collective representation and individual statutory rights, aconcern not applicable to" Gilmer.109 Finally, the collective bar-gaining cases "were not decided under the FAA [USAA], which,. . . reflects a 'liberal federal policy favoring arbitration agree-ments.'"110 The Court also rejected explicitly the view expressed inAlexander, that "arbitration was inferior to the judicial process forresolving statutory claims."111

Mention should also be made of the noticeable absence in Gilmerof any reference to the following argument the Court made inBarrentine v. Arkansas-Best Freight Sys. Inc. (U.S. 1981) for refus-ing to give preclusive effect to arbitral decisions relating to theFLSA:

Because the "specialized competence of arbitrators pertains primar-ily to the law of the shop, and not the law of the land," . . . manyarbitrators may not be conversant with the public law considerationsunderlying the FLSA. FLSA claims typically involve complex mixedquestions of fact and law — e.g., what constitutes the "regular rate,"the "work-week," or "principal" rather than "preliminary or postlim-inary activities." These statutory questions must be resolved in lightof volumes of legislative history and over four decades of legalinterpretation and administrative rulings. Although an arbitratormay be competent to resolve many preliminary factual questions,such as whether the employee "punched in" when he said he did, hemay lack the competence to decide the ultimate legal issue whetheran employee's right to a minimum wage or overtime pay under thestatute has been violated."2

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


plicated issues of American antitrust law in an international contextwere not beyond the capacity of arbitrators governed by theUSAA.

Gilmer has removed any last shred of doubt that only the mostexplicit of congressional language will lead to the Court's givingeffect to the public policy defense in cases governed by the USAA.Moreover, the case suggests that the rule in Alexander and theother collective bargaining cases is also in danger. After all, thethird reason given by the Court for distinguishing Alexander—pro-arbitration policy—is just as applicable to collective bargainingarbitration as it is to USAA arbitration.114 The first reason —thatcollective bargaining arbitration is limited to contract rights —canbe eliminated by collective bargaining agreements providing forarbitration of statutory claims. Moreover, the first reason is weakto start with since it is based on a failure generally to give normalpreclusive effect to arbitral determinations.115 Only the Court'ssecond reason for distinguishing collective bargaining arbitra-tion from USAA individual contract arbitration—the possible sac-rifice of individual rights in favor of collective interests — stands onsolid ground. Whether that will suffice to withstand the Court'spropensity for sacrificing the public policy defense remains to beseen.

One-sidedness in the Federal Courts

The Supreme Court has given only lip service to concerns aboutone-sidedness respecting the creation of arbitration agreements.Gilmer v. Interstate/Johnson Lane Corp. (U.S. 1991),116 is illustra-tive. There the Court quoted Mitsubishi Motors Corp. v. SolerChrysler-Plymouth (U.S. 1985):117 "Of course, courts should re-main attuned to well-supported claims that the agreement to arbi-trate resulted from the sort of fraud or overwhelming economicpower that would provide grounds 'for the revocation of any con-tract.'"118 The Court held that Gilmer, an experienced business-man, had not been coerced, that is, not subjected to "overweeningeconomic power . . . into agreeing to the arbitration clause in hisregistration application." It was, of course, impossible for Gilmerto engage in his profession of broker without registering with anexchange, and there is no provision in exchange rules for register-

Countercurrents 79

ing without an arbitration clause. The decision thus suggests that itwill be a rare case indeed where the argument of unequal bargain-ing power will prevail.119

Damned and Dammed, Not Extinguished

The title of this section is not "The Countercurrents are Extin-guished," but "The Countercurrents are Damned and Dammed."There seems little doubt that the public policy concerns expressedin the previous section will resurface one way or another. Powerfulinterests will certainly avail themselves of the arbitration route towhat they hope will be an arbitral dulling of federal and stateregulation. It is quite inconceivable that politicians and the govern-mental apparat will sit by indefinitely and watch what they arelikely to perceive as a serious arbitral dulling of their regulatorystructures. Indeed, we already have a breaching of the dam holdingback these Countercurrents in the securities field in the form ofSEC intervention in arbitration in the securities industry.120

Nor should one assume that the Supreme Court itself may notone day resurrect the public policy limitation on the use of arbitra-tion. Such a day seems very remote, however, given the presentconstitution of the Court.

Review of Part I

Before moving on to the story of the enactment of the USAAand its later transformation from a statute governing procedure infederal courts to a regulatory statute superseding state law, a shortreview of Part I may be in order.

Prior to the arbitration reform movement, arbitration was acommon and accepted method of dealing with disputes in theUnited States, particularly in large urban centers. At that time theUnited States had a well-developed law of arbitration, some of itstatutory and some of it common law. There were, however, gapsin this law, gaps limiting the effectiveness of arbitration insofar asit depended upon legal enforcement. The most serious of these wasthe general unavailability of enforcement of executory agreementsto arbitrate future disputes.


Under the leadership of the reform movement, the past seventyyears have seen the widespread approval of arbitration statuteswhich fill these gaps. They have also seen the emergence of twoserious concerns and of at least limited legal recognition of thoseconcerns. One relates to the abdication of public regulation likelyto result from arbitration, especially under binding agreements toarbitrate future disputes. The other relates to one-sidedness in theuse of arbitration provisions. The conflict between the general ac-ceptance of arbitration and the more limited but nonetheless im-portant concerns is one, but only one, of the central arenas ofconflict arising from the transformation of the USAA mentionedabove and treated in Part II.

IINationalization ofAmerican Arbitration Law


7The USAA: The Campaign

Part I described the rise of the modern state-federal system ofarbitration law. It mentioned, but without detail, perhaps the mostimportant event in that rise, the 1925 enactment of the UnitedStates Arbitration Act (USAA).1 We come now to a detailed ac-count of that enactment, which will be followed by the story ofwhat has happened to the USAA since then.

The story of the USAA is two stories, not one. The first story isthat of the essence of its first three or four decades. During thisfirst incarnation the USAA was a procedural statute applicableonly in federal courts. In this period, what might be called USAA-1was a part of a truly federal-state system of arbitration law.

The second story, the second life, of the USAA is that of thepast three decades. In this, the life of USAA-2, the act has becomea national regulatory statute, superseding state law under the Su-premacy Clause of the federal Constitution. It thus governs notonly federal courts, including where state law would otherwisegovern under Erie RR. v. Tompkins (U.S. 1938),2 but also statecourts.

Like all second lives, the story of USAA-23 lies deep in its firstlife, most obviously (with the benefit of hindsight) in cases likeErie 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 chap-ters.

83

84 Nationalization of American Arbitration Law

Initiating the Campaign

As early as 1918 the reformers started to focus on the need for afederal arbitration act.5 In 1920, just four months after the initialsuccess in New York, the American Bar Association directed acommittee to report on further extension of the principle of com-mercial arbitration.6

In 1921 the committee produced a tentative draft of a federalact,7 patterned on the New York statute. This draft would haveproduced a less than comprehensive act. As noted in Chapter 4,8

the New York statute had been enacted against the background ofthe New York Code of Civil Procedure. That code had for manyyears contained provisions —now incorrectly associated only withso-called modern arbitration statutes — providing for such mattersas confirmation of awards, grounds for vacating or modifyingawards, and witnesses and fees. But in federal law, there was noarbitration statute comparable to the New York Code of Civil Pro-cedure. Thus, had the 1921 A.B.A. draft of the USAA been en-acted, the federal act would have lacked much we now expect tofind in arbitration statutes. Such matters would, presumably, havebeen governed in federal courts by the federal common law.9

The efforts of the reformers were stimulated by two important1921 cases. One was the New York Court of Appeals decision inBerkovitz v. Arbib & Houlberg, Inc. (N.Y. 1921)10 upholding the1920 New York act against a range of constitutional attacks. Thisreform victory was, however, Pyrrhic. The court's grounds forupholding the New York act were that it was procedural and reme-dial, not substantive. This analysis laid the groundwork for defeatin the federal courts.

The new blow was soon landed, once again in an admiralty caseof the United States District Court for the Southern District ofNew 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 enforceabilityof such provisions," said the court, "do not confer a substantiveright, but a remedy for the enforcement of the right which is cre-ated 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 afederal court of admiralty."12 It was Berkovitz that the districtcourt cited13 for its decision that arbitration acts are proceduraland remedial, not substantive.

The District Court decision in Atlantic Fruit threw cold water onwhatever hopes the reformers may have had for a judicial modern-ization of federal arbitration law.14 It thus became apparent to thereformers that carrying out their plan for a federal arbitration actwas essential if modern arbitration law was to be available in fed-eral as well as in state courts. In any event, however, they hadalready started down the legislative route: the first tentative draftof a proposed federal act was submitted to the American Bar Asso-ciation annual meeting about three weeks before the decision.

On September 1, 1921, Francis B. James, chairman of the Com-merce, Trade and Commercial Law Committee reported to theannual A.B.A. meeting: "The committee believes that the adminis-tration of justice can be advanced first by having Federal Statutesand Uniform State Statutes on the subject of arbitration enacted.. . . "15 The long written report of the committee included draftsof both a uniform and a federal statute, although neither was sub-mitted 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 thesame subjects as the New York Arbitration Law of 1920 and, withone exception, in a virtually identical manner. Most fundamen-tally, both provided that agreements to settle controversies thereaf-ter arising, as well as already existing, were "valid, enforceable andirrevocable, save upon such grounds as exist at law or in equity forthe revocation of any contract."18 The exception is USAA 1921Draft §2, which appears to allow agreements to arbitrate futuredisputes to be made orally,19 whereas the New York law requiredthem to be written to be enforceable.20 The other sections of bothacts provided for stay of judicial proceedings brought in violationof an enforceable arbitration agreement,21 for judicial remedies


for default in performing an arbitration agreement,22 for judicialappointment of arbitrators where needed,23 and that applicationsmade under the act be treated as motions.24

The very close relation between the USAA 1921 draft and the1920 New York law is demonstrated by their incompleteness. Bothlacked all the provisions —now often erroneously identified onlywith modern arbitration statutes25 — found in the New York Codeof Civil Procedure before 1920,26 such as those dealing with confir-mation 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 didcontain provisions concerning its federal nature. It thus must beunderstood both as a modern arbitration statute as such and as apeculiarly federal act. This mixture, necessarily followed in succes-sive drafts, has had unforeseen consequences for the interpretationof the USAA. The courts have sometimes interpreted the provi-sions added to deal with federal issues to affect the substance ofprovisions dealing with arbitration per se.

The major difference between the New York Arbitration Law of1920 and the USAA 1921 draft are these many additional provi-sions 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, ifthe subject of controversy, would be embraced within admiraltyjurisdiction." It then defines "commerce" in a standard manner.28

These provisions were the definitional base of section 2, the funda-mental section making enforceable arbitration agreements in "anymaritime 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 toenforce arbitration agreements under section 4 could be brought in"the District Court of the United States which, save for such con-tract or submission, would have jurisdiction under the JudicialCode at law, in equity or in admiralty of a suit arising out of thecontroversy between the parties, for an order directing that sucharbitration proceed in the manner provided for in such contract


or submission." Section 5 provided that "the district court" shalldesignate arbitrators if the parties fail to do so.

Two sections, 7 and 8, concern, respectively, diversity and admi-ralty jurisdiction and, hence, have no counterparts in New Yorklaw. Section 7 enlarged diversity jurisdiction by modifying the de-termination of the jurisdictional amount. Instead of the amount incontroversy, the amount was the sum or value of "the contractor submission out of which such controversy arises."29 Section 8preserves the historical right to start matters within the admiraltyjurisdiction by in rem proceedings.30

Comment

The 1921 USAA draft is of interest now mainly because of itsomissions, rather than its affirmative content. It was, like the NewYork 1920 act, a very incomplete arbitration statute. But, whereasin New York the Code of Civil Procedure continued after the 1920law to supply the rest of what is needed for a complete arbitrationstatute, no comparable federal statute existed. Had the 1921 draftbeen the law enacted by Congress, the vital underpinnings of itsnarrow, albeit vital, changes would, unless the Supreme Court hadchanged the law then prevailing in the federal courts,31 necessarilyhave been the common law of arbitration as developed in thosecourts.

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 1as before, modified section 2 so that agreements to arbitrate bothfuture and present controversies must be in writing, and left sec-tions 3 through 8 largely as before, except for renumbering sections7 and 8 as sections 8 and 9. Significant changes do, however, ap-pear in the 1922 USAA draft. Provision was made for witnesses,fees, and summonses (§7). The so-called entry of judgment provi-sion (§10),33 which also provides for seeking confirmation ofawards, was added. Section 11 set out grounds for vacating awards,and section 12 provided for modification of awards. Section 13


dealt with procedures to be followed in applying sections 11 and12; section 14 provided that upon confirmation of awards judg-ment might be entered, a judgment having the same effect as otherjudgments (§16), including appealability (§17).

The additional coverage naturally also required further refer-ences to the courts that would be doing the things called for by thenew sections. With one exception such additional references are tothe "United States court in and for the district within which suchaward was made" (§§10, 11, 12), or to "the court," where "the"refers to the United States court already mentioned. The exceptionis in section 10, which allows the parties to specify a court inwhich judgment shall be entered on the award. Nothing in the textindicates whether this means both state and federal courts or onlyfederal courts.

With the 1922 draft, the A.B.A.'s "United States ArbitrationAct"34 became a complete and integrated modern arbitration stat-ute. It was not the first such piece of work, that honor evidentlygoing to the Uniform State Act on Arbitration (which it veryclosely parallels) initially submitted to the A.B.A. by the committeein 1921, but then withdrawn and resubmitted at the same time asthe 1922 USAA.

The committee's recommendation of A.B.A. approval of theUSAA 1922 draft35 was passed without dissent.36 The reformerswere now ready to go to Washington.

In Congress: The 1922 Bill

The A.B.A.'s 1922 USAA draft was introduced in Congress inDecember 1922 by Senator Sterling in the Senate and CongressmanMills in the House.37 Each bill was referred to the respective com-mittee on the judiciary. Extensive lobbying took place, particularlyby Charles L. Bernheimer, Julius Henry Cohen, and W. H. H.Piatt, chairman of the A.B.A. committee.38 A subcommittee of theSenate Judiciary Committee held a hearing in January 1923.39

Charles L. Bernheimer (who was not a lawyer) was the firstwitness to testify before the subcommittee:

This bill follows the lines of the New York arbitration law, applyingit to the fields wherein there is Federal jurisdiction. These fields are


in admiralty and in foreign and interstate commerce. The Federalcourts, even in the district of New York, have refused to apply theNew York State law in admiralty cases. The fundamental conceptionunderlying the law is to make arbitration agreements valid, irrevoca-ble, and enforceable. The commercial bodies of the country havebeen urging the adoption of this principle of legislation throughoutthe country, and their point of view has now been accepted by theAmerican Bar Association. In the report of the committee of thatassociation, it is said:

" * * * the adoption of * * * the Federal statute and the uniformState statute will put the United States in the forefront in this proce-dural reform. It will raise the standards of commercial ethics. It willreduce litigation. It will enable business men to settle their disputesexpeditiously and economically, and will reduce the congestion in theFederal and State courts. In pressing forward this improvement inthe law, the association will align itself with the best economic andcommercial thought of the country, and will do much to overcomethe criticism of'law's delay'".40

Bernheimer then went briefly through the content of the sectionsof the statute. Later in his testimony, describing the handling ofdisputes in New York, he said:

Where they are involved as to New York State jurisdiction pure andsimple, we press for arbitration, and we can get it because there isno difficulty about it; but the moment the Hudson River separatesus, over in New Jersey, and when it is a Jersey case against a NewYork case, we can not do so.41

W. H. H. Piatt followed as a witness, summarizing briefly thehistory of the proposed bill in the A.B.A. Replying to an inquiryfrom Senator Walsh, Piatt stated that there had been two lines ofargument against the bill in the A.B.A. "One was that it invadedthe province of the courts and set up another system of jurispru-dence or adjudication of commerce."42 The other was "that it cre-ated professional arbitrators and fellows that would take jobs awayfrom lawyers."43 He stated flatly that those were the only argu-ments he had heard against the bill.

Piatt also responded to a complaint from the head of the Sea-men's Union, which was concerned that it would lead to compellingof arbitration between the stevedores and their employers.44 Hesaid:


Now, it was not the intention of the bill to have any such effect asthat. It was not the intention of this bill to make an industrialarbitration in any sense; and so I suggest that in as far as the[A.B.A.] committee is concerned, if your honorable committeeshould feel that there is any danger of that, they should add to thebill the following language, "but nothing herein contained shallapply to seamen or any class of workers in interstate and foreigncommerce." It is not intended that this shall be an act referring tolabor disputes at all.45

Senator Walsh then expressed concern about what we might nowcall the adhesive aspects of arbitration contracts. Having said thathe saw no reason "why, when two men voluntarily agree to submittheir controversy to arbitration, they should not be compelled tohave it decided that way," he went on:

The trouble about the matter is that a great many of these contractsthat 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 oryou can leave it. The agent has no power at all to decide it. Eitheryou can make that contract or you can not make any contract. It isthe same with a good many contracts of employment. A man says,"These are our terms. All right, take it or leave it." Well, there isnothing for the man to do except to sign it; and then he surrendershis right to have his case tried by the court, and has to have it triedbefore a tribunal in which he has no confidence at all.46

Piatt responded that it was not the intention of the bill to coverinsurance cases.47 Senator Walsh continued to express concernabout this problem, giving other examples — freight contracts andconstruction contracts — and pressing Piatt on the point. Piatt ap-parently conceded the need to do something about the problem.48

The subject of section 8 came before the committee in the formof a letter from a constituent of Senator Sterling, who read hiscomment: "Under section 8 of the bill jurisdiction is given regard-less of the amount in controversy. I fear that the practical result ofthis provision will be to impose upon the district courts a burdenof litigation in addition to that with which those courts are alreadypractically overwhelmed."49

Following this, the committee then turned to the other bill beforeit, S. 4213, a Bill Relating to Sales and Contracts to Sell in Inter-state Commerce. Also an A.B.A. bill, it was patterned on the Uni-


form Sales Act, then in effect in twenty-five of the forty-eightstates. Much of the two pages of the brief discussion of this billfocuses on concerns about conflicts between the federal law andthe law in the twenty-three states that had not enacted the UniformSales Act.50 Professor Samuel Williston's Brief in Support of S.4213" deals extensively with these arguments, including the consti-tutionality of the bill, which applied to a sale or contract to sell ifit expressly or impliedly provided that the goods shall be trans-ported from a foreign country to one of the states, or from one ofthe states to or through another state or foreign country.52 (Thesignificance of the contrast between this reaction to the Sales Actand the absence of any comparable reaction to the USAA draft isdiscussed in Chapter 9.)

Following the discussion of the proposed federal sales act, Sen-ator Sterling raised a number of small drafting problems in theUSAA draft and suggested corrections.53 The hearing then closed.

There was no hearing in the House and the bills were never report-ed 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. annualmeeting that "owing to the lateness of the session and the pressureof other important business, the [USAA 1922 draft] bill was notreported by the committees," but that "Senator Sterling and Con-gressman Mills both promise hearty cooperation in pressing the billto passage in the next Congress."55

With its August 1923 report, the A.B.A. committee also pro-duced a new draft reflecting changes resulting from the receptionof the USAA 1922 draft in Washington.56 The only substantivechange was the addition to section 1 of the words: "but nothingherein contained shall apply to contracts of employment of sea-men, railroad employees, or any other class of workers engaged inforeign or interstate commerce."57

The committee also corrected the drafting blemishes that hadbeen called to its attention by Senator Sterling.58 The A.B.A. ap-proved this 1923 draft.59

This 1923 USAA draft was destined to become the USAA, withonly modest changes on its way through Congress.60

8The USAA: Enactment

Hearings: January 1924

We, the People

Armed with American Bar Association's approval of the 1923USAA draft,1 the A.B.A. committee returned to the fray. AfterSenator Sterling and Congressman Mills resubmitted the newA.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 ofBernheimer, James, and Piatt. Appearing on behalf of the billalso were Charles I. Stengle, a New York congressman, SenatorKendrick from Wyoming,4 and ten representatives of organizationsof various kinds, including chambers of commerce, trade associa-tions, the Arbitration Society, and the powerful American FarmBureau Federation. Charles Bernheimer submitted a list of sixty-seven commercial organizations endorsing the proposed act. Thecommittee also received a number of favorable letters from variousorganizations, as well as one from Herbert Hoover, then Secretaryof Commerce. Hoover referred to "the urgent need" for the act,asserting that, because of the "clogging of our courts . . . the emer-gency exists for prompt action."5 No one appeared or, evidently,even wired or wrote, opposing the bill.6

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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 validand enforceable written provisions or agreements for arbitration ofdisputes arising out of contracts, maritime transactions, or com-merce among the State or Territories or with foreign nations.7

. . . This is practically the same bill that was before the Congressat 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 thehearing in 1923, except in two respects. There was more emphasison the interstate nature of the act, to which we shall return below,and none of the subcommittee members expressed the kinds ofdoubts Senator Walsh had expressed the year before.9 Both Piattand Cohen continued to assert that there was no opposition to thebill.10 Strictly speaking this was correct, but the opposition to thefirst draft of the proposed uniform law surfacing in August 1923had certainly constituted opposition to the principle of future dis-putes coverage. This was, of course, a key part of the A.B.A.'sfederal act. Nevertheless, the statements were justified retrospec-tively in August 1924 when the A.B.A. reaffirmed its support ofthe 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 wasCharles L. Bernheimer, who, in listing methods "by which to meettrade disputes" referred to arbitration having "legal sanction,whereby arbitration once agreed upon must be seen through, sothat the parties can not, as they can in the most of our States andcertainly in connection with interstate business, back out at the lastmoment when they see the case is going against them."12

Senator Sterling responded, "What you have in mind is thatthis proposed legislation relates to contracts arising in interstatecommerce."13 Bernheimer replied, "Yes; entirely. The farmer whowill sell his carload of potatoes, from Wyoming, to a dealer in thestate of New Jersey, for instance. . . . " He then returned to hisdiscussion of the workings of arbitration in his experience.


Julius Henry Cohen: Heavy Hitter

Julius Henry Cohen was the next witness to discuss the interstateaspects:

What does this bill do? It destroys the anachronism in the law. Thevery first sentence says if a man signs a contract for arbitration, itshall be irrevocable. It changes the law. Why do we do that in theFederal courts? We have it in New York State; the chamber ofcommerce and the other commercial bodies got together and got itthrough in New York. You have got it in New Jersey. The NewJersey Bar Association and the business men there got together andhad it passed last year. Why do you have to have it in the Federallaw? There are several reasons.

First of all, it was held that a State statute was not binding inadmiralty, even in the Federal courts. Judge Mack was most sympa-thetic, but he has had to follow the Federal law in admiralty. So inthe 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 didnot help out when it came into the Federal court. And the Federalcourt will not be bound by any State statute. This is in three seg-ments: The first is to get a State statute, and then to get a Federallaw 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 thesefruit shippers and those who are represented here, why are they forthis? Because of interstate business. And you know that commerceis mostly interstate now. So that this is a great tonic that is neededto strengthen this patient in the field of commercial activity, becausewhen business men know that they do not have to get a lawyer inCalifornia to enforce a case that does not involve more than four orfive hundred dollars they will do more business.15

Cohen set out some of the provisions in New York law that havebeen incorporated in the federal bills and then went on:

That is what we have done. But it can not be done under our consti-tutional form of government and cover the great fields of commerceuntil you gentlemen do it, in the exercise of your power to conferjurisdiction on the Federal courts. The theory on which you do thisis 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 werenot 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 hasbeen done for two years. The bill has been approved twice by theAmerican Bar Association; not a word of dissension anywhere.16

Representative Hickey then asked Cohen where the arbitrationwould be held if the parties had not agreed to location, to which hereplied that the court to which application was made would directthe location. The following exchange then took place:

HICKEY: And the application would be made to the court wherethe party asking for the arbitration resides?

COHEN: You would have to get jurisdiction just as you do now ina 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, orwait until he comes into your jurisdiction so that process may beserved upon him. The process is exactly the same as in civil proce-dure in the Federal courts.17

After Cohen finished his testimony, Senator Sterling also re-sponded to Representative Hickey's query by reading from section10:

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

and

If the adverse party is a resident of the district within which theaward was made, such service shall be made upon the adverse partyor his attorney as prescribed by law for service of notice of motionin an action in the same court.18

Opposition Anyone?

After the appearance of Francis B. James, and Senator Sterling'sreading into the record of a large number of letters and otherendorsements of the bills, the following colloquy took place be-tween Representative Dyer and Senator Sterling:


DYER: Is there anybody who has indicated any opposition in writ-ing, or otherwise?

CHAIRMAN: No; I knew of no real opposition when the bill wasbefore the Senate subcommittee at the last session.

DYER: There is no question of the authority of Congress to legis-late 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 YorkCity, appeared next. After extensive discussion of the merits ofarbitration Rose went on:

We have a weakness in our system of arbitration. We need, and wemust have the cooperation of the Federal courts. We must have thecooperation of the Federal statute, because while the dispute is adomestic one, we can well dispose of it. But when a merchant in NewYork sells his merchandise to some one in a foreign jurisdiction, hisarbitration law is defeated, not so much by the fact that the thing isnot specific enough, but by the course of events; by the logic of thesituation. He can not get jurisdiction in a foreign State, and if hedoes get jurisdiction, the law of that foreign State may be differentfrom the law here and may not be recognized as we have it here. Itmay be impossible to reduce it to a judgment in that State. He maynot have the power to summon witnesses there. In short, he needsthe aid of the Federal law in such cases, where interstate commerceis affected and where commerce with foreign nations is involved, orthe subjects of foreign nations. . . .

Now, there is this also to be said: There is one excellent result tobe achieved in the enactment of this bill, apart from the enactmentitself; it will set a standard throughout the United States. There aremany States which have no arbitration law. We have one in NewYork and one in New Jersey. So far as I know, I think there is nowpending in some Western States a bill to have an arbitration statutesubstantially the same as in New York. The other States have nostatutes whatever. In the others there is common-law arbitration.There is a good deal of confusion in the law on this subject. Thedifference between common law and statutory arbitration is largelyunknown. The legal profession themselves are largely ignorant of

USAA: Enactment 97

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

Cohen Brings His Pen to the Batter's Box

The subcommittee hearing closed with the submission of a substan-tial brief by Cohen, which is appended to the transcript of thehearing. This brief is one of the most important aspects of thelegislative history of the USAA. If there were ever any doubt aboutcongressional understanding as to what it was doing respecting theapplicability of the act, this brief would remove that doubt. Whilethis would be a natural place to include extensive excerpts from thebrief, doing so would result in considerable repetition in Chapter9, which analyzes the legislative history. For that reason, it istreated there rather than here.

House Judiciary Committee Report: Fast Work

The House Judiciary Committee moved quickly, issuing a favor-able report on January 24, 1924, only fifteen days after the hearingbefore the joint subcommittee.21 The report, after making plainthat the bill originated with and was drafted by the A.B.A., statedthat there was no opposition to the bill before the committee, dis-cussed briefly the constitutional basis for the bill, summarized thearguments 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 appli-cable only in federal courts or in both federal and state courts:

The purpose of this bill is to make valid and enforcible agreementsfor arbitration contained in contracts involving interstate commerceor within the jurisdiction or admiralty, or which may be the subjectof litigation in the Federal courts. It was drafted by a committee ofthe American Bar Association and is sponsored by that associationand by a large number of trade bodies whose representatives ap-

it


peared before the committee on the hearing. There was no opposi-tion to the bill before the committee.

The matter is properly the subject of Federal action. Whether anagreement for arbitration shall be enforced or not is a question ofprocedure to be determined by the law court in which the proceedingis brought and not one of substantive law to be determined by thelaw of the forum in which the contract is made. Before such con-tracts could be enforced in the Federal courts, therefore, this law isessential. The bill declares that such agreements shall be recognizedand enforced by the courts of the United States. The remedy isfounded also upon the Federal control over interstate commerce andover admiralty. The control over interstate commerce reaches notonly the actual physical interstate shipment of goods but also con-tracts relating to interstate commerce . . .

The need for the law arises from an anachronism of our Americanlaw. . . . The bill declares simply that such agreements for arbitra-tion shall be enforced, and provides a procedure in the Federalcourts for their enforcement. . . .

To secure jurisdiction for arbitration, however, service of processmust 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 adistance under a disadvantage. The proceeding will be commencedpractically 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 wasplaced on the Consent Calendar by Representative Graham, whosummarized its provisions briefly, largely in terms of what it didnot do:

... It does not involve any new principle of law except to provide asimple method by which the parties may be brought before the courtin order to give enforcement to that which they have already agreedto. It does not affect any contract that has not the agreement in it toarbitrate, and only gives the opportunity after personal service ofasking the parties to come in and carry through, in good faith, whatthey have agreed to do. It does nothing more than that. It createsno new legislation, grants no new rights, except a remedy to enforcean agreement in commercial contracts and in admiralty contracts.23

USA A: Enactment 99

In response to the question, "In what way does it affect thepresent understanding of the situation as between nations?" Gra-ham responded, "It does not affect that at all. It only affects con-tracts relating to interstate subjects and contracts in admiralty."24

Objection was raised to such a long bill's being placed on the con-sent calendar and it was removed.

Communications to Congress after the House Report

On February 20, 1924, the member of the A.B.A. committee incharge of arbitration matters sent to the chairmen of the judiciarycommittees of the Senate and the House the following telegram:

The decision by the United States Supreme Court handed down onMonday in Atlantic Fruit Company against Red Cross25 had animportant bearing on the proposed United States Arbitration LawSenate one thousand and five House Representatives six forty sixprepared by the American Bar Association. The United States Su-preme Court holds that in an admiralty case arising in New Yorkthe New York arbitration statute is applicable and the remedy avail-able. The decision goes a long way toward reversing the ancienterror of revocability in arbitration agreements and would seem toremove the last vestige of doubt concerning the value of the publicpolicy of making such agreements valid and enforceable. It givesadded point to the necessity of putting all the federal courts on aparity of jurisdiction and furnishing a ready and inexpensive methodof securing relief. I urge on behalf of the Committee on CommerceTrade and Commercial Law of the American Bar Association thatyou read the opinion.26

Copies of this night letter were also sent to all members of theSenate and House committees, as well as the press.

On March 7, 1924, Piatt wrote the chairman and members ofthe Senate Judiciary Committee responding to various suggestionsfrom Senator Walsh for amendments. Only the discussion of sec-tion 8 is pertinent to whether the USAA was intended to applysolely to the federal courts:

Your suggestion that Section 8 be deleted so as to preserve the limita-tion on the jurisdiction of the federal courts, where the basis of


jurisdiction is diversity of citizenship, namely, that the controversyshall involve, exclusive of interest and costs, the sum of $3000, seemsto us to deprive the smaller claimants in arbitration cases of theopportunity to resort to the courts, which it would seem is desirablethey should have, as well as those involved in larger matters. Weare, however, aware that there is considerable reluctance on the partof Congress to increase the jurisdiction of the federal courts, and ifit be the view of your committee at this time that it is undesirable toinclude in the provisions, controversies involving less than $3000,we should be willing to approve of a limitation of $1000, and wetrust that this will meet with your concurrence.27

Senate Committee Report: May 1924

On May 14, 1924, the Senate Judiciary Committee, adopting thereformers' arguments, reported the bill favorably, subject, howeverto some amendments.28 The report states the purpose of the billsimply by repeating section 2 verbatim, goes on to repeat the stan-dard history of the common law of arbitration, discusses the needfor change, and summarizes the sections of the bill. Most of theamendments were merely clarifying or relatively minor. Two wereof some significance: (1) a proviso in section 4 that court-orderedarbitration hearings and proceedings were to be "within the districtin which the petition for an order directing such arbitration isfiled;"29(2) the deletion of section 8, which had greatly reduced thesignificance of the jurisdictional amount requirement in casesbased on diversity of citizenship.30

There is no discussion of the amendments in the report, nor doesthe discussion throw any light on whether Congress intended statecourts 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 expla-nation of the bill: "This bill provides that where there are commer-cial contracts and there is disagreement under the contract, the

USAA: Enactment 101

court can [en] force an arbitration agreement in the same way asother portions of the contract."31

Congressman Dyer added, "The result of such a bill will to be doaway with a lot of expensive litigation."32 Three objections beingrequired to block treating the bill on the Consent Calendar, andnone being registered, the Clerk read the bill, "the bill was orderedto be engrossed and read a third time, was read the third time, andpassed."33

The Senate bill first came to the floor on December 30, 1924,where it was explained briefly by Senator Walsh, who appears tohave become a convert. Out of courtesy for an absent senator whohad registered his opposition, the bill was not, however, consid-ered.34 On January 31, 1925, the Senate bill was back again andwas first considered by the Senate as a Committee of the Whole.35

The amendments recommended by the Judiciary Committee wereagreed without discussion.36 Senator Caraway raised the only sub-stantive question, namely, whether the amendment "touching thequestion as to where the arbitration shall take place" was in thebill.37 It was. The Senate then inserted the Senate version into theHouse bill, had the bill read a third time, and passed it withoutdiscussion.38

The Senate amendments came before the House on February 4,1925. Brief and general inquiry was made whether the amendmentsintroduced substantial changes and about the identity of the propo-nents of the bills.39 Upon being assured that there were no substan-tial differences,40 the House unanimously passed the Senate amend-ments with virtually no discussion.41 President Coolidge signed thenew act on February 12, 1925, although it was (and is) applicableonly to contracts made after January 1, 1926.42

9The USAA: Analysis ofLegislative History

The Bills Which Became the USAA: Structure

The A.B.A. bill submitted to Congress in 1923 set out a compre-hensive integrated modern arbitration law containing everythingneeded for a complete system of arbitration,1 other than the basiccontract law necessarily underlying any such system.2 This was trueof both the federal and the arbitration aspects of the proposedacts.3 The structure of each is revealing of the exclusively federalnature of the USAA.

Basic Principles

Sections 1 and 2 establish the kinds of transactions covered by theact, limiting them to subjects over which the federal governmentunquestionably had substantive constitutional power: commerceand maritime matters. In addition, section 2 establishes the basicprinciple of full enforceability of arbitration agreements, whetherof present or future disputes.

Core Implementation of Basic Principles

Sections 3 and 4 are the key sections implementing the enforceabil-ity 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 areexplicitly limited to federal courts, they differ in an important re-spect. While section 4 contains a jurisdictional provision, section 3does not. The reason for this lies in the nature of the remedy. Noneed would exist to stay litigation under section 3 if the federalcourt lacked jurisdiction, since in such event the suit would bedismissed for lack of jurisdiction. But the jurisdiction of a federalcourt granting specific performance of an arbitration agreementmust 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 forjudicial appointment of arbitrators where required. They thereforecontain nothing relating to jurisdiction —already provided in sec-tion 4 —and their references to courts are to "the court," meaningthe federal court referred to in section 4.

Section 7 further supplements the section 2 principle by confer-ring powers on the arbitrators to summon witnesses, and so forth.Reinforcing those arbitrator powers are judicial powers to enforcearbitrator subpoenas. Section 7 is keyed back to the prior sectionsby limiting its terms to "arbitrators selected either as prescribed inthis act or otherwise."5 Once again its terms are limited to federalcourts. Section 7 also contains a jurisdictional provision: the arbi-trators can call for this judicial assistance from any district courtin whose district they are sitting.

Section 106 also implemented the section 2 principle by providingfor confirmation of awards by court order. (At common law it wasnecessary to bring an action Qr a suit in equity on the award.) Thissection, too, refers to courts and is the only section in the bills argua-bly referring to state (or foreign) courts as well as federal courts:

§10. If the parties in their agreement have agreed that a judgment ofthe court shall be entered upon the award made pursuant to thearbitration, and shall specify the court, then at any time within oneyear after the award is made any party to the arbitration may applyto the court so specified for an order confirming the award, andthereupon the court must grant such an order unless the award isvacated, modified, or corrected as prescribed in sections 10 and 11of this title. If no court is specified in the agreement of the parties,


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

Read literally, a court "so specified" could be a state or foreigncourt rather than a federal court. Whether the parties could, byspecifying a nonfederal court, extend the application of the USAAto state courts pursuant to this section is unclear from the languageof the section. On the one hand, their being able to do so is incon-sistent with all the rest of the terms of the statute limiting it tofederal courts. On the other hand, the intrusion of federal law onexisting state law in such a case would have been relatively minor.The section pertains only to confirmation of awards, merely a sim-pler way of securing the judgments the state courts habitually gaveanyway under state statutes or common law or both.7 But, howeverthis ambiguity might be resolved, there is nothing in the section tosuggest an intention of either the A.B.A. or Congress that theUSAA was to apply generally in state courts.8

Other supplemental sections include section 14,9 providing thatupon granting an order confirming, modifying, or correcting anaward, judgment could be entered thereon. Under section 1510 thisjudgment had the same effect as and could be enforced in the sameway as if it had been rendered in an action.

Regulatory Provisions

Sections 11 and 12" constitute limitations on the basic principleenunciated in section 2 in the form of specified grounds for vaca-tion and modification of arbitration awards. They do not, how-ever, constitute a significant departure from common law or stat-utory arbitration as it existed before modern arbitration statutes.The A.B.A. and Congress might have adopted the USAA withoutsuch sections12 and simply relied on the common law. Instead thissomewhat tidier solution was adopted. (Section 1313 provides pro-cedures for sections 11 and 12.)

These regulatory provisions necessarily also refer to courts, andthe courts referred to are federal.14

Miscellaneous Provisions

Two jurisdictional provisions, sections 815 and 916 provide furtherinformation 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 itwas deleted before enactment of the USAA, its initial inclusionreflects the intention of the A.B.A. (and of Congress) that theUSAA be applicable only in federal court. The provision wouldhave been largely unnecessary if the act governed state as well asfederal courts. That the A.B.A. so understood section 8 is mademanifest by a letter following the 1924 hearings'7 from Mr. Piattto Senator Walsh.

This letter dealt with, among other things, the Senator's proposalto delete section 8. Doing so, according to Mr. Piatt, "seems to usto deprive the smaller claimants in arbitration cases of the opportu-nity to resort to the courts, which it would seem is desirable theyshould have, as well as those involved in larger matters."18 Thisshows without question that Piatt understood that the USAAwould govern only in federal court. If it were going to govern thestate as well as the federal courts, the deletion of section 8 wouldnot deprive smaller claimants of "the opportunity to resort to thecourts." It would have deprived them only of the opportunity toresort to the federal courts. The objection in the letter to deletionof section 8 thus makes sense only if the USAA was understood tobe 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. Thissection provides for starting arbitration proceedings in admiraltyby filing a libel and seizing the vessel or other property of the otherparty. "The court" then has jurisdiction. This phrase necessarilymeant the federal court. Only federal courts sit in proceedingsjusticiable "in admiralty."21 And only federal courts entertain pro-ceedings commenced by "libel and seizure of the vessel or otherproperty of the other party according to the usual course of admi-ralty proceedings."22

Procedures for motions for orders confirming, modifying, orcorrecting awards are set out in section 15.23 Appeals from ordersor 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-


menting them. In particular, any idea that section 2 is somehowindependent of the remaining sections, that it creates its own sys-tem of independent regulation separate from the remaining sectionsis a historical absurdity.25

The language in section 2 that written arbitration agreements"shall be valid, irrevocable and enforceable" is lifted directly fromthe New York Arbitration Law of 1920.26 Any starting point ofhistorical analysis must, therefore, be the New York act. In thatact the language served several purposes: (1) It was the coat hookon which to hang two things. One was a formal coat, since onlyarbitration agreements meeting the formal requirement of writingwere "valid, enforcible and irrevocable." The second was the sub-stantive coat of validity, enforceability, and irrevocability, thepockets of which contained all the sections following section 2implementing those substantive principles. (2) It was the founda-tion for the limitation "save upon such grounds as exist at law orin equity for the revocation of any contract." (3) And finally, orperhaps first in the minds of the reformers, it laid to rest for goodany idea that arbitration agreements were somehow or other taint-ed kinds of contracts.27

In interpreting the USAA, perhaps more important is what thelanguage "shall be valid, enforcible and irrevocable" in the NewYork act did not mean. It certainly did not mean that the actcreated any substantive law beyond the procedural limitations inthe sections following in the act. In particular, given the universalunderstanding of the procedural, remedial, forum-based nature ofarbitration law, it most emphatically did not mean that complyingNew York arbitration agreements had acquired a new substantivecontent binding courts of jurisdictions other than New York. Hadthere been any doubt of this it was laid to rest in 1921 by the NewYork Court of Appeals in Berkovitz v. Arbib & Houlberg (Inc.)(N.Y. 1921).28 This opinion was appended to the report of the 1923hearing on the USAA;29 there can thus be little doubt that thecommittee knew of it.

There is thus no foundation for a belief that the A.B.A. andCongress had any intention of enacting anything but an integrat-ed statute, either applicable in its entirety to any given proceedingin any given court or not at all. This fact gives particular signifi-cance to the constant reference to federal courts throughout the


act. Either the A.B.A. and Congress were being extraordinarilydense in failing to recognize that those references should be to allcourts, or they meant exactly what they said when they referredonly to federal courts. In the latter case, given that they were enact-ing an integrated statute, they must also have meant sections 1 and2 to be applicable only in federal courts, in spite of the generalityof the language of those two sections when viewed discretely.

It may also be noted that none of the modern arbitration statutesextant at the time of enactment of the USAA included a sectionmaking agreements to arbitrate valid, irrevocable, and enforceable,without including provisions like sections 3 and 4 and numerousother provisions of the kind found in the 1922 and 1923 bills.Nor did any simply include the procedural sections without thesubstantive equivalent of USAA §2. This was true of the 1920 NewYork arbitration act,30 all the A.B.A. drafts of the USAA, theearly efforts at a uniform arbitration act, and the New Jersey lawof 1923. Nor has any modern arbitration act since then done so.Any reading of the USAA leading to substantive and proceduralparts with differing applicability creates a monstrosity found no-where else in the world of American arbitration.31

Given the origin of the phrase "valid, irrevocable and enforce-able," only the strongest evidence could justify a conclusion thatCongress meant that phrase in section 2 to create substantive lawsomehow separate from the sections following. Before turning to seeif such evidence can be found in the hearings, an introduction to thecontext 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 thelimited 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 thebar association's product.32 That this was the A.B.A.'s product isacknowledged explicitly in the legislative history:

SENATOR STERLING: I just read over this bill [the USAA] again hast-ily this morning. I was concerned over the phraseology of the bill. I donot think that the bill is as carefully drawn as your sales bill.33


MR. JAMES: Professor Williston did not draft that. Julius HenryCohen did it, primarily.

SENATOR STERLING: You say, "shall be valid, enforceable, andirrevocable." . . . Then you use this language:. . . . You shouldsay. . . . Then^ow say in line 18 on page 3 of the bill: . . . 34

The point is also vividly illustrated by a remark of two earlycommentators: "It is ... remarkable how so important and farreaching legislation can emerge from Congress with such a dearthof intelligent discussion."35 There was, however, plenty of "intelli-gent discussion"; it just happened to occur in the A.B.A. and itscommittees, rather than in Congress. What is remarkable — if it isremarkable—is that Congress enacted such important legislationwith none of its committees engaging in almost any "intelligentdiscussion."

The "intention of Congress" to be sought in interpreting suchlegislation cannot be quite the same as it is respecting legislationCongress 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 ques-tion is how Congress understood what was presented and uponwhich it put its stamp of approval. To seek an independent inten-tion in such cases is to seek something that never existed, even inthe somewhat ethereal world of legislative intention. Similarly, tothe extent that the idea of congressional purpose is an appropriatesubject of inquiry, Congress's purpose in such legislation of adhe-sion is entirely derivative from the purpose of those presenting thelegislation to Congress. In such cases, where the language of thestatute is unclear, if we wish to ascertain Congress's intention andpurpose, our focal point must be what Congress understood to bethe goals of those presenting the fully drafted statute. In the ab-sence of convincing evidence of a different or of additional con-gressional intentions or purposes, it is the sheerest fiction in thesecircumstances for a court to find one.36

These are not, of course, hard and fast distinctions, but parts ofa continuum. This continuum ranges from a pure rubber stamp oflegislative approval following presentation of the privately draftedbill on the one hand to legislation entirely crafted by a legislator orlegislative committee with no external input on the other. TheUSAA is —perhaps unusually so for a major piece of legislation—


very close to the rubber stamp model. The role of the congressionalcommittees was almost entirely that of finding out what the pro-posed bill did, why its proponents favored it, and if anyone op-posed it. There were few exceptions to this pattern, the majorones being the elimination of "contracts of employment of seamen,railroad employees, or any other class of workers engaged in for-eign or interstate commerce,"37 and the elimination of section 8diluting the jurisdictional amount in arbitration cases in federalcourt under diversity jurisdiction.

In the Beginning Was the Reform Movement

Thus, in one sense any study of the legislative history of the USAAnecessarily begins with the reform movement. The USAA can beunderstood only as an artifact of that movement —as the product,not of Congress itself, but of the reformers working through theA.B.A. Nonetheless, it is congressional understanding and purposewe seek, and things unknown to Congress in 1925, even thoughknown to the reformers at the time and to us now, are not directlypertinent to our search. The following analysis of the legislativehistory is, therefore, confined to a conventional legislative historylimited to the existing law, bills, committee hearings, reports, andfloor debate (such as it was) starting with the introduction of thefirst bill in Congress in 1922.38

The Legal Background

Perhaps the most important single factor in understanding congres-sional intention respecting the USAA is the legal backgroundagainst which the USAA was presented to Congress. And the mostimportant fact in the legal background was the universal under-standing in the period from 1922 to 1925 that the enforcement andnonenforcement of arbitration agreements and awards, particu-larly specific enforcement of arbitration agreements, were mattersof remedy. In that day, before Erie39 had complicated such matters,remedial issues of this kind were indisputably within the exclusiveprovince of the court in which enforcement was sought, the forumcourt. Moreover, the federal courts plainly were hellbent on stick-ing to the proposition that state arbitration statutes were not sub-


stantive law, and hence not binding on the federal courts. Thiswas their position, whether in admiralty or in diversity cases, andwhether or not interstate commerce was involved.

In interpreting a statute it is normally assumed that the legisla-ture is aware of the existing law prior to enactment of the statute.In this instance, however, it is unnecessary to rely on such anassumption. There is ample evidence that Congress in 1922 to 1925was fully aware of the legal rule that arbitration was a remedialmatter within the exclusive authority of the forum court. It was,indeed, precisely this fact upon which the A.B.A. based the casefor enactment of its USAA.

The forum-remedial nature of arbitration is implicit in the testi-mony of Charles Bernheimer respecting the federal courts in the1923 committee hearing.40 In addition, the New York Court ofAppeals opinion in Berkovitz v. Arbib & Houlberg41 is appendedto the 1923 hearing report.42 In upholding the applicability of the1920 New York law to preexisting contracts, Chief Judge Cardozowrote the following:

The common-law limitation upon the enforcement of promises toarbitrate is part of the law of remedies. . . . The rule to be appliedis the rule of the forum. Both in this court and elsewhere, the lawhas been so declared. Arbitration is a form of procedure wherebydifferences may be settled. It is not a definition of the rights andwrongs out of which differences grow. . . . 43

It may be noted that the three senators on the Senate subcommitteeconducting the 1923 hearing were the same senators who served onthe joint Senate-House subcommittee conducting the 1924 hearingsleading to enactment of the USAA.44

In the 1924 hearings the testimony of Julius Henry Cohen re-peated the forum-remedial nature of arbitration and applied it ex-plicitly to the proposed act.45 This theme was also expounded exten-sively in Cohen's brief submitted at the 1924 committee hearings:

A Federal statute providing for the enforcement of arbitration agree-ments does relate solely to procedure of the Federal courts. ... Tobe sure whether or not a contract exists is a question of the substan-tive law of the jurisdiction wherein the contract was made. Butwhether or not an arbitration agreement is to be enforced is a ques-tion of the law of procedure and is determined by the law of thejurisdiction wherein the remedy is sought.


That the enforcement of arbitration contracts is within the law ofprocedure as distinguished from substantive law is well settled bythe decisions of our courts. [Citation of several federal and threeNew York cases.]

The rule is succinctly stated in the Meacham case,46 supra; "Anagreement that all differences arising under a contract shall be sub-mitted to arbitration relates to the law of remedies, and the law thatgoverns remedies is the law of the forum."

Neither is it true that such a statute, when it declares arbitrationagreements to be valid, declares their existence as a matter of sub-stantive law. The courts have always recognized that such agree-ments have existed but have refused to enforce them. . . . While thecourts refused to enforce arbitration agreements specifically, theyrecognized their existence because they gave another remedy. Fromthe earliest times it was held that for a breach of arbitration agree-ment the aggrieved party was en titled to damages. [Citations.] . . . 47

As we have already shown and as the Berkovitz case, . . . declaresagain, the question of the enforcement relates to the law of remediesand not to substantive tow.48

If there were any doubt left that Congress understood this pointit is laid to rest by the report of the House Judiciary Committee,which explicitly states: "Whether an agreement of arbitration shallbe enforced or not is a question of procedure to be determined bythe law court in which the proceeding is brought and not one ofsubstantive law to be determined by the law of the forum in whichthe contract is made."49

In sum, faced with this unquestioned rule of law, Congress couldhave intended the USAA to apply outside the federal courts only ifit had also intended to overrule a well-understood, well-established,and well-accepted allocation of powers among courts generally andbetween the state courts and the federal courts particularly. ThatCongress had power to do so and might have done so is not thequestion. 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 itsfriends made plain that it intended its proposed act to apply onlyin the federal courts. For example, Alexander Rose testified:


There is one excellent result to be achieved in the enactment of thisbill, apart from the enactment itself; it will set a standard throughoutthe United States. There are many States which have no arbitrationlaw. . . . [T]he enactment of this law, extending its effect all overthe United States, will have an effect upon the cause of that much-desired thing —uniform legislation on a subject of this character. Ihave no doubt all of the States would pattern after it.50

Thus Rose saw two effects of the USAA, legal and moral. It maybe noted that the moral effect on state law he describes would havebeen moot if the USAA superseded state law in state courts underthe Supremacy Clause.

The most important testimony on this point is that of JuliusHenry Cohen at the 1924 hearings, made both orally and in hisbrief. It is unnecessary to repeat all that has been set out in Chapter8 from his testimony, but the following language particularlystands out:

But [developing modern arbitration law] can not be done under ourconstitutional form of government and cover the great fields ofcommerce until you gentlemen do it, in the exercise of your powerto confer jurisdiction on the Federal courts. The theory on whichyou do this is that you have the right to tell the Federal courts howto proceed.51

Similarly in his brief Cohen said of the A.B.A.'s bill:

The Federal courts are given jurisdiction to enforce such agreementswhenever under the Judicial Code they would normally have juris-diction of a controversy between the parties. . . . First, any suitcommenced in a Federal court upon an issue referable to arbitrationmay be stayed until arbitration is had. . . . 52

It has been suggested that the proposed law depends for its validityupon the exercise of the interstate-commerce and admiralty powersof Congress. This is not the fact.

The statute as drawn establishes a procedure in the Federal courtsfor the enforcement of arbitration agreements. It rests upon theconstitutional provision by which Congress is authorized to establishand control inferior Federal courts. So far as congressional actsrelate to the procedure in the Federal courts, they are clearly withinthe 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. Itis no infringement upon the right of each State to decide for itselfwhat contracts shall or shall not exist under its laws. To be surewhether or not a contract exists is a question of the substantive lawof the jurisdiction wherein the contract was made. But whether ornot an arbitration agreement is to be enforced is a question of thelaw of procedure and is determined by the law of the jurisdictionwherein the remedy is sought. . . . "

The primary purpose of the statute is to make enforcible in theFederal courts such agreements for arbitration, and for this purposeCongress rests solely upon its power to prescribe the jurisdictionand duties of the Federal courts. . . . 54

Nor can it be said that the Congress of the United States, directingits own courts no longer to recognize this anachronism in the law,would infringe upon the provinces or prerogatives of the States. Aswe have already shown and as the Berkovitz case, supra, declaresagain, the question of the enforcement relates to the law of remediesand not to substantive law. The rule must be changed for the juris-diction in which the agreement is sought to be enforced, and achange in the jurisdiction in which it was made is of no effect. Everyone of the States in the Union might declare such agreement to bevalid and enforcable [sic], and still in the Federal courts it wouldremain void and uneforcable [sic] unless the Supreme Court of theUnited States felt at liberty itself to reverse a rult [sic] recognizedfor centuries. This, in the absence of a congressional declaration, ithas so far felt itself unable to do. . . . 55

There is no less reason to believe that the Federal courts will giveequally sincere support [as the New York courts give the New Yorkstatute] in the application of a similar Federal statute. . . . 56

Further indication that the statute was intended to be limited tofederal courts is found in Cohen's brief following the foregoingquotation where he says, "It is desired only that the Federal Gov-ernment shall declare the validity of arbitration agreements in thefield where necessarily it is supreme and where without this actionno remedial action by the States ever can be effected."51 The only"field" where Congress was supreme and the State could not pro-vide for the effective enforceability of arbitration agreements wasthat of cases in federal courts.58 The States at that time had unques-tioned power to allow their own courts to enforce arbitration agree-ments, whether such agreements involved interstate commerce ornot.


At one point in his brief Cohen does mention the power ofCongress to require state courts to enforce arbitration agreements:

So far as the present law [the proposed USAA] declares simply thepolicy of recognizing and enforcing arbitration agreements in theFederal courts it does not encroach upon the province of the individ-ual States. It seems probable, however, that Congress has amplepower to declare that all arbitration agreements connected with in-terstate commerce or admiralty transactions shall be recognized asvalid and enforcible even by the State courts. In both cases theFederal power is supreme. Congress may act at its will, and havingacted, no law or regulation of a State inconsistent with the congres-sional act can be given any force or effect even in the courts of theState itself. They are as much bound to carry out the provisions ofsuch a Federal statute as though it was an act of their own legisla-ture. . . . 59

The first sentence of this paragraph taken by itself contains aslight ambiguity.60 This may be attributable to Cohen's undoubtedwish in his heart of hearts to see arbitration agreements enforceableeverywhere. Nonetheless, taken in context he is simply noting thatCongress probably could require state courts to enforce arbitrationagreements in interstate commerce or admiralty, not that this pro-posed statute does so.61 This is made clear in the paragraphs follow-ing, particularly where he says:

Even if, however, it should be held that Congress has no power todeclare generally that in all contracts relating to interstate commercearbitration agreements shall be valid, the present statute is not mate-rially affected. The primary purpose of the statute is to make enforc-ible in the Federal courts such agreements for arbitration, and forthis purpose Congress rests solely upon its power to prescribe thejurisdiction and duties of the Federal courts.62

Cohen's most colorful disclaimer of any intention to have theUSAA govern in state courts is, "There is no disposition thereforeby means of the Federal bludgeon to force an individual State intoan unwilling submission to arbitration enforcement."63

Had there ever been any doubt —there was not — concerning thelimitation of the USAA to the federal courts, Cohen's brief cer-tainly would have removed it.


No Opposition: The Dogs Which Didn't Bark

A final important fact revealed by the hearings is in SherlockHolmes's category of The Dog Which Didn't Bark. There was noopposition to the USAA. In both 1923 and 1924 the witnesses wereat pains to stress, and the committees at pains to confirm, thecomplete lack of opposition to the proposed federal legislation.64

This lack of opposition is explicable only if everyone aware of theproposed legislation—which included, inter alia, all members ofthe A.B.A. who bothered to read their mail — understood it to belimited to the federal courts.

To understand the importance of the absence of opposition it ishelpful to put ourselves back into the context of 1925. At thattime, the entire infrastructure of interstate contract law and ofcommercial law was state, not federal, law. Moreover, in 1925that state infrastructure had not yet been eroded, penetrated, andoverlaid by the massive New Deal and post-New Deal expansion offederal government regulation of the economy so affecting ourpresent conceptions of federal-state relations.

An integral part of that essential state infrastructure for inter-state commerce included the state judicial systems, including mostcertainly their remedial techniques. At that time, granting or failingto grant specific performance of arbitration agreements was univer-sally recognized as a matter of remedy and the business of theforum court.

A mandatory federal requirement that the state courts grant suchspecific performance in cases involving interstate commerce wouldhave been a major and extraordinary expansion of federal power.It would hardly have started another Civil War, but it would cer-tainly have been enough to cause an immense stir in legislative andlegal circles.65 This was particularly so in 1925, when only three ofthe forty-eight states had modern arbitration statutes. In the otherforty-five states, a USAA superseding state law would have over-ruled well-established existing state remedial law in state courts.

The integrated nature of the USAA becomes of importance inunderstanding that it would have been viewed in 1925 as a massiveinterference with state law had it been intended to apply in statecourts. As already noted, Congress clearly understood that all sec-tions of the act would apply wherever any of it applied. Taken


together the USAA is not simply the rule of "substantive" law insection 2 that arbitration agreements "shall be valid, irrevocable,and enforceable," but a complete modern arbitration statute, muchof it devoted to procedural matters.

These procedural matters range from major provisions forstays,66 orders to arbitrate,67 handling disputes over the existenceof an arbitration agreement,68 appointment of arbitrators,69 andconfirmations of awards70 to such procedural details as the amountof witness fees71 and papers to be filed with motions.72 Even todayafter Southland Corp. v. Keating (U.S. 1984),73 the Court has yet tohave the courage to say that all those sections govern state courts; itis still dillydallying about the issue.74

The magnitude of imposition of federal law on the state courtsif the A.B.A. and Congress had, contrary to fact, intended theUSAA to apply in state courts may be seen in the wide rangeand seriousness of the problems discussed below75 concerning theimpact of Southland. It is quite inconceivable that such a bill couldhave sailed through either the A.B.A. or Congress with no opposi-tion on this score. This was, after all 1921 to 1925, hardly an eraof great enthusiasm for the expansion of federal power.76 Thus thefact that there was no opposition to the USAA reinforces what allthe rest of the evidence makes patent: the USAA was intended tobe applicable only in the federal courts; this fact was thoroughlyunderstand by everyone in 1925.

That the dogs could and did bark about such issues involvingother legislation is illustrated by the handling of the proposed fed-eral sales act before the subcommittee in the 1923 hearing and thereaction of the subcommittee to it. (Discussion of the arbitrationact immediately preceded and followed the brief treatment accordedthe sales act.)77 In contrast to its presentation of the arbitration bill,the A.B.A. representative stressed how many states had enacted theuniform sales act, upon which the proposed federal sales act wasbased. Senator Walsh in turn stressed how many had not and theduality of law that would be created for such states if sales in inter-state commerce were treated differently from intrastate sales.78 Asenator so concerned about that problem respecting the sales actwould hardly have sat back and said nothing on the identical subjectrespecting the arbitration act if he had thought for an instant that thelatter was to govern state courts. This is particularly true of a senator


who only a short while earlier had shown considerable concern aboutsome aspects of the substance of the proposed act.79

In sum, the hearings confirm what is already clear from the priorbackground and the bills themselves: the proposed USAA was in-tended to apply only in federal courts. It was never intended tocreate substantive federal regulatory law superseding state law un-der the Supremacy Clause of the federal Constitution. This is clearboth from the explicit testimony of the proponents and from theabsence of opposition to the bills, which had been thoroughly pub-licized throughout the legal profession.

The House Judiciary Committee Report

The first committee report, that of the House Judiciary Commit-tee, plainly states:

Whether an agreement for arbitration shall be enforced or not is aquestion of procedure to be determined by the law court in whichthe proceeding is brought and not one of substantive law to bedetermined by the law of the forum in which the contract is made.Before such contracts could be enforced in the Federal courts, there-fore, this law is essential. The bill declares that such agreementsshall be recognized and enforced by the courts of the United States.80

This statement is entirely consistent with everything that had gonebefore limiting the proposed law to the federal courts. It is alsoconsistent with the sentences immediately following in the report,"The remedy is founded also upon the Federal control over inter-state commerce and over admiralty. The control over interstatecommerce reaches not only the actual physical interstate shipmentof goods but also contracts relating to interstate commerce."81 Bothstanding alone and in context these sentences simply set out anadditional source of congressional power to direct federal courtsto enforce arbitration agreements. They say nothing whateverabout the content of the bill: "The remedy" necessarily refers tothat described in the preceding sentence, enforcement in Federalcourts. Only the most fevered imagination could rewrite the firstof the two sentences just quoted to read, "The bill also extends theremedy to state courts, an extension founded upon the Federal


control over interstate commerce and admiralty, which is also asecond constitutional foundation for the remedy the bill providesin the Federal courts." Yet that is how the sentence must be read toextend the USAA beyond the federal courts.

A similarly heightened imagination would be required to expanda later sentence in the report to extend the bill to state courts: "Thebill declares simply that such agreements for arbitration shall beenforced, and provides a procedure in the Federal courts for theirenforcement."82

One sentence, the very first in the report, on its face seems at firstto suggest that state courts are covered by the bill: "The purpose ofthis bill is to make valid and enforcible agreements for arbitrationcontained in contracts involving interstate commerce or within thejurisdiction or [sic] admiralty, or which may be the subject oflitigation in the Federal courts."83

The emphasized word "or" is quite plainly and simply a clericalor typographical mistake. The intention of the writers of the Re-port was one of addition, not of alternative. This conclusion issupported by a number of facts.

First, if "or" really means or, the USAA would govern arbitra-tion agreements in intrastate transactions whenever they were made"the subject of litigation in the Federal courts." That is plainly andsimply wrong. Any such intention by the committee would havecontradicted the explicit terms in sections 1 and 2 limiting theirapplication to interstate commerce and maritime transactions. Thisis something that no one has ever had the effrontery to suggest.84

It should not be thought that the applicability of the USAA to in-trastate transactions would have been a matter of insignificance in1925. The litigation of intrastate transactions in diversity suits in fed-eral courts was a common occurrence in the 1920s, given the SupremeCourt's restrictive interpretation of the commerce clause.85

It should be noted that the sentence in question has been read inyet another way, a nonsensical one. This reading must, however,be treated because the reader is the Supreme Court of the UnitedStates.86 The Court concluded that the writers of the report meantin the first clause of the sentence that section 2 would govern alltransactions in interstate commerce, although the second clause didnot make the act applicable to transactions in intrastate commercein federal courts.87 In other words, for one purpose it held the


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 ledto section 2 coverage of intrastate transactions in violation of itsterms and overruling of Bernhardt v. Polygraphic Co. of America,Inc. (U.S. 1956).88 Nor is it an exploratory one, which would havedug behind the ambiguity to the genuine intention of the commit-tee. It is purely and simply an inaccurate reading. As such it led toconclusions having no foundation whatever in reality either interms 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 instate courts is at odds with all the rest of the legislative historyalready described. The word "or" is, in other words, contextuallynonsensical. This is precisely the kind of situation in which courtsignore the literal words of statutes in favor of what the legislaturemust have really meant.90 The same principle would apply a fortiorito legislative committee reports, themselves less authoritative ingeneral than legislation itself.

Finally, although not probative in itself, the presence in the re-port of other similar clerical or typographical errors reflects thedanger of reading the report literally at all costs. In the very samesentence in question another unquestionable error appears in thephrase: "within the jurisdiction or admiralty." This, of course,makes no sense, and must mean "within the jurisdiction of admi-ralty." 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 theHouse report once again make clear the intentions of all concernedthat the USAA would apply only in the federal courts. The first ofthese was the telegram on February 20, 1924, to the chairmen ofthe judiciary committees of the Senate and the House, copied laterto all the committee members by letter.91 This letter, referring tothe relation between the proposed USAA and the Supreme Court's


decision just handed down in Red Cross Line v. Atlantic FruitCompany (U.S. 1924),92 says: "It gives added point to the necessityof putting all the federal courts on a parity of jurisdiction andfurnishing 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, questionedthe Senator's proposal to delete section 8 providing for a dilutedjurisdictional amount in diversity cases. It has already been pointedout that this objection makes sense only if the USAA was under-stood to be applicable solely in federal, not in state, courts.

The Senate Report

As already indicated,94 the report of the Senate Judiciary Commit-tee casts no additional light on whether Congress intended theUSAA to apply in the state courts.

On The Floor of Congress

In the discussions, such as they were, on the House and Senatefloors, what was said casts virtually no additional light on thequestion of applicability in state courts. But what was not saidcasts a great deal of light on that issue. The lack of commentstrongly implies that the bill was well understood to do nothing ofa revolutionary nature, such as regulating remedies and detailedprocedures in the state courts. The significance of this silence isaffirmed 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 incommercial contracts and in admiralty contracts."95 This is notthe kind of language any congressmen could have understood asmeaning, "Respecting arbitration in interstate commerce, we areabout to overthrow a fundamental principle of federal-state rela-tions by regulating in an extended and detailed manner procedurein state courts." Had the language been so understood, it is mostunlikely that the bill would have passed either house, and incon-ceivable that no one in either house would have dissented.


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

10The USAA: Interpreted asCongress Intended

Commentaries: 1925-38

The most important and the earliest of the commentaries on thenew USAA came straight from the horse's mouth the very nextmonth after its passage. This was the A.B.A. Committee on Com-merce, Trade and Commercial Law, writing in the March 1925issue of the A.B.A. Journal.1 The committee first rang the churchbells to celebrate its triumph, then presented a brief history of theact and a summary of its provisions. There followed a sectionheaded "Legal Justification," which was lifted almost verbatimfrom Julius Henry Cohen's brief submitted to the joint subcommit-tee.2 Since this language and its plain purport that the USAA gov-erned only in federal courts has already been discussed,3 it is unnec-essary to repeat the analysis here.

This commentary on the USAA —about as official a commentaryas one could find —also contained a discussion of the proposedUniform 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 pertinentpart of the argument goes as follows: "[H]ow can the legislativesituation be uniform in the States, if there is a different policy inthe case of contracts involving intrastate commerce from that nowmade national in the case of contracts involving interstate com-

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USAA: Interpreted as Congress Intended 123

merce?"5 So far the quotation appears to suggest that the newUSAA is indeed a regulatory statute governing state courts. Whatimmediately follows, however, makes plain that this is not thecase:

And why should merchants whose claims being under $3,0006 mustapply to state courts for relief, meet a situation where, if the claimis against a non-resident and involves interstate commerce, the con-tract for arbitration is valid; but, though it be $10,000, if it beagainst a fellow resident or involve only intrastate commerce, it isinvalid and revocable?7

There could be no clearer indication than this that the very commit-tee which instigated the bill and was entirely responsible for Con-gress's understanding of it, knew that the USAA governed only infederal courts.

Two months later, another principal, Charles L. Bernheimer,published a small article extolling the new act.8 Bernheimer, a non-lawyer, had trouble, as in fact did some of the lawyers, with thatdifficult word "jurisdiction." In the article he states that the lawapplied the principles of the New York act "to the fields whereinthere is federal jurisdiction. These fields are in admiralty and inforeign and interstate commerce."9 But any possible implicationthat these jurisdictional fields extend beyond the federal courtsdisappears when he later says: "Under this new law, . . . the fed-eral courts are given jurisdiction to enforce agreements for arbitra-tion or submissions. . . . Jurisdiction exists in those cases in whichthe federal courts would normally, under the Judicial Code, havejurisdiction of a controversy between the parties."10

Six months after the USAA was enacted, Hollis R. Bailey, astaunch reform supporter, was attempting at the National Confer-ence of Commissioners on Uniform State Laws to convince hisfellow commissioners to undo the nonmodern Uniform ArbitrationAct they had approved in 1924." In doing so he revealed his un-questioned understanding that the USAA governed only in federalcourt:

You are going to ask the American Bar Association, having commit-ted itself to [the modern New Jersey] form of arbitration, which hasbeen, furthermore adopted by the United States Congress since the12th of February 1925, and has been the law governing the federal


courts, you are going to ask the American Bar Association to ap-prove a state law entirely different, from what it has approved forthe federal law of the land.12

Jesse A. Miller of Iowa, who supported the nonmodern uniformact, responded:

One of the Commissioners [Bailey] said that he doubted whetherthe American Bar Association would reverse itself. There is no occa-sion for the American Bar Association to reverse itself. It didn'tpass on this act or any act that is applicable to the states. All it hadbefore it was an act [USAA] which applied to a few limited subjectswhere the federal courts would have control. . . . 1 3

No one disputed Bailey or Miller respecting the applicability of theUSAA. I have been unable to find so much as a hint in the extendeddiscussion of the commissioners that any of them14 thought theUSAA governed in state courts, a conclusion that would have hadmajor impact on their deliberations.

In January 1926, Julius Henry Cohen took to print in a co-authored article15 reflecting his clear understanding that the USAAdid not govern state courts. Lamenting the failure of Congress toretain the section from the earlier drafts that had eliminated thejurisdictional amount requirement, the authors said, "most arbitra-tion disputes involve small amounts, and lacking state statutes, theFederal law ought to cover them."16 If, as the Supreme Court laterheld in Southland Corp. v. Keating (U.S. 1984),17 the USAA gov-erned in state courts, then, of course, the federal law did coverthese small claims.

Later in the article, Cohen and Dayton simply parroted Cohen'sbrief to the joint committee18 (without attribution), indeed so liter-ally that at one point they refer to the USAA as "the proposedlaw."19 Again, since that brief, with its clear purport that the USAAgoverned only in federal courts, has already been discussed,20 it isunnecessary to repeat the analysis here.21

In the years following enactment of the USAA, I have comeacross only one work, a 1929 student note, which even consideredthe possibility that it might govern in state courts. The notepromptly rejected the idea:


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

The first treatise on American arbitration law appeared in 1930,five years after the enactment of the USAA.24 Its author, WesleySturges, was an ardent arbitration reformer, as may readily be seenin his 1927 article25 excoriating the old Uniform Arbitration Law.26

Chapter 17 of the treatise, entitled Arbitrations and Awards underthe Rules of the Conflict of Laws, contains a Part II, entitledRelation of State and Federal Jurisdictions. This part in turn con-sists of three sections: (1) §479 Effect of State Arbitration Statutesin the Federal Courts, (2) §480 Effect of State Arbitration Statutesin the State Courts when Matters within the Jurisdiction of theFederal 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 ar-guing 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 gov-erned. Even here Sturges concludes:

It seems clear that a state court may enforce its own arbitrationstatute, although the matter in controversy falls within the concur-rent jurisdiction of the state and federal courts. Thus, if an arbitra-tion agreement qualifies under the arbitration statute of a state andthe proper state court acquires jurisdiction of the parties, there canbe little doubt that such court can enforce the state statute althoughthe federal courts might have been invoked to take cognizance ofthe cause in issue.28

Having so concluded, Sturges found it unnecessary even to discussthe possibility that the USAA might be applicable in cases unre-movable to federal courts.29


Probably the most comprehensive study of the USAA in its earlyyears is Baum and Pressman's 1930-31 article.30 It was written at atime when there were still only five reported cases dealing with theact, only one of which had reached a court of appeals.31 In discuss-ing what they deemed to be an unfortunate limitation of the subjectmatter of the act, the authors wrote:

Federal legislation must point to some constitutional grant for itsvalidity. Two bases have been suggested for the arbitration statute:(1) the unrestricted power of Congress to provide for the rules andprocedure of the inferior federal courts; and (2) the federal power toregulate interstate commerce and admiralty transactions. The earlydiscussion before the American Bar Association accepted the firstground as the true test, but still used some unfortunate and confus-ing language. Congressional discussion did not squarely raise thisproblem. But in view of the prevalent notions that arbitration legis-lation affects merely the remedy or procedural aspects and not sub-stance, the basis of the legislation seems clear. Several writers haveendorsed this view, some emphatically so.32

Baum and Pressman use this conclusion to argue for a broad sub-ject 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 statecourts:

It was early settled that where the regulations of interstate commerceor admiralty transactions or subject matter incidental thereto areconstitutionally valid, states must abide with such. Further, if in theexercise of such power, rights are created, these must be enforced instate courts if the machinery be available. Thus specific enforcementof arbitration contracts embracing the correct subject matter, beingordered by Congress within its constitutional powers, would beforced on state courts, providing proper facilities exist. Such legisla-tion has been warmly recommended in order to secure greater com-mercial security in the effectiveness of arbitration agreements anduniformity for the same subject matter though some agreementscannot come into the federal courts due to absence of jurisdictionalrequirements.33

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


2. Enforcement of the Federal Act in the State Courts. [PJroblemsconcerning distribution of judicial power would be raised if thefederal act is invoked in a state court. No such attempt has beenmade. The entire history and tenor of the recent statute does notpurport to extend its teeth to state proceedings, though covering thesubject matter within Section 1 of the Act.34

The original reformers also spoke again late in 1931, in an ami-cus brief by Cohen and Dayton filed on behalf of the Chamber ofCommerce of the State of New York and the American ArbitrationAssociation.35 This brief is treated fully in the section below dealingwith early federal cases. Suffice it here simply to note that Cohen'sview that the USAA did not govern in state courts had not changed.

In 1938, Samuel Williston and George Jarvis Thompson pro-duced the great revised edition of Williston's treatise on contracts.36

The revised chapter on arbitration took into account the enactmentof the USAA subsequent to the first edition of the treatise in 1920.Williston, who had been writing on arbitration at least since his1893 revision of Parsons on Contracts,37 was unequivocal that theUSAA applied only in federal courts, "Inasmuch as arbitrationacts are deemed procedural, the United States Act applies onlyto the federal courts, but it can be frequently invoked, despitethe fact that the state wherein the arbitration is sought to be en-forced still follows the rigid common-law rules regarding revoca-bility."38

In sum, just as one would have predicted from any careful analy-sis of the legislative history of the USAA, the early commentators,including those who had been intimately involved in promoting itsenactment, never questioned that the basic provisions of the actgoverned 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'tBark. The most striking thing of all is the absence of state casesconcerning the USAA from its enactment until 1959. Twenty yearselapsed after the enactment before any reported state case can befound39 in which a state court seems even to have thought of apply-


ing the USAA. Five more years were to elapse before another re-corded attempt appeared, and that one failed. Yet another fiveelapsed before the third effort, an apparent failure. The years 1958and 1959 produced two more reported state cases, which went inopposite directions. Thus thirty-four years after its enactment, theUSAA had yielded a grand total of only five reported cases inwhich efforts had been made to have it applied in state courts.Before considering the significance of this silence respecting an actlater held to have been intended from the start to establish federalsubstantive law governing in state as well as federal courts, anexamination of the five cases that did arise is in order.

As will be seen, not one of the cases held the USAA unequivo-cally to govern state courts. Of the five, two definitely, and oneprobably, held that it did not; one held that the USAA governedwhere the parties so intended; and one held that the court couldacquire jurisdiction by reason of its designation as a confirmingcourt under USAA §9, but then applied state law in reviewing theaward.

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 apparentlyapplied the USAA to a dispute about the amount of an arbitrator'sfee in a maritime dispute on the ground that the parties had agreedto its application.41

SECOND CASE, 1950

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


The Wilson case, then, provides a striking example of an arbitra-tion agreement clearly enforceable under the USAA, as so ruled ina federal court, but nonetheless not enforced due to the applicationof state law.

THIRD CASE, 1955

The third reported state court case, Parsons & Whittemore, Inc. v.Rederiaktiebolaget Nordstjernan (N.Y. App. Term 1955),45 lendseven less support to the argument that the USAA applies in statecourt. The agreement in the case provided that arbitration was tobe made pursuant to the USAA. When an action was brought fordamages in the New York trial court, the defendant moved to staypending arbitration under New York law, which the lower courtdenied. The Appellate Term applied the USAA, but the AppellateDivision refused to consider whether a federal court would applythe USAA.46 Instead it stated that it was merely staying the actionto preserve the status quo while the parties sought a ruling in fed-eral court. This was, in essence, a denial that the USAA governedin state court because if it did the court presumably would havedecided the disputed commerce and maritime transactions ques-tions 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 fed-eral court and "any other court of competent jurisdiction in accor-dance with the Arbitration Acts."48 The court used this provisionto uphold its jurisdiction of the case, but applied the New Yorkarbitration 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 theabsence of invoking the procedural clauses of the Act [sections 3and 4], for some federal courts have held the Arbitration Act entirelyremedial as contended by Deep South, citing In re Wisconsin Central


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

Since Texas is in the Fifth Circuit, the court decided to followits holding that the USAA is a procedural statute, and hence notgoverning in state courts.

Thus we come to the end of the first thirty-four years of theUSAA in state courts. The importance of the lack of action in thestate courts in the period 1925 to 1958 is immense. Even as late as1958 a full two-thirds of the American states had yet to enactmodern arbitration acts.51 Nor had the courts modernized statelaw of arbitration judicially.52 Thus, insofar as enforcement ofexecutory arbitration agreements was concerned—the hallmark ofthe modern arbitration statute —an immense disparity existed be-tween the law of this two-thirds majority of the states and thatprevailing in federal courts under the USAA. This disparity wasparticularly apparent respecting agreements to arbitrate future dis-putes.

If the bench and bar had understood the USAA to supersedestate law in state courts, the picture certainly would have beendifferent. Any reasonably competent counsel wishing to enforcean interstate executory arbitration agreement in any of the majorityof states lacking a modern arbitration act would have utilized theUSAA to do so.53 Yet for twenty years one looks in vain for somuch as a single reported case in which the argument was evenadvanced, much less accepted. And another twenty years produceonly a handful. Only two possibilities exist: almost universal in-competence of the bar (and bench) or universal recognition thatthe USAA had nothing to do with proceedings in state courts.

Deep South, the last of the five state cases, is the first reportedstate case found considering the question of USAA applicability instate courts by referring to federal cases. At the time of its decision,developments had been and were taking place in the federal courtsthat were ultimately to take this question out of the hands of thestate courts.54 We can, therefore, as of 1958 largely abandon thestate court arena and turn to the early federal cases.


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 mentionin the first sixteen years of the active life of USAA. None throwseven the slightest direct light on whether the USAA was meant togovern in state court. Such indirect light they throw favors or atleast is not inconsistent with the idea that the USAA was not in-tended 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 waschallenged. Everything in the case leans toward an interpretation ofthe USAA rendering it inapplicable in state courts. Nothing leansthe other direction. In rejecting the contention that the act deprivedthe federal courts of their judicial power, the court founded itsdecision on Red Cross Line v. Atlantic Fruit Co. (U.S. 1924),57 thecase decided shortly before the USAA was enacted:

In Red Cross Line v. Atlantic Fruit Co. . . . this Court pointed outthat in admiralty "agreements to submit controversies to arbitrationare valid," and that "reference of maritime controversies to arbitra-tion has long been common practice." "An executory agreement,"said the court, "may be made a rule of court" and the "substantiveright created by an agreement to submit disputes to arbitration isrecognized as a perfect obligation." The question, then, is onemerely as to the power of the Congress to afford a remedy in admi-ralty to enforce such an obligation. It was because the question wasone of remedy only, that this Court decided that a State, by virtueof the clause saving to suitors "the right to a common law remedy,"had the power "to confer upon its courts the authority to compelparties within its jurisdiction to specifically perform an agreementfor arbitration, which is valid by the general maritime law, as wellas by the law of the State." . . . "[The Constitution] does not directthat the court shall proceed according to ancient and establishedforms, or shall adopt any other form or mode of practice. ... Inadmiralty and maritime cases there is no such limitation as to themode of proceeding, and Congress may therefore . . . modify thepractice of court in any other respect that it deems more conduciveto the administration of justice."58


Thus in Marine Transit the Supreme Court assessed the USAA inthe same procedural-remedial terms that had governed arbitrationlaw before and at the time it was enacted. In those days beforeErie RR. v. Tompkins (U.S. 1938),59 this reaffirmation carried withit an absence of any idea that the act governed state courts.60

The Marine Transit case is of special interest because JuliusHenry Cohen and Kenneth Dayton submitted an amicus brief onbehalf of the New York Chamber of Commerce,61 a brief stillrepeating the procedural theme:

The elaborate review of authority in the majority opinion in [RedCross Line] recognizes the entire validity of arbitration agreementseven prior to the statute, the fact that the only difficulty in theirpractical effectuation was a procedural one, going solely to the rem-edy and not affecting substantive right. . . . The Arbitration Act ispurely procedural in its nature. . . . The statute declares (Sec. 2)that an agreement is valid, but this particular declaration is surplus-age, because the agreement always was valid. The declaration createsno new substantive right. Beyond that, the statute merely provides anew and effective means for enforcing the agreement.62

The Cohen and Dayton brief goes on to the familiar propositionthat the act rests upon two independent bases, "the power of Con-gress to prescribe procedural matters for the federal courts" and itsadmiralty and commerce powers. It does not, however, argue thatthis extends the act beyond the federal courts.63 Rather, it makestwo different arguments.

First, the amici argue that section 3 and those following areapplicable to all arbitration agreements coming into the federalcourt whether or not in admiralty or foreign commerce. The briefstates boldly, but incorrectly, "This is clear from the provisions ofthe act itself, from its history, and from the report of the HouseCommittee relating to the bill."64 In fact, this brief is the first timethat this argument can be found. The practical concern advancedby 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 citizensof two states having modern statutes, removal of the case fromstate to federal court would result in nonenforcement of the agree-


ment. That this was a real fear is illustrated by a number of casessubsequently doing just that.68

The second Cohen and Dayton argument results from the needto explain the existence of USAA §2 in light of their earlier argu-ments, which had cast section 2 as surplusage. The historicallycorrect explanation is necessarily ignored69 in favor of raising the(real) problem of suits over contracts in commerce between citizensof the same state without a modern arbitration statute. Accordingto the protagonists, the function of section 2 is to create federaljurisdiction for such cases.70 At this point the brief becomes veryconfusing, using a variety of inconsistent pieces of the legislativehistory.71 It is unnecessary, however, to explore this because thewhole argument is entirely founded on the assumption, unques-tioned by Cohen and Dayton, that unless the case gets into thefederal court, the USAA will not govern the state court.

Just as Marine Transit Corp. v. Dreyfus (U.S. 1932)72 leansagainst any idea that the USAA is applicable in state courts, so dothe earliest lower court cases, when it is possible to tell if they leanat all.73

Later, in a considered dictum, Judge Learned Hand interpretedthe new act as not creating federal jurisdiction,74 which, of course,a substantive act binding the state courts under the SupremacyClause, would have done.

The only other pre-Erie cases found in the lower federal courtscasting even indirect light on the question of the applicability ofthe USAA in state courts are the four cases dealing with the secondpoint in the Cohen and Dayton brief in Marine Transit,75 the appli-cability of the USAA to intrastate contracts in federal court. Threetook the view that the act did not encompass such intrcrstate con-tracts at all; the fourth took a more limited position that at leastone USAA section did govern in such cases.76

11The USAA: As Amendedby the Supreme Court

From Erie to Bernhardt: 1938-56

In 1938 the Supreme Court handed down its landmark decision inErie RR. v. Tompkins (U.S. 1938)1 overruling Swift v. Tyson (U.S.1842)2 and requiring federal courts to apply state substantive lawin diversity of citizenship cases, rather than federal common law.This notable case, however, gave every appearance of being a non-event in the history of the USAA. The USAA was a statute aimedat governing the procedure in federal courts, not the substantivelaw those courts applied.3 The act did not therefore depend uponthe continuing validity of Swift. Moreover, Erie constituted a re-duction rather than an increase in federal power. It thus appearedat first, if anyone bothered to think about it, that Erie would haveno effect on the USAA. In diversity cases concerning transactionsnot involving commerce, the USAA was generally thought to beinapplicable by its terms.4 In diversity cases concerning transac-tions involving commerce, the USAA appeared undoubtedly to beapplicable.

And indeed, initially nothing seemed to have happened. In thedecade following Erie at least three federal courts treated theUSAA in the old, accustomed ways. The court in Parry v. Bache(5th Cir. 1942)5 said that the federal action "being remedial, con-trols 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 appliedonly where the interstate requirements of section 2 were met.6 Fiveyears later the court in In re Wisconsin Cent. Ry. (D. Minn. 1947)7

made plain its assumption that the federal act did not apply instate courts. After deciding that it had no jurisdiction of the case,thereby silently rejecting the proposition that the USAA createsfederal jurisdiction, the court notes that the state court might enforcethe arbitration clause under the Minnesota Arbitration Statute.

Nonetheless, Erie let loose forces that were to transform theUSAA from the procedural statute Congress had enacted thirteenyears before into a substantive statute greatly reducing the powersof the states.

One of these forces was a revised notion of what differentiatedsubstance from procedure—the outcome determination test ofGuaranty Trust Co. v. York (U.S. 1945).8 This notion was later tocause the transfer of the USAA from the procedural side of thelaw, where Congress had put it in 1925, to the substantive sidewhere Congress had most decidedly not put it. The consequencesfor the USAA went far beyond anything to do with diversity cases.

Another force was the dominance of a judicial abhorrence notonly of forum shopping, but of the possibility that the outcome ofsimilar cases might differ because they were brought in differentcourts, even where forum-shopping was impossible.

The first straw in the wind indicating that a change might beoccurring flew by in 1943 with a case apparently unconcerned withany 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 undersection 2.'° The Court of Appeals reversed, relying heavily on thetitle of the USAA11 and held that federal courts may stay litigationpursuant to section 3 even in cases not covered by section 2.12 Thedecision was not one of first impression, as it followed JudgeHand's views in Shanferoke Coal & Supply Corp. v. WestchesterService Corp. (2nd Cir. 1934).13 Shanferoke, however, had stoodalone, the few other early cases on the point being contrary.14 Don-ahue, however, was soon followed by a number of other cases tothe same effect.15

These cases went beyond original congressional intention in en-acting the USAA, because they applied some of its provisions to


arbitration in intrastate transactions.16 They did not, however, inany way expand application of the USAA beyond federal courts soas to apply in state courts. They were, nonetheless, an expansionof federal power, and they exacerbated the problem of differentdecisions depending upon which court heard a case.17 Their preciseholdings were to be, in effect, overruled by Bernhardt v. Poly-graphic Co. of America (U.S. 1956),18 respecting cases arising un-der diversity jurisdiction. As will be seen, however, Bernhardt,which held that state arbitration law governed intrastate contractsin diversity cases, had the ironic effect of leading to the transforma-tion of the USAA into a substantive regulatory statute supersedingstate law.

In the very year of the Bernhardt decision, the Sixth Circuit usedlanguage forewarning of the future nationalization of Americanarbitration law. In Local 19, Warehouse Union v. Buckeye CottonOil Co. (6th Cir. 1956)19 the court said, "In seeking to secure arbi-tration agreed upon plaintiff here has rights and remedies createdby the Federal Act and not by any state. Hence state law does notcontrol. . . . "

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, atleast in the Supreme Court, it began to affect the USAA. In thatyear the court held in Bernhardt v. Polygraphic Co. of America(U.S. 1956),20 that the USAA did not govern in diversity of citizen-ship cases in the absence of interstate commerce.21 In doing so, italso rejected Judge Hand's dictum in Shanferoke Coal & SupplyCorp. v. Westchester Service Corp. (2d Cir. 1934)22 that USAAsection 4 was applicable whether or not the contract was withinsection 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, adoptMr. Justice Frankfurter's concurring position that the USAA beheld inapplicable in all diversity cases.25

Ironically, the Bernhardt limitation on federal power laid thegroundwork for the supersession of state arbitration laws by theUSAA, 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 theoutcome test, the Court greatly increased the chances that the pro-visions of the USAA would be held substantive in the full-blownregulatory sense that would lead to invocation of the SupremacyClause.

Three years after Bernhardt, two lower courts took quite differ-ent approaches to these questions. The Sixth Circuit, not unexpect-edly 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' plenarypower over interstate commerce" and therefore supersedes contrarystate laws making arbitration provisions unenforceable. The courtwas, however, unwilling to go the whole way and expressed doubtwhether the state court would have to apply the USAA. Since thecourt required that a declaratory judgment proceeding be broughtin state court to determine a related issue of state law,28 it wasconcerned that the state court might, even after a finding that theagreement was intra vires, refuse to enforce it. Accordingly, thecourt ordered the district court to retain the case while the declara-tory judgment was sought. Thus the Sixth Circuit continued toadhere to the old principle that the USAA was applicable only infederal court.

Unlike the Sixth, the Second Circuit went the whole way in Rob-ert Lawrence Co., Inc. v. Devonshire Fabrics, Inc. (2d Cir. 1959),29

where the substantive issue was alleged fraud in the inducement ofthe contract containing the arbitration clause. Was this a questionthe arbitrator could resolve, or must it be decided by a court? Ifthe latter, the court would either find against the claimant on thecontract on the ground that the contract was induced by fraud, ororder the claim on the contract to arbitration if there was no fraud.

The contract was governed by New York law. New York, thestate that had fathered modern arbitration,30 had a more up-to-datemodern arbitration statute than the USAA. New York did not,however, refer questions of fraud in the inducement of contractcontaining arbitration agreements to arbitrators. The Second Cir-cuit interpreted the USAA as requiring such questions to be re-ferred to the arbitrators where the arbitration clause was broadenough by its terms to encompass such a dispute. Thus, the USAAand the New York statute were in conflict.

In an opinion by Judge Medina, the court resolved the conflict


on the following basis: "We think it is reasonably clear that theCongress intended by the Arbitration Act to create a new body offederal substantive law affecting the validity and interpretation ofarbitration agreements. . . . [This is] national law equally applica-ble in state or federal courts."31

Thus was the stage set for Prima Paint Corp. v. Flood & ConklinMfg. Co. (U.S. 1967),32 the Supreme Court's next major foray intothis area of the law. The case involved two separate agreements,Prima Paint's purchase of Flood & Conklin's paint business and aconsulting agreement, containing an arbitration clause, made threeweeks later. In federal court Prima Paint sought rescission of theconsulting contract on the ground of alleged fraud in its induce-ment and an injunction against arbitration. Flood & Conklinmoved to have the litigation stayed pending arbitration. The Courtheld that the consulting agreement was a transaction involvingcommerce. It therefore applied the USAA, which it interpretedas requiring that the dispute respecting fraud must be referred toarbitration.33

In adopting the foregoing course of action, the Court in PrimaPaint eliminated any doubt that the USAA governs diversity casesin the federal courts where the arbitration agreement is a transac-tion in interstate commerce. The Court's basis of decision made itlogically inescapable that the USAA governs in state courts as well,and the Court all but said so. It refrained, however, from anydictum to this effect.34

The long war of the reformers to nationalize American arbitra-tion law seemed to have been won. Because of the Supreme Court'sunwillingness to express clearly what it had done, however, a slightquestion lingered respecting the applicability of the USAA in thestate courts.

Nationalization Triumphs: From Prima Paintto Southland and Beyond: 1967-91

The Struggle in the States

It is far from inaccurate to say that few knew what had hit themwhen Prima Paint was decided. For a long time countless arbitra-tions 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 didnot.35 A few state courts addressed the issues after Prima Paintand still applied state law.36 The last of these37 came too close tothe coup de grace; it was vacated by the Supreme Court in the lightof Southland Corp. v. Keating (U.S. 1984).38 Nonetheless, in theseventeen years before the Supreme Court uttered the final word,an ever-increasing number of state courts read the handwriting onthe wall and applied the USAA instead of their own arbitrationacts. Due both to jurisdiction and to early timing, the most impor-tant of these was undoubtedly the decision of the New York Courtof 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 andPrima 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 inMoses H. Cone Memorial Hospital v. Mercury Constr. Corp. (U.S.1983)46 where it said, "Federal law in the terms of the ArbitrationAct governs th[e] issue [of arbitrability] in either state or federalcourt.")47 Southland finalized the bizarre transformation of Ameri-can arbitration law made almost certain along the way by PrimaPaint. It established beyond cavil that the USAA is a regulatoryfederal statute superseding state law and, hence, governs in statecourts.

American arbitration law had been nationalized. USAA-148 wasnow without doubt USAA-2, or more accurately NAA—the Na-tional Arbitration Act. This mutation from a system in which statelaw was the foundation and federal law but an important adjuncthad occurred with singularly little debate and with virtually nodemocratic input, not even the elite pressure group politics oftenpassing for democracy these days.49 We have seen most of thetransformation trail, all that remains is to examine the sorry enditself.50

In Southland the plaintiffs, franchisees of Southland, brought


suit for, inter alia, breach of contract, fraud, and violation of thedisclosure requirements of the California Franchise InvestmentLaw. Southland moved to compel arbitration of all claims. The Cali-fornia Supreme Court upheld ordering to arbitration all the claimsexcept those under the Franchise Investment Law. It interpreted thelaw 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 JusticeBurger. The cut of the Chief Justice's jib comes into view with hisfirst sentence addressed to legislative history: "The Federal Arbitra-tion Act [USAA] rests on the authority of Congress to enact sub-stantive rules under the Commerce Clause."51 This statement issupported by a quotation within a quotation, namely from theHouse Judiciary Committee Report52 as quoted in Prima Paint. Inthat case the majority had concluded that the USAA "is basedupon . . . the incontestable federal foundations of 'control overinterstate commerce and over admiralty.'"53 The report had, ofcourse, in the very same paragraph explicitly stated that the actpertained to questions of procedure to be determined by the forumcourt 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 agree-ments shall be recognized and enforced by the courts of the UnitedStates. The remedy is founded also upon the Federal control overinterstate commerce and over admiralty."54 These parts of the re-port, including the emphasized words, were conveniently omittedin the Prima Paint quotation and again by the Chief Justice inSouthland.

The Chief Justice's next foray into the legislative history starts,"Although the legislative history is not without ambiguities, thereare strong indications that Congress had in mind something morethan making arbitration agreements enforceable only in the federalcourts."55 Thus not only does he find ambiguities where no realones exist, but his "although" dismisses as mere ambiguities thevast and unambiguous mass of the legislative history, not the fewscraps he himself produces. And "dismisses" is truly the right wordbecause in spite of the dissent's presentation of a large part of thatunambiguous mass, the Chief Justice never so much as deigns tocast 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 thisbill is to make valid and enforcible agreements for arbitration con-tained in contracts involving interstate commerce or within thejurisdiction or admiralty, or which may be the subject of litigationin the Federal courts."56 As noted earlier in the extensive discussionin Chapter 9, were it not that the use of "or" was in fact a simpleclerical or typographical mistake, the word would have created anambiguity.57 The sentence in the report thus lends no support tothe 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 sentenceas suggesting "that Congress had in mind something more thanmaking arbitration agreements enforceable only in the federalcourts,"59 that is, that state courts must enforce them as well. Asnoted in Chapter 9, this was neither a literal —or objective—read-ing of the word nor an effort to ascertain the underlying intentionof the committee. The Chief Justice's interpretation thus has nofoundation in either of the two possible rational approaches tolegislative language. To put it bluntly, the argument of Chief Jus-tice Burger that this sentence with its erroneous word "or" "plainlysuggests the more comprehensive objectives" beyond that of "mak-ing 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 collageof excerpts taken out of context from the hearings and the HouseJudiciary Committee Report: "This broader purpose [to go beyondthe federal courts] can also be inferred from the reality that Con-gress would be less likely to address a problem whose impact wasconfined to federal courts than a problem of large significance inthe field of commerce."61 The only "problem of large signifi-cance"—indeed, of any significance — laid before Congress by theA.B.A. was the refusal of the federal courts to enforce arbitrationagreements, even in states with modern arbitration statutes. Notan iota of evidence exists to suggest that Congress itself had anythought whatever of other problems.62

That in 1925 another "problem of larger significance" did existrespecting cases arising under state law in forty-six state courts,


whether in intra- or interstate commerce, goes without saying. Butthe reformers had their own cure for that problem—a uniform statelaw —and asked no congressional help in solving it. Following theirinitial New York and New Jersey victories the reformers' tripartiteplan consisted of a uniform act, a federal act for the federal courts,and a treaty for international arbitration.63 This is what theyplanned, and this is what they did. Chief Justice Burger's flights offancy to the contrary notwithstanding, Congress did just what it wasbid64—enact a federal act for the federal courts and no more.

That some of the reformers might have harbored desires for theUSAA to be applicable in state courts is irrelevant since they nevermade that known to Congress. And for good reason. To haveasked Congress to enact such a statute would have seriously jeop-ardized 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 eq-uity will not specifically enforce an[y] arbitration agreement." Hear-ing on S. 4213 and S. 4214 Before a Subcommittee of the SenateComm. on the Judiciary, 67th Cong., 4th Sess. 6 (1923)65 . . . (re-marks of Sen. Walsh). The House Report accompanying the billstated:

"[t]he need for the law arises from . . . the jealousy of the Englishcourts for their own jurisdiction. . . . This jealousy survived for solon[g] a period that the principle became firmly embedded in theEnglish common law and was adopted with it by the Americancourts. The courts have felt that the precedent was too strongly fixedto 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 broadreach of the Act, unencumbered by state law constraints. . . . 66

Even out of context, the language quoted from the House reportsays precisely nothing concerning alleged committee concerns abouta "broad reach," that is, extension of the act to state courts. In 1925both kinds of courts, state and federal, followed the accursed com-mon law rules.67 Read out of context, "the need for the law" couldperfectly well refer to either state or federal courts or both. In con-text, 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 wordsused by the Chief Justice are separated by only one six-line paragraphfrom the first substantive paragraph of the report. That paragraphmakes clear beyond cavil that the evil to be remedied, the evil that isremedied by the statute, lies in the federal courts:

The matter is properly the subject of Federal action. Whether anagreement for arbitration shall be enforced or not is a question ofprocedure to be determined by the law court in which the proceedingis brought and not one of substantive law to be determined by thelaw of the forum in which the contract is made. Before such con-tracts could be enforced in the Federal courts, therefore, this law isessential. The bill declares that such agreements shall be recognizedand enforced by the courts of the United States. The remedy isfounded also upon the Federal control over interstate commerce andover admiralty. The control over interstate commerce reaches notonly the actual physical interstate shipment of goods but also con-tracts relating to interstate commerce.68

The foregoing comments also apply to the next patch in thecollage. This one is the reverse of the dual pictures of stereopticons,two pictures of the same scene combined to produce a single pictureof the scene with a perspective closer to the appearance of the sceneviewed 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 in-tended to cause the viewer to think there are two quite differentscenes. It is effort that, whether deliberately or inadvertent, distortsthe truth and deceives. The opinion goes on:

Congress also showed its awareness of the widespread unwillingnessof state courts to enforce arbitration agreements, e.g., Senate Hear-ing, Part I, at 8. . . . and that such courts were bound by state lawsinadequately providing for

"technical arbitration by which, if you agree to arbitrate under themethod provided by the statute, you have an arbitration by statute[;]but [the statutes] ha[d] nothing to do with validating the contract toarbitrate." Ibid.10

The problems Congress faced were therefore twofold: the oldcommon law hostility toward arbitration, and the failure of statearbitration statutes to mandate enforcement of arbitration agree-ments. To confine the scope of the Act to arbitrations sought to be


enforced in federal courts would frustrate what we believe Congressintended to be a broad enactment appropriate in scope to meet thelarge problems Congress was addressing.71

That Congress "was addressing" "large problems," that is, law instate courts, is, as already noted, simply a figment of the ChiefJustice's imagination. Such "problems" of state law had never evenbeen submitted to Congress, much less addressed by it.

It may also be noted that this part of the collage is dependentfor its authority on testimony at the 1923 hearing and totallyignores the testimony at the 1924 hearings on the bill actuallyenacted. The latter, of course, made plain that it was only thefederal courts that the reformers—and Congress—were after withthe USAA. This part of the opinion adds a new wrinkle to thecollage, however, because the state failures are now quite artifi-cially made into two failures, that of the common law and that oftraditional, that is, nonmodern, state arbitration statutes. Needlessto say, no one at the time viewed these as two problems ratherthan one. Any such idea is another figment of the Chief Justice'simagination.

This then is what passed for legislative history in the prevailingopinion of the exceptionally important case of Southland Corp. v.Keating (U.S. 1984).72 It is served up here for examination in all itsunsavory state only partly to set right this particular facet of legalhistory. Even more important, it is an Orwellian object lesson inthe potential and often actual unreliability of the legislative historyof judges rationalizing results in cases.73

Before turning to further arguments made by Chief JusticeBurger, other opinions in Southland deserve mention. JusticeO'Connor's opinion in particular stands in sharp contrast to thatof the Chief Justice; her legislative history is relatively untaintedby her chosen substantive position. It is, in other words, quitenonpathological history. Justice Stevens' position is particularlyinteresting respecting both history and the role of the Court. Heaccepted Justice O'Connor's historical account, but was "persuadedthat the intervening developments of the law compel the conclusionthat the Court . . . reached."74 This is an unusually frank recogni-tion of the ongoing legislative role of the Court in amending legisla-tion over time.

USA A: As A mended by the Supreme Court 145

The Chief Justice also argued that if "Congress sought only tocreate a procedural remedy in the federal courts, there can be noexplanation for the express limitation in the Arbitration Act tocontracts 'involving commerce.'"75 Analogizing the act to those pre-scribing general rules of procedure for the courts, he points outthat Congress did not limit the latter to cases involving commerce.From this he inferred that the USAA was not a procedural act forthe federal courts.

This argument is flawed in two respects. First, it ignores thelegislative history of the USAA, which shows that Congress in-tended to do precisely what it had not done elsewhere: enact aprocedural statute limited to matters involving commerce. As thathistory has been extensively explored in Chapters 8 and 9, it neednot be repeated here.

Moreover, there is a perfectly sensible explanation for the re-formers', and hence Congress', limiting the applicability of thestatute both to federal court procedurally and interstate com-merce substantively. The explanation, unlike the Chief Justice'sposition, is entirely consistent with the legislative history; it is polit-ical.

While Congress unquestionably had the power to prescribe pro-cedural rules for the federal courts, in 1925 it had done so onlysparingly.76 In general, federal courts followed the procedures ofthe courts of the states in which they were situated.77 Thus, eventhough constitutionally entirely justifiable, enactment of theUSAA, by legislatively replacing state procedure in the federalcourts with federal procedure, might have been seen as federalinvasion of a realm traditionally left to the states. And this duringa period of political conservatism on the national scene.

The concern about constitutionality was not without factual ba-sis in events in the courts. Concern about constitutionality hoveredabout modern arbitration statutes. The 1920 New York act hadbeen promptly attacked on constitutional grounds in the New Yorkcourts, albeit unsuccessfully.78 There were also constitutional over-tones in the question whether the New York courts could apply theNew York statute in cases in which they had concurrent maritimejurisdiction with federal courts, a question arising and decidedwhile the USAA was pending in Congress.79 Indeed, after its enact-ment, the USAA was subjected to constitutional attack that the


Supreme Court fought off under the banner of congressionalpower to regulate admiralty proceedings.80

It is easy for us now to think the political danger was slight aswe have nothing to lose by doing so. The federal courts had longsince created a special niche for arbitration, which they treated asneither substance nor procedure and to which they applied the lawof the forum, that is, federal law.81 Thus congressional enactmentof the USAA would, and did, displace federal, not state, law in thefederal courts.

We are not, however, political officeholders with their typicallyexcessive fear of public reaction. One need only read the legislativerecord of the enactment of the USAA to see that the congressmenand senators involved were indeed very concerned not to be seen tobe overreaching in exercising federal power. And the reformerswho cast the bill were equally, if not more, concerned not tofrighten the congressmen and senators.

The political difficulties facing the reformers was, then, a realconcern.82 Relief was, however, easily at hand without interferingin any serious way with the goals of the reformers. The politicaldangers could be largely avoided by limiting the applicability ofthe act to interstate commerce. Unlike procedure in the federalcourts, Congress regularly enacted legislation based on its powersover interstate commerce.83 Thus the reformers stressed to Con-gress this alternative constitutional authorization and built its addi-tional limitation into the bill.

The limitation of the USAA to federal courts posed no signifi-cant barrier to accomplishment of the reformers' goals. As thelegislative history shows, what concerned them respecting the fed-eral government was exclusively the evisceration in federal courtsof arbitration agreements enforceable under state law.

It was not, of course, that the reformers did not care about statearbitration law in state courts. Indeed they did, although not onething in the legislative history suggests that Congress did. The re-formers, however, had a different solution than the USAA to thesinful fact that only two of the forty-eight states had a modernarbitration act. The reformers' solution was a modern UniformArbitration Act.84 Their solution was one not involving Congress.85

For that reason, they made no effort to persuade Congress thatsuch a problem existed.86

USA A :AsA mended by the Supreme Court 147

In sum, contrary to the assertions of the Chief Justice in South-land, there was indeed an explanation why Congress limited theUSAA to transactions involving commerce, but without intendingto extend the act beyond the federal courts.

We now turn to the consequences of the transformation of theUSAA from a procedural statute applicable only in the federalcourts to a substantive federal law governing in state courts as wellas federal courts and superseding state law in conflict with it.

12The Legal Consequences

What Hath God Wrought This Time?The Great Transformation: 1967-91

Encapsulated in their entirety, the changes achieved by PrimaPaint, Southland, and their kin constitute a transformation of theUSAA worthy of the best of medieval alchemists.

From birth through its first thirty-five years or more, the USAAwas a procedural statute applicable only in the federal courts.1 Assuch, its constitutional basis lay in congressional power to regulateprocedures in the federal courts, rather than in its power overcommerce. Thus the provision in section 2 relating to commercewas a limitation, rather than the foundation of the statute. It was asevere limitation; what constituted a transaction involving com-merce within the meaning of the USAA was viewed narrowly,2

even after the great judicial expansion of the commerce clause inthe 1940s.3

The aim of the statute was to treat arbitration clauses like othercontract terms. Its goal was to implement the consent of the partiesto arbitration clauses by enforcing those clauses where that waswhat the parties intended. It was, at most, policy neutral respectingthe desirability of arbitration relative to other contracts.4 More-over, a certain amount of judicial skepticism about arbitrationremained, which sometimes led to narrow application of theUSAA.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 suit-able forum.6

Now, none of the foregoing obtains. The foundation change hasbeen the shift of the constitutional underpinnings of the USAAfrom congressional power to control federal courts to congres-sional power to regulate commerce.7 The USAA therefore super-sedes state law by reason of the Supremacy Clause of the UnitedStates Constitution.8 This carried with it applicability of the USAAin state courts and removed any doubt of its applicability in diver-sity cases so long as interstate commerce is involved, as it virtuallyalways will be in diversity cases. The impact of all this is greatlyexpanded by a revised view of section 2's "transaction involvingcommerce" whereby the phrase goes to the limits of congressionalpower under the commerce clause.9 This impact is also greatlyenhanced by the Court's replacing the prior "intention of the par-ties" approach, its bias, if any, being against arbitration, with astrong pro-arbitration stance,10 paralleling that flowering in collec-tive bargaining law under the Labor Trilogy." This pro-arbitrationstance is manifested in rules such as the following: Fraud in theinducement of the overall contract, and possibly other formationissues, is for the arbitrator.12 Arbitration clauses are to be readbroadly to bring disputes within their coverage.13 Where some is-sues in dispute are nonarbitrable, arbitration must go ahead withthe arbitrable issues, even though the result is two separate pro-ceedings, arbitration and litigation, with all the problems that en-tails.14 The clause in section 2 providing for nonenforcement ofarbitration agreements "upon such grounds as exist at law or inequity for the revocation of any contract" is read narrowly.15 Allstate law excluding issues arising under state law as unsuitable forarbitration — the public policy exclusion —is invalid.16 The publicpolicy exclusion is virtually eliminated from federal law,17 subjectonly to congressional power explicitly to exclude. Internationaltrade arbitration is favored at the expense of national policy.18

Like most revolutionary transformations, this one has left itsshare of loose ends. Among these is the long-established rule thatthe USAA does not create federal jurisdiction,19 a rule ill fittingthe now substantive, regulatory USAA. The distinct possibilitynow exists that some sections of this unitary statute are not enforce-able in state court although others clearly are.20 The congressional


purpose in enacting the statute—to permit people by contract tochoose 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 thebottom is the policy of achieving expeditious resolution of dis-putes.22 Questions have been opened about the preclusive effect ofunconfirmed awards.23 Most important of all is that the Court haslargely ignored the serious inconsistencies between its interpreta-tion of the USAA respecting the public policy defense and its givingbroad scope to that defense in collective bargaining arbitration.24

Potentially perhaps the biggest loose end was that consideredby the Supreme Court early in 1989 and treated in the followingsection.

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 partiescould choose state law to govern their arbitration agreements wherethe USAA would govern in the absence of such choice.26 No otherquestion brings so readily to the fore the anomalous results arisingfrom treating the USAA as a full-scale regulatory statute, as morethan one federal court had done before Volt:

Parties are not free to burden the arbitration process under theFederal Act by adopting state law which shifts the determination ofdisputes from arbitrators to courts. To allow the parties to so con-tract would undermine the provisions of the Federal Act. Congress,in enacting the Federal Arbitration Act [USAA], exercised its powerover admiralty and interstate commerce. Any arbitration contractinvolving one of those areas is governed by the Federal Act. Topermit the parties to contract away the application of the Act byadopting state law to govern their agreement would be inconsistentwith the Act itself and with the holding in Prima Paint.21

The trouble with this reasoning is that an arbitration statutecomes into operation only when the parties wish it to since they donot have to agree to arbitration in the first place. The arbitration


act is thus by its very nature first and foremost an enabling statute,one conferring power on parties. Its various regulatory roles comeinto play only // the parties select arbitration to resolve their dis-putes. That being the case, it is by no means self-evident that, justbecause a particular arbitration act would otherwise apply, thelegislature enacting it intended to preclude the parties from choos-ing some other act to govern their arbitration relations. This isparticularly the case respecting the USAA, because the Court hadearlier also stressed the congressional intention to allow freedomof contract regarding arbitration.28 Volt thus presented a real di-lemma to the Court.

All eight justices participating in Volt agreed that the parties maychoose to have state law govern arbitration agreements otherwisegoverned by the USAA.29 The majority opinion30 notes the absenceof an express preemptory provision in the USAA and asserts, citingBernhardt v. Polygraphic Co. of America (U.S. 1956),31 that theUSAA reflects no congressional intent to occupy the entire field ofarbitration.32 Nor, says the Chief Justice, does application of theCalifornia statute conflict with the USAA because Congress's pur-pose was primarily to make enforceable agreements relating to ar-bitration into which the parties have entered. Refusing to give ef-fect to the California statute

would be quite inimical to the FAA's [USAA's] primary purpose ofensuring that private agreements to arbitrate are enforced accordingto their terms. Arbitration under the Act is a matter of consent, notcoercion, and parties are generally free to structure their arbitrationagreements as they see fit. Just as they may limit by contract theissues they will arbitrate, ... so too may they specify by contractthe rules under which that arbitration will be conducted."

The Court went further. Earlier in the opinion it rejected theargument that the choice-of-law provision was a waiver of a feder-ally guaranteed right and, hence, governed by state law. Rather,no federal right was created in the first place. Having agreed tohave California law govern, the parties had simply not agreed toarbitration where California law did not provide for arbitration.34

Even more damaging to a regulatory USAA was the Court'srefusal to apply to the interpretation of the choice-of-law clausethe federal pro-arbitration principles of interpretation most clear-


ly expounded in Moses H. Cone Memorial Hospital v. MercuryConstr. Corp. (U.S. 1983)35 and Mitsubishi Motors Corp. v. SolerChrysler-Plymouth, Inc. (U.S. 1985).36 While citing these caseswith approval37 the Court held them inapplicable. "There is nofederal policy favoring arbitration under a certain set of proceduralrules; the federal policy is simply to ensure the enforceability, ac-cording to their terms, of private agreements to arbitrate."38

In light of the foregoing, the Court refused to review the statecourt's interpretation of the arbitration clause, that being a matterof state law, pure and simple. Thus the parties' use of a standardAmerican Institute of Architects form containing the followingclause resulted in incorporation of California arbitration law inconflict with the substance of the USAA: "The Contract shall begoverned 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 regula-tory 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 Cali-fornia law by the parties, the USAA preempts the California law.The question, said the majority, is whether application of the Cali-fornia law pursuant to the arbitration agreement itself, "wouldundermine the goals and policies of the USAA." The Court con-cluded that it would not. Nonetheless, the very asking of the ques-tion raises doubt as to the status of the parties' freedom to choosestate arbitration law to govern contracts otherwise subject to theUSAA.

The dissenters39 disagreed with the majority's refusal to reviewthe state court's interpretation, rejecting two key majority argu-ments. First, the dissent argues that where a state court interprets acontract "in such a way as to preclude enforcement of a federalright [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 arbitra-tion law to govern their agreement is itself a question of federallaw.41 This federal law requires that doubts concerning the scopeof arbitrable issues be resolved in favor of arbitration.42 Unlikethe majority, Justice Brennan asserts that the decision in this case


frustrates that rule. The California rule applied in the case will stayarbitration 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' con-tract that erroneously denied the existence of an agreement to arbi-trate."44 The upshot is an intertwining of federal and state law inwhich the Supreme Court is not barred from reviewing the statecourt determination.

Construed pursuant to the foregoing principles, "the choice-of-law clause cannot bear" the California court's interpretation. Thiswas a standard form contract respecting which there was no evi-dence about the parties' intent outside the writing. The "normalpurpose" of such clauses is selection of law between states, notbetween 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 ofCalifornia.

If, say the dissenters, every state court construes choice-of-lawclauses such as these as the California court has, the USAA will berendered "a virtual nullity as to presently existing contracts."46

Is Volt a fundamental shift in the Court's thinking? One herald-ing a return of power over arbitration to the states?

In one respect the answer is clearly yes. There are, and undoubt-edly will continue to be, a vast number of contracts containingclauses more or less like the one involved in Volt. To whateverextent courts interpret those clauses as did the California court,arbitration law for those cases is state law. This is true not only ofstate courts, but also of federal courts in diversity cases, becausethey will be bound to follow the appropriate state rule in interpret-ing choice-of-law clauses.

In practical terms, Volt may very well lead to even more statelaw governance of arbitration than occurred before the transforma-tion of the USAA in Prima Paint and its progeny. In those earlierdays there must have been countless federal cases applying theUSAA with unheralded and ignored choice-of-law clauses callingfor application of state law. As the dissenters in Volt note,47 Bern-hardt v. Polygraphic Co. of America, Inc. (U.S. 1956)48 was sucha case, as was the later case of Scherk v. Alberto-Culver Co. (U.S.1974).49 With heightened consciousness of the issues, such clauses


will now surely be put forth regularly whenever the USAA andstate law differ. Thus we can probably look forward to a flock ofcases in federal court involving interstate commerce, but governedby state arbitration law.50

The foregoing is far from insignificant, especially for the unfor-tunate parties to contracts with conflict of law clauses of a generalnature like that in Volt. Nonetheless, it does appear to be as far asVolt goes, at least for now. Nothing in Volt appears specificallyto undo any of the rest of transformation described earlier. Andyet . . . ?

Surely there is a change of atmosphere about Volt. First, respect-ing its facts it is a clear and unanimous rejection of a regulatoryinterpretation of USAA in favor of a freedom of choice interpreta-tion. This in itself is not insignificant. Joined with the fact thatthe USAA does not create federal jurisdiction, it makes somewhatanomalous the ringing march-to-the-federal-flag tone of cases likeMoses H. Cone Memorial Hospital v. Mercury Constr. Corp. (U.S.1983),51 Southland Corp. v. Keating (U.S. 1984),52 Dean WitterReynolds, 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 thecase the pro-arbitration principles constituting such a significantelement of the Great Transformation.55 Is the majority's opinionsimply another example of fundamentally thoughtless and appar-ently largely goalless bureaucratic analysis? Such work is hardlyunknown in this area, Southland being perhaps the best example.Or does it, like the order in which the Politburo stood on Lenin'stomb, reflect some deeper significance? Does it signal a generalretreat from the pro-arbitration stance of the transformation anda return to the neutral, intention-of-the-parties notion Congressundoubtedly meant in 1925? Does it herald a stop or possibly arollback in the number of basic contract questions, normally gov-erned by state law, that have been incorporated into the growingarea of federal arbitration law?56

So too, the majority's handling of the interpretation of the con-flict of the laws clause is disharmonious with the Great Transfor-mation. The regulatory nature of the USAA established by thattransformation surely called for federal review of the choice-of-lawclause along the lines argued by the dissent.57 Instead of following


the spirit of the transformation, the majority seemingly limits theright of such review to waivers, and then says, with too impeccablelogic, that the choice-of-law clause was not a waiver.

Rearrangement of the Politburo on Lenin's Tomb often signifiedgreat and mysterious changes. It also often signified nothing muchat all. Volt appears to be the same.58


IllInternationalization ofAmerican Arbitration Law


13In terna tionaliza tion

A Good Start Soon Dies: 1922

In 1922, the New York Chamber of Commerce, which had been adriving force in the enactment of the 1920 New York act,1 collabo-rated with a committee of the American Bar Association to draft amodel arbitration treaty.2 The model treaty was the third of thethree reform measures intended to transform the American law ofarbitration, the others being a Uniform Arbitration Act3 and theUnited States Arbitration Act.4

This model treaty provided that a clause in a written contractbetween citizens, subjects, or residents of the states adopting thetreaty to settle an existing or future dispute "shall be valid, enforce-able and irrevocable, save only upon such grounds as exist at lawor in equity for the revocation of any contract, and shall be sotreated by the courts of the High Contracting Parties."5 The treatyfurther provided that arbitral awards made within the territory ofthe "High Contracting Parties" should be entitled to "full faith andcredit" in the courts of the other contracting party.6 By approvingthe committee report (containing thirteen recommendations), theA.B.A., without discussion of the model treaty, approved it at the1922 annual meeting.7

A year later, the model treaty was submitted to the EconomicCommittee of the League of Nations, which accepted the idea ofirrevocability. 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 worldwere yet prepared to accord reciprocal authority to arbitralawards.8 The American Bar Association thereafter let the modeltreaty rest in peace for many decades.9

Bilateral Treaties: 1946 and Thereafter

After World War II, the United States began to put clauses oncommercial arbitration in its bilateral treaties of Friendship, Com-merce and Navigation.10 The first treaty of this kind, concludedwith China in 1946, provided that a written arbitration agreementwas to be accorded full faith and credit by the courts of the HighContracting Parties, but that an arbitral award would be recog-nized only in the nation in which it was rendered." A step furtherwas taken in the agreement concluded with Ireland in 1950, wherenot only were arbitral awards reciprocally recognized but the con-cept of reciprocity was extended to awards rendered outside theterritories of the contracting States.12

Among the bilateral treaties, the one concluded with the Nether-lands13 in 1956 was the most far reaching; the treaty makes foreignarbitral awards conclusive in the courts of either country and itbars an investigation by the enforcing court as to the correctnessof 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 theparticipation of the United States in the ECOSOC15 conference onwhat would come to be known popularly as the New York Conven-tion or where the context is clear, just the Convention. More for-mally, it is the United Nations Convention on the Recognition andEnforcement of Foreign Arbitral Awards.16

The United States delegation was not an ardent believer in themultilateral approach chosen. In fact, it was instructed to partici-pate in the work in only a limited way. "It did not attempt to exerta strong influence on the content of the convention, confining

Internationalization 161

itself to exposition of its views on matters of basic principle andemphasizing the value of the pragmatic as opposed to the multilat-eral convention approach to progress in arbitration."17

In 1958 the United Nations Economic and Social Counciladopted the Convention. The United States delegation, while rec-ognizing that there were no constitutional barriers to adherence,nonetheless recommended strongly that the United States not signor adhere to the Convention.18

The Department of State, in a letter to the chairman of theSenate Committee on Foreign Relations, advised that the Conven-tion "deals with a subject matter of considerable technical andlegal complexity and will require thorough study in order that itsimplications, particularly with respect to Federal and State Laws,must be fully understood" and that it "would be some time beforethe executive branch would be able to express an informed judg-ment on whether adherence to the Convention would be in thenational interest and whether therefore the Convention should besubmitted to the Senate for its approval."19

The A.B.A., drawing heavily on the contractual nature of com-mercial arbitration, recommended that the Convention be ratifiedby the United States. The A.B.A. concluded that, however validreasons for past United States reluctance to participate may havebeen, they were no longer compelling, because the United Stateshad emerged as the foremost trading and investing nation in theworld.

It was said, "[f]rom a strictly selfish economic point of view, theUnited States should do all it can to strengthen public and privateinternational law, and to take whatever steps it can to advancerather than to discourage the enforcement of contractual obliga-tions throughout the sphere of private activities."20 The A.B.A.also asserted that the basic disadvantage of not acceding to theConvention was that

. . . this stand of aloofness provides an excuse for others to say thatnot even the United States, a leader of the free enterprise system, iswholehearted in its support of judicial or arbitral processes for re-solving private controversies in the international arena. This neces-sarily hampers the wider growth of the rule of law for resolvinginternational disputes, public as well as private.21


The United States Adopts the Convention: 1970

It was to take nearly another decade before the United States ac-cepted the A.B.A.'s view that "[a]t long last the time has come forthe United States to join in an international regime of commercialarbitration for the benefit of its own nationals who trade and investthroughout the world."22 Finally, in 1970 the United States accededto the Convention23 and Congress added USAA §§201-08,24 enforc-ing 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 imple-menting it go beyond merely providing for recognition and enforce-ment of executory arbitration agreements. Article II of the Con-vention requires recognition of arbitration agreements in writing.This includes judicial reference of arbitrable matters to arbitrationat the request of one of the parties.25 USAA §206 implements thisprovision by authorizing a court having jurisdiction26 to direct arbi-tration and to "appoint arbitrators in accordance with the provisionof the agreement."

Any development of this kind will have at least some internation-alizing effect on national law. For example, the grounds on whicharbitration awards may be attacked under the Convention27 are byno means identical to those in the USAA.28 Thus an Americancourt might find itself enforcing an international award where itwould not enforce a domestic one or vice versa.

The Convention, however, limits its superiority over nationallaw. Recognition and enforcement of an award may be refused inthree circumstances. One of these pertains to the law of the countrychosen by the parties to govern the arbitration agrement, or ifnone, where the award was made. The other two pertain to the lawof the country where recognition and enforcement of the award issought.

Thus, recognition and enforcement of the award may be refusedunder the following circumstances. First, there may be refusal ifthe agreement to arbitrate is invalid under the chosen law, or if


none, the law where the award is made.29 Second, such refusal mayoccur if the "subject matter of the difference is not capable ofsettlement by arbitration" under the law where recognition andenforcement is sought. Third, refusal may occur if "recognition orenforcement of the award would be contrary to public policy" un-der the law where recognition and enforcement is sought.30

The Convention also contains other language appearing to limitits superiority over national law. Article II, paragraph 3, requires acourt to enforce an agreement to arbitrate unless it is "null andvoid, inoperative or incapable of being performed." This followsan earlier provision requiring such enforcement only "concerning asubject 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 samestandards of nonarbitrability to agreements and awards subject tothe Convention that it would to domestic arbitration not subject tothe Convention. One would so expect in vain. Starting with Scherkv. Alberto-Culver Co. (U.S. 1974),32 the Court enforced an interna-tional arbitration agreement (and presumably awards) it assumedwould not be enforceable were it a domestic agreement.

The Court reached the foregoing result without depending onthe Convention. It did, however, state that its conclusion was "con-firmed by international developments and domestic legislation inthe area of commercial arbitration,"33 referring to the Conventionand USAA §201-08. It is noteworthy that in an extensive footnoteon these subjects, no mention whatever is made of the varioussections of the treaty quoted above. Instead the Court refers to the"frequent concern" among delegates to the Convention "that courtsof signatory countries . . . should not be permitted to decline en-forcement of [agreements to arbitrate] on the basis of parochialviews of their desirability or in a manner that would diminish themutually binding nature of the agreements."34

A decade after Scherk its principles blossomed into full flowerin Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (U.S.1985).35 Mitsubishi Motors was a Japanese corporation manufac-turing automobiles in Japan. It was the product of a joint venturebetween CISA, a Swiss corporation wholly owned by Chrysler Mo-tors, and Mitsubishi Heavy Industries, a Japanese corporation.The purpose of the joint venture was the distribution through


Chrysler dealers of automobiles made outside the continentalUnited States by Mitsubishi Motors, but bearing either Mitsubishior Chrysler trademarks.

Soler, an automobile dealer incorporated and doing business inPuerto Rico, entered into two agreements. One was a DistributorAgreement with CISA. This agreement contained no arbitrationclause. The second was a Sales Procedure Agreement with CISAand Mitsubishi, which referring to the Distributor Agreement, gov-erned the terms and conditions of sales of Mitsubishi products toSoler. This second agreement contained an arbitration provision,but only as between Mitsubishi and Soler, not CISA, and onlyrelating 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 requiredto take and various self-help actions by Mitsubishi, Mitsubishisought an order to compel arbitration. Soler brought CISA into theproceeding and counterclaimed on numerous grounds, includingcauses of actions under the Sherman Act for antitrust violations.The lower courts held, inter alia, that the arbitration clause coveredSherman Act claims.37 The Court of Appeals, however, held thatSherman Act claims were not arbitrable.

The Supreme Court reversed, holding that Sherman Act claimswere arbitrable in this international setting, even though it assumedfor the purposes of the case that they would not have been in apurely domestic case.38

As in Scherk the Court discussed the question of the effect ofthe international character of the case on enforceability of the arbi-tration clause largely free of the New York Convention and USAA§§201-08. Only after extensive discussion of The Bremen v. ZapataOff-Shore Co. (U.S. 1972),39 which had upheld a choice-of-forumclause in an international agreement, and of Scherk itself, did theCourt toss in the Convention to support its position: "And at leastsince this Nation's accession in 1970 to the Convention . . . thatfederal policy [favoring arbitration] applies with special force inthe field of international commerce."40 It was easy for the Courtto proceed this way in part because of the odd structure of theConvention, which inserts the obligation of courts to enforce arbi-tration agreements as a kind of aside to their obligation to recog-nize and enforce awards.41 Thus the Court was not forced by the


Convention to equate the public policy limitation on enforceabilityof awards found in Article V, paragraph 2(b), with a comparablelimitation on the enforcement of arbitration agreements. (In con-trast, the dissent starts its analysis of the convention with ArticleII, which provides for enforcement of arbitration agreements.42)

After explaining how it expected the arbitration panel43 effec-tively to deal with Soler's antitrust claims, the Court went on toconsider its position after the arbitration award:

Having permitted the arbitration to go forward, the national courtsof the United States will have the opportunity at the award enforce-ment stage to ensure that the legitimate interest in the enforcementof the antitrust laws has been addressed. [Reference to Article V,paragraph 2(b).] While the efficacy of the arbitral process requiresthat substantive review at the award-enforcement stage remain mini-mal, it would not require intrusive inquiry to ascertain that thetribunal took cognizance of the antitrust claims and actually decidedthem.44

By this way of proceeding the Court avoided tying the possibleunenforceability of the award on grounds of public policy to thequestion of enforceability of the arbitration agreement that mightpossibly lead to such a result.

Since Mitsubishi, Shearson/American Express, Inc. v. McMa-hon (U.S. 1987),45 Rodriguez de Quijas v. Shearson/AmericanExp., Inc. (U.S. 1989),46 and Gilmer v. Interstate/Johnson LaneCorp. (U.S. 1991)47 have virtually eliminated the public policy de-fense in domestic cases, in the absence of express congressionalprovision to the contrary.48 True, no Supreme Court decision hasyet explicitly held the public policy defense to be inapplicable todomestic antitrust law. Nonetheless, the Court in Mitsubishi indeedhandled roughly American Safety Equip. Corp. v. J. P. Maguire &Co. (2d Cir. 1968),49 the leading case applying the defense to do-mestic antitrust matters.50 So rough was that handling that bothMcMahon and Rodriguez, although securities, not antitrust, cases,seemed after Mitsubishi like foregone conclusions. Nonetheless,even though the domestic-international distinction drawn in Mit-subishi may no longer be significant in antitrust law, the case re-mains a living monument to the favoring of internationalization ofAmerican arbitration law over domestic policy concerns.


Moreover, Mitsubishi may still retain independent force in deter-mining in particular instances whether Congress has sufficientlyexpressly intended the public policy defense to be available. Thus,there is a possibility that the Court might hold that a particularissue arising in relation to an international contract might be fullyarbitrable, even though it would not be arbitrable relative to adomestic contract. Moreover, should the Supreme Court, after fac-ing up to the conflict between its USAA cases and its LMRA §301cases,51 move back toward the Wilko v. Swan (U.S. 1953)52 positionin domestic arbitration, it may very well not do so respecting inter-national arbitration. There is thus no reason to think that the will-ingness of the Court to subordinate American public policy towhat it perceives to be the needs of international arbitration andcommerce is likely to change in the foreseeable future.

State International Arbitration Acts: 1986-91

One development which should be mentioned before closing thisdiscussion on the internationalization of American arbitration lawis the movement in a few states (thus far) to adopt so-called "inter-national arbitration" acts. California and Florida are the leaders.53

The motivation behind these statutes appears to be to attract anew industry to the state in question, namely the internationalarbitration industry.54 The interrelations between such statutes andthe USAA are far too complex to analyze here. It may only bementioned that the Supreme Court's recent decision in Volt Infor-mation Sciences, Inc. v. Stanford Univ. (U.S. 1989)55 opens thepossibility for these state acts to have a larger role than mightotherwise be the case. Under the decision, parties designating theparticular state international arbitration act as the governing lawappear to be free to do so, even though the USAA would otherwiseapply.

Postscript


14The 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 andenacted the USAA as a procedural statute to govern proceedings infederal courts.1 Thirteen year later, the Supreme Court decided acase totally unrelated to the USAA, Erie RR. v. Tompkins (U.S.1938).2 There the Court held that actions in federal courts basedon diversity of citizenship of the parties should be governed bystate law. Eighteen years later, in Bernhardt v. Polygraphic Co. ofAmerica, Inc. (U.S. 1956),3 the Court quite reasonably applied thatprinciple to the state law of arbitration.4 Again, this was not a caseinvolving the USAA.5

In spite of the disconnections between Erie and Bernhardt andthe USAA, a series of quite logical developments from those deci-sions6 nonetheless led to the Supreme Court's amending the USAAinto a statute enacted to regulate interstate commerce. Under theSupremacy Clause the USAA thereupon superseded state law inthe state courts. Ironically, in view of the Erie principle as appliedin Bernhardt, the USAA thus came to govern diversity cases infederal courts as well.

We have also seen the legitimation of arbitration as a universaldispute resolution technique, probably going far beyond the origi-nal intentions of Congress in 1925, a legitimation virtually eliminat-ing 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 illus-tration that legislative history is pathological history, its revelationof the distortion of public policy following from such legislativehistory, and to illustrate the workings of bureaucratic formalismin the Supreme Court.

Further comment is in order respecting the second and fourth ofthese 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 torule history.8 The majority used the artifacts of the history of theUSAA in building their arguments just as a mason uses stone inbuilding a stone wall —picking ones that are useful, ignoring onesthat are not, discarding troublesome ones, chipping away offensivespurs on otherwise useful pieces, twisting and turning each stoneuntil it best fits, and above all, covering up the chinks and defectswith a mortar of words. In short, the legislative history in South-land 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 pri-marily to prove a point in a highly adversary situation, not to getat the truth as best as a historian can.11 That there are some rulesof the game—violated grievously, I believe, by Chief Justice Burgerin Southland Corp. v. Keating (U.S. 1984)12-fails to eliminate thedistortions. Nor does the common occurrence, as in Southland, oftwo, or sometimes more, opposing partisan versions of legislativehistory.

In spite of its horrific defects, the great bulk of so-called legisla-tive history — what we think Congress was doing at the level of thearticulated word —is to be found in the partisan writing of justicesand judges aimed at justifying their individual decisions. The ex-ceptions—when there is enough interest for professional scholarsto take a hand —tend to be in areas of high controversy and emo-tion. In such hot areas even the coolest of scholars have difficultymaintaining 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 northe advocacy of a judge justifying the outcome of a case. It is theadvocacy of scholarship. Scholars also pick and choose stones andput them into their walls in ways seen useful, but scholars are (orshould be) under constraints of objectivity far heavier than thoseof lawyers or even judges. Their duty is to use all the importantstones, not just the ones useful to their views, to examine, not tochip off, the offensive spurs damaging to the wall, to twist andturn stones to reveal the greatest information, not to build thesmoothest wall of artful persuasion, and to avoid covering theblemishes with the mortar of sophistry. This was my aim, howeversuccessfully or unsuccessfully accomplished.

It seemed worthwhile to subject a particularly bad example ofjudicial legal history from a relatively cool area to the advocacy ofscholarship, the aim of which is to find and express the truth. Thepurpose of doing so was, apart from its relation to arbitration law,to raise questions concerning all legislative history written by thecourts, most especially the Supreme Court of the United States.Neither historians nor legal scholars concerned with the historicalaspects of a given statute should ever found their legislative historyon judicially written legislative history. It is, virtually by definition,a defective product.13

Bureaucratic Formalism

Where bureaucratic formalism of the kind described in this accountprevails, never are the basic goals of the law thoroughly examinedand comprehensively addressed. Instead the Court examines bitsand pieces, the flotsam and jetsam of a particular case.

In making the examination, the Court, or each of its factions, isdominated by two things. One is a rather general sense of direction,a direction often quite romanticized.14 The other is precedent, usingthe term in a broad sense to encompass judicial precedent, perti-nent administrative regulation, and legislation. This precedent isused partly to rationalize the desired result, but also very definitelyto channel the result. The upshot of these two conflicting rolesof precedent is all too often law with important and unexaminedconsequences. When these consequences come to roost, the processrepeats the pattern, often lurching off on another tangent.

172 Postscript

The consequences of this process are numerous. One conse-quence of any formalism, bureaucratic or otherwise, is the coveringup of true aims and outcomes. Realists, and more recently CriticalLegal Scholars, have attacked formalism vigorously for this qual-ity. The thrust of their attack is that the real reasons for judicialdecisions are not expressed by the formal support for them. Indeedthe argument is that the formal support bears either no relation tothe real reasons at all, or may even bear an inverse relation. Forexample, it is often argued that much formal reasoning based onprinciples of equality is in fact camouflage for decisions maintain-ing or enhancing inequality.

The story of arbitration in the Supreme Court illustrates thecover-up function of formalism. One cannot immerse oneself inthe arbitration cases without coming to the conclusion that a majorforce driving the Court is docket-clearing pure and simple. That is,the Court is motivated to reduce the cases having to be tried by thejudicial system, particularly the federal judicial system. If thismeans overriding the consent principle of the USAA,15 sobeit; if itmeans abdication of judicial responsibility for enforcing regulatorylegislation,16 sobeit; if it means converting a statute from one gov-erning procedure in federal courts to a substantive regulatory oneoverriding state law, sobeit. Yet nowhere does the Court admit tosuch a policy.

It may be noted that such complaints about judicial decisionmaking are essentially complaints about conspiracy. They positdeliberate implementation of judicially favored policies with con-scious or unconscious covering up those favored goals. My presentconcern for the bureaucratic formalism of our judicial dispute reso-lution system is, however, in large measure quite different fromsuch complaints. I am more concerned with the determinism result-ing from the system itself.

This formalism creates patterns of decision with lives of theirown. While superficially appearing to be the ultimate in logicaldevelopment, and even though at each step (e.g., each case) thejudicial decision maker seeks to achieve particular goals, the overallpatterns tend to be fundamentally aimless, meandering, and aboveall, confusing. They are hence dysfunctional in terms both of thepolicies being achieved and of legal efficiency.


The foregoing is not to say that no one benefits or has a vestedinterest in these characteristics, or that the beneficiaries may notthemselves be nicely camouflaged. The vested interests, however,are not, at least not directly, those of outsiders: corporations, laborunions, or any of countless powers whose centers lie outside thedispute resolution system and about which most political contro-versy centers. The vested interests are those of the system itself.The most obvious beneficiaries are the lawyers and those workingwith and for them. The bench, too, is a beneficiary. Althoughmany complaints arise from the bench about overcrowded docketsand the like, the fact is that judging is a growth industry in theUnited States. Complaints from participants in any growth indus-try about its growth smack of crocodilian lachrymosity.

The history of the United States Arbitration Act is one of theclearest examples of this dysfunctional bureaucratic formalism inaction. The path of the USAA described in Chapter 11 from ErieRR. v. Tompkins (U.S. 1938)17 to Volt Information Sciences, Inc.v. Stanford University (U.S. 1989)18 exemplifies the aimlessness ofboth result and methods in reaching the results of bureaucraticformalism. In very large measure the transformation of the USAAfrom a procedural statute applicable only in federal courts into asubstantive regulatory statute superseding state law everywhere wasa product of the dynamics of the legal system rather than of con-scious judicial legislation. Indeed, the very fact that courts, includ-ing the Supreme Court, generally deny that they are legislating is afactor in this process. Such denial keeps them from focusing onwhat they are in fact doing and why they are doing it rather thanon a kind of mindless formalism in which they blindly follow pathslaid out for vastly different reasons.

Context and Causation

At the outset" I said:

These accounts seek through the events described to search out atthe level of the articulated word what the participants thought theywere doing, what they said they were doing, and what they wereactually doing. This is the level at which most legal analysis of courtsand legislatures occurs. Descriptions of this kind are examples of

a

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

A study so focused necessarily omits a great deal, particularly relat-ing to context and causation.

Respecting context, I have treated it to the extent necessary tounderstand what the participants thought they were doing, whatthey said they were doing, and what they were actually doing. Thishas provided a basis for some relatively modest suggestions aboutcausation of various events at various stages of the story. In onlyone respect have I gone very far out on a limb in asserting causationin the same way that full-blown historians assign causes to events.That is in my assertions concerning the impact of the dynamics ofsome of our current judicial processes themselves. These I believeto have been very great respecting arbitration law and to continuebeing very great respecting much of our law.21

Lest anyone think I have intended to go beyond this, let mestress the kind of causative investigation I have not made. I haveeschewed answering the following questions, suggested by EdwardPurcell as essential to any proper full-blown history of Americanarbitration law:

1. What was the connection between the arbitration reformmovement and the more general movement for professionalprocedural reform that occurred during the same decades?

2. Who, if anyone, or what forces, if any, were behind the arbi-tration reform movement besides the obvious actors and obvi-ous forces and, if any, why?

3. What is the relationship between the arbitration reform move-ment and more general political and social change in theUnited States?22

These are fascinating questions indeed. They would be grand turffor a Ph.D. or S.J.D. thesis, to say nothing of possible work bya mature scholar, and I hope someone undertakes the dauntingtask.23

I trust no reader will think I have addressed these questions ordrawn conclusions about them.241 believe, however, that the storyI have told is essential to anyone who wishes to answer them. Bytheir works ye shall know them.

174 postscript


Looking Forward

On the surface, it may appear that American arbitration law hasachieved unity and coherence through its nationalization. In fact,major fault lines run through the law, along which tensions existor will build up.

Even after Gilmer v. Interstate/Johnson Lane Corp. (U.S.1991),25 a great tension exists between the strong public policy limi-tations on full arbitrability in collective bargaining arbitration andthe absence of such limitations in arbitration under the USAA.

Further, sooner or later tension will develop between the politicalforces underlying governmental regulation of the socioeconomyand potential blunting of that regulation by substituting arbitrationfor judicial enforcement.

Similarly, tension is inevitable between the freedom of arbitra-tors to make final decisions and the need for judicial oversightwhen 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 con-trol arbitration on the one hand and the strong "freedom of con-tract" 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 Amer-ican arbitration law will look markedly different ten or twentyyears from now. Predicting what those changes will be or how theywill be brought about is folly. One can, however, perhaps suggestsome constraints and general routes likely to be followed or not tobe followed.

First, it seems quite unlikely that anything like the old reformmovement will come forth to give American arbitration law a goodold-fashioned comprehensive going over. That movement itself hasaccomplished most of its aims and its organization, the Ameri-can Arbitration Association, has settled into establishmentarianinstitutional maturity.28 And in spite of the great interest in arbitra-tion of various groups, the legal situation is unlikely to be so des-perate that enough of them will come together to give arbitrationlaw a comprehensive shake-up, comparable, for example, to that

176 Postscript

given commercial law by the UCC. No one can, however, tell forsure.

Second, we may anticipate particular congressional restrictionson binding arbitration agreements and perhaps on arbitration atall in particular acutely sensitive political issues, such as civil rights.

Third, surely sometime the Supreme Court will have to bringgreater symmetry of result to the conflict between noncollectivebargaining cases like Gilmer v. Interstate/Johnson Lane Corp.(U.S. 1991)29 and collective bargaining cases like McDonald v. Cityof West Branch (U.S. 1983).30

Fourth, possibly the most likely prognosis is a continuing erosionof state power and a continuing surrender to the power of interna-tional arbitration.

A Heretical View

Since even generalities like the foregoing are highly speculative, Ishould like to conclude by offering a decentralist view of whatshould happen respecting the state-federal interface, as opposed towhat is likely to happen.

The trail of the USAA has led to an erosion of state powercertainly never intended initially by Congress. Nor is there anyreason to think that congresses at the times of the various bends inthe road leading to this result had any desire for such erosion.Indeed, it is far from clear that even the majorities of the SupremeCourt in the key cases had that desire. Rather they seem to havebeen propelled in considerable measure by a kind of determinismresulting from a combination of weaknesses in the drafting of theact and unrelated fundamental changes resulting from Erie RR. v.Tompkins (U.S. 1938).31 The latter resulted both in rules that ledto a kind of mindless formalism and in very real practical problemsin trying to harmonize the USAA with the changed legal back-ground.

If one steps back and asks why the federal government shouldimpose the USAA on the states as a regulatory statute, it is ex-tremely difficult to produce a satisfactory answer. Commercial ar-bitration is simply one of a number of forms of dispute resolutionconstituting an adjunct to the contract law and litigation systems


of the states. In spite of the immense growth of federal interventioninto the economy in the past hundred years, this basic foundationof "private" law remains the domain of the states. It may be notedthat all interstate commerce is dependent upon this law. Althoughcurrent interpretations of the commerce clause would undoubtedlyallow complete federal takeover of this domain, no such takeoverhas occurred or appears even to be in the offing. There is still, forexample, no federal commercial code. And certainly there is nofederal code of private law, such as a Civil Code, or even of con-tract remedies. Why, then, single out arbitration for federal inter-vention?

Before answering the question, it should be recalled that thenature of an arbitration act such as the USAA is to empower pri-vate parties to make arrangements for dispute resolution they maybe unable to do otherwise. It thus differs from the usual regulatorystatute. Its regulatory function is limited to that of controlling theways such arrangements are made and, once made, the arrange-ments themselves, not to forcing parties to be subject to the act inthe first place. In this vital respect, general arbitration acts differsharply from such things as statutory mandatory court-annexedarbitration aimed not at implementing party consent but at reduc-ing court loads.

One conceivable reason why commercial arbitration should besingled out for federal control would be if commercial arbitrationwere a serious problem area, such as the numerous areas of con-sumer law in which the federal government has exercised its powerswith considerable vigor. The difficulty with this is that commercialarbitration simply is not that kind of problem area. The national-ization of commercial arbitration can hardly, therefore, be justifiedon such a ground.

Thus, given its intimate connection with state law and the ab-sence of serious current concern about its effective operation inalmost all the states, the natural arena of commercial arbitrationlaw seems to lie in the states. Moreover, the peculiar problem soexorcising the reformers and providing the strongest argument forthe enactment of the USAA in the first place has now been largelysolved outside the USAA. Under Bernhardt v. Polygraphic Co. ofAmerica, Inc. (U.S. 1956),32 it is no longer possible for a federalcourt to deny enforcement of an arbitration agreement between

178 Postscript

citizens of two states, both of which have modern arbitration stat-utes and the courts of either of which would have enforced theagreement.33 Nor, since almost every state in the union now hasa modern arbitration statute34—more modern in most instancesthan the USAA —is there a need for a great deal of concern thatarbitration agreements in interstate commerce will remain unen-forceable.

Any need for general federal intervention in arbitration withinterstate aspects is obviated by the ability of the federal govern-ment, exercised in numerous areas,35 to create special systems ofarbitration.

A Proposal

Ignoring what we have in place now, to what kind of a structure ofstate-federal commercial arbitration law would the foregoing leadus? I suggest the following.

Whether state or federal arbitration law is applicable would notdepend upon which court, state or federal, is hearing the matter.Only the most peripheral, non-outcome determinative proceduralmatters would still be determined by the forum.

In the tiny, perhaps even nonexistent, area of intrastate transac-tions, state law would govern whether or not the state had a mod-ern arbitration statute.

In interstate transactions, state law would govern, providing thestate had a modern arbitration statute. If the state had no modernarbitration statute, a general federal arbitration act would govern.Where the state had a modern arbitration statute, but had excludedfrom its coverage the type of dispute involved in the case, the resultwould depend upon the origin of the rights involved in the dispute.If the dispute arose out of state substantive law, arbitration wouldbe 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 Hospitalv. Mercury Constr. Corp. (U.S. 1983),37 both state and federalissues were at stake, and the state issues were nonarbitrable underthe state law, arbitration of the federal issues would take placefirst. Similar principles would govern where the state-law dispute


was subject to special arbitration statutes, such as those commonlyfound in no-fault and health legislation.

The same principles should apply in international transactionsas in interstate cases.

To achieve such a pattern in our arbitration law would require anumber of changes in present law:

The USAA would have to be amended so that modern statearbitration laws would govern in both state and federal courts. Itwould also have to provide that the USAA would apply only wherethe state in question lacked a modern arbitration statute. In thelatter circumstances, the USAA would apply in both state andfederal courts.

Various clarifications would need to be made as well. Particu-larly needing confirmation is the unitary nature of the USAA, astatute applicable either in its entirety or not at all. Related tothis, clarification is needed that the USAA is applicable only wheninterstate commerce is involved or other section 2 bases exist.

Finally, both to minimize differences in result and to take advan-tage of the dominant current thinking on commercial arbitration,the federal government should substitute the Uniform ArbitrationAct for the present USAA provisions, adding it to the federal pro-visions required for a federal act.38

The principles suggested run afoul of the Supreme Court's viewsexpressed in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth(U.S. 1985).39 But nothing in the case suggests that it is beyond thepower of Congress to overrule those views.40 Indeed, quite theopposite, the Court says: "Doubtless, Congress may specify catego-ries of claims it wishes to reserve for decision by our own courtswithout contravening this Nation's obligations under the Conven-tion."41 Presumably, in spite of the generality of the Court's lan-guage, at some point excessive congressional limits on arbitrabilitymight violate the United Nations Convention on the Recognitionand Enforcement of Arbitration Awards. And were Congress toallow the states to determine arbitrability respecting agreementssubject to the Convention, they too would be subject to treatylimits if there are any. Congress would, of course, also be in aposition to prohibit any state limitations Congress deemed incom-patible with "this Nation's obligations under the Convention."

180 Postscript

In sum, it is feasible to restore this area of private law to thestates without creating problems of having different laws applydepending upon which court handles the litigation, with or withoutthe possibility of forum shopping. In the international area, it isfeasible to accomplish this without violating the United NationsConvention on the Recognition and Enforcement of ArbitrationAwards.

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 arbitra-

tors' 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 1Introduction

1. See, e.g., Note, Out With the Old, In With the New: The Mini-Trial is theNew 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 capi-

tal "S" when referring to a sovereign state, not to a state of the union, although aState 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 negotia-

tion, but far more subtle forms can and do occur in which the communication mayeven 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 treatedextensively in Chapter 6.

9. On this subject generally see Macneil, Bureaucracy and Contracts of Adhe-sion, 22 Osgoode Hall L.J. (1984); Rakoff, Contracts of Adhesion: An Essay inReconstruction, 96 Harv. L. Rev. 1174 (1983).

10. Such disputes may be of quite a personal nature, but are far more likely tobecome involved in hierarchical decisions relating to the conduct of the hierarchy'sactivities.

11. Panels of arbitrators, most often tripartite, are also common. The singular isused throughout this discussion for the sake of simplicity.

12. The arbitration decision may, however, under some legal regimes, be submit-ted to the jury along with the other evidence. But sometimes a party who does notdo better before the jury than before the arbitrators will be stuck with the costs ofthe litigation. Where this is the case, the advisory arbitral decision does in fact havesome legal binding effect.

13. The corporation may, of course, be involved in other relationships in whichsuch a challenge may be made, e.g., a union may object, and in some circumstancesmay 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 ofdisputes 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 arbitra-

tion." "Commercial arbitration," probably the most common phrase, is entirelytoo narrow to describe arbitration governing, for example, disputes about maritalproperty in a divorce proceeding. "General arbitration" might be a good term, but Iknow of no one who uses it, although reference is sometimes made to generalarbitration statutes. Sometimes, however, these also govern collective bargainingarbitration. (The Uniform Arbitration Act provides an option for its enactment ina given state to include or not include labor arbitration.)

Notes to pages 11-17 183

The bare word "arbitration," unless carefully delimited, encompasses both collec-tive bargaining arbitration and non-collective bargaining arbitration. Since the twoareas are often governed by bodies of law not entirely but quite different, the elisionis dangerous. Nonetheless, hereafter the word arbitration will be used to refer tonon-collective bargaining arbitration of all kinds.

Chapter 2Before 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 agreeingto Promote Trade Arbitrations," J. Cohen, Commercial Arbitration and the Law303-5 (1918) (hereafter Cohen, Commercial Arbitration), although this was afterthe reform movement was well underway. See also Note, Commercial ArbitrationDeveloped in Trade Courts, 1 J. Am. Jud. Soc'y 7 (1923).

3. This is illustrated by the section on Arbitration and Award in Corpus Jurispublished in 1916. It contains 252 large pages of excruciatingly fine print dealingwith 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 ofLaw, 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-court-

ordered 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, thesestatutes did little more than codify the common-law attitude and outline proceduresfor review." Allison, The Context, Properties, and Constitutionality ofNonconsen-sual Arbitration: A Study of Four Systems, 1990 J. Dispute Resolution 1, 11 (here-after Allison, Nonconsensual Arbitration). The alleged authority for this statementis L. Fuller and M. Eisenberg, Basic Contract Law 432-33 (3d ed. 1972). WhatFuller and Eisenberg actually said was: "Most states adopted arbitration statutesduring the nineteenth century, but the New York statute of 1920 was the first tomake arbitration agreements irrevocable and to provide for judicial appointment ofarbitrators." Id.

9. As the examination of the 1873 Illinois statute in text infra at notes 9-27 willdemonstrate, this is, of course, unnecessary in speaking of the law of a singlejurisdiction, provided one's library has the necessary dusty and disintegrating booksfor that jurisdiction.

10. 111. Rev. Stat. ch. 10, §§1-18 (Kurd 1915-16). The 1873 act was substantivelyidentical to 111. Rev. Stat. ch. 7, §§1-16 (1845). These acts were in addition to, notin substitution for, common law (judge-made) arbitration. Eisenmeyer v. Sauter,77 III. 515, 516 (1875); Phelps v. Dolan, 75 111. 90, 92 (1874).


11. 111. Rev. Stat.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.

§1 (Hurd 1915-16).

Applications before judgment on the award, subject to normal chancery jurisdiction respectingjudgments. §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) (hereaf-

ter Sturges, Commercial Arbitration). There were occasional statutory exceptions,id. §60, at 199, and public policy limitations, such as controversies involving illegal-ity, see id. §61, at 202-4, and matrimonial matters, id. §65, at 212-13.

Sturges, Commercial Arbitration, is the first truly scholarly treatise on Americanarbitration law. Although it was published a decade after the first modern arbitra-tion statute in New York and five years after the United States Arbitration Act,Professor Sturges very carefully separated the common law of arbitration from thatof the new statutes. Since relatively little seems to have changed in the common lawof arbitration between the period being discussed in the text and 1930, the treatise isan invaluable summary of the pre-1920 period.

30. Sturges, Commercial Arbitration, supra note 29, §290, at 676. A necessarycorollary was that the arbitration agreement was irrevocable after the award wasrendered. 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 disputesto 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, demon-strated an early and sustained hostility toward arbitration. Although these courtswould usually enforce post-dispute arbitration agreements, [incorrect] they usuallywould not compel compliance with a predispute arbitration clause." Allison, Non-consensual Arbitration, supra note 8, 1990 J. Dispute Resolution at 11 (footnotes,all to secondary sources, omitted).


The main source of many lawyers' knowledge of this subject may very well be thepop legal history of Judge Frank in Kulukundis Shipping Co. v. Amtorg TradingCorp., 126 F.2d 978 (2d Cir. 1942), also hardly a balanced account.

36. For extensive lists of citations, see Hirshman, The Second Arbitration Tril-ogy: The Federalization of Arbitration Law, 71 Va. L. Rev. 1305, 1310-11 nn.27-28(1985).

37. Sturges, Commercial Arbitration, supra note 29, §76, at 237-39.Both Colorado and Washington resisted the common law rules respecting revoca-

bility, 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 andbylaws of associations from the normal revocability of arbitration law. Id. §16, at51-52.

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 leftonly what we would call reliance damages, likely to occur when some steps hadactually 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 ofaction 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 ConditionPrecedent, 11 Harv. L. Rev. 234 (1897); Annotation, Validity of Agreements toArbitrate 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 45n.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 thistype. 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 didnot, Nolan v. Whitney, 88 N.Y. 648, 650 (1882).

46. The power of a court of justice, with the consent of the parties, to appointarbitrators and refer a case pending before it, is incident to all judicialadministration, where the right exists to ascertain the facts as to pronouncethe law. Conventio facit legem. In such an agreement there is nothing con-trary to law or public policy.

Newcomb v. Wood, 97 U.S. 581, 583 (1878). For more extensive discussion of thistype of arbitration, see 5 C.J., Arbitration and Award, supra note 3, §23, at 26. Itsorigins lie in a late seventeenth century act of Parliament, 9 & 10 Wm. 3, ch. 15(1698).


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 federalgovernment, ten states, and the territory of Hawaii had enacted "modern" arbitra-tion statutes, i.e., those providing for enforceability and irrevocability of agree-ments to arbitrate future disputes. Id. §26, at 88.)

53. Cohen, Commercial Arbitration, supra note 2, e.g., focuses virtually all ofits advocacy on these points.

54. An example of the effect of their work: "Arbitration clauses from theirinception 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 Arbitra-tion and the New York Statute, 31 Yale L.J. 147, 152 (1921) (hereafter Cohen, NewYork). Were Cohen still alive he could accurately claim that he was miscited indetail —no such statement or anything close to it appears on the page 152 —but thepolemics of the reform movement created precisely the atmosphere where suchmistakes were to be expected.

55. For a comprehensive review of common law arbitration in one probably quitetypical 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 deal-ing 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, ofcourse, always subject to particular legislative modifications.) The closest thing Ihave found to a recognition of a body of federal law as such is Julius HenryCohen'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 toshow that "federal" law is different; rather his work is a polemic against particularfederal decisions following widely accepted, albeit erroneous in his eyes, commonlaw principles. It was this ancient cast of the common law mind that preventedremedy 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) (citingPennsylvania law as governing in holding that arbitration was a condition precedentto 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 agree-ment made in court, citing an Ohio statute that authorized such agreements inwriting or by oral consent in court; the Supreme Court then said: "The referencehere in question was made in the latter mode and by virtue of this authority." Id. at


583; Warren v. Tinsley, 53 Fed. 689 (5th Cir. 1893) (applying Texas law to thesubmission and arbitration proceedings pursuant to an agreement incorporatingthat law).

61. Mitchell v. Dougherty, 90 Fed. 639 (3rd Cir. 1898), overruling Fox v. Hemp-field, 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 Cardozoheld: "An agreement that all differences arising under a contract shall be submittedto arbitration relates to the law of remedies, and the law that governs remedies isthe 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 thehands of a holder in due course. The Court applied federal general common law inanswering the question, rather than looking to the state law, which otherwise wouldhave 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 diversityjurisdiction.

78. California Prune & Apricot Growers' Ass'n. v. Catz American Co., 69 F.2d788 (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 tothe 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 lawdid not differ systematically from state law in such a way as to constitute anobstacle. With the advent of the 1920 New York law enforcing agreements toarbitrate future disputes, the federal judge-made law could, and did in the SecondCircuit, become such an obstacle. But this was not because of Swift; it was because


of the jurisdictional and "remedy-not-a-right" routes just described. It may be notedthat recognition of Justice O'Connor's error on this point does not affect the validityof the rest of her opinion. Indeed it strengthens it, since the federal judges' routesaround the state law prior to the USAA were clearly not substantive in the sense themajority in Southland attributed substantive character to the USAA. Moreover, itis 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 responseto straightening out the federal forum, just as Justice O'Connor argues. See Chap-ters 9 and 10.

80. Because Asphalt Refining was in admiralty, neither statute applied to thecase, 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, 241Fed. 186 (E.D.N.Y. 1916), affd, 251 Fed. 45 (2d Cir. 1918), and AktieselskabetKorn-Og Foderstof Kompagniet v. Rederiaktiebolaget Altanten, 250 Fed. 935 (2d.Cir. 1918).

Chapter 3The Beginning of Reform

1. Jones, Three Centuries of Commercial Arbitration in New York: A BriefSurvey, 1956 Wash. U.L.Q. 193, especially at 211-18 (hereafter Jones, Arbitrationin New York).

2. Chamber of Commerce of the State of New York, A Brief History of Com-mercial Arbitration in New York, in Selected Articles on Commercial Arbitration23-24 (D. Bloomfield, ed. 1927) (hereafter N.Y. Chamber, Selected Articles); Kent,Pioneers in American Arbitration, 17 N.Y.U. L. Rev. 501, 505 (1940) (hereafterKent, Pioneers); Gwynne, The Oldest American Tribunal, 1 Arb. J. 117 (1937)(hereafter Gwynne, Oldest Tribunal); Jones, Arbitration in New York, supra note1, 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 clear-cut sense of commercial equity, patience and forebearance produce the results de-sired in arbitration."

Charles Bernheimer, see infra note 20, Chairman, Committee on Arbitration ofthe New York Chamber of Commerce, to the Committee on the Prevention ofUnnecessary 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" wouldbe a better phrase.

7. Cf. C. Harrington, Shadow Justice: The Ideology and Institutionalization ofAlternatives to Court (1985); Gallagher, Book Review, 13 Law & Social Inquiry133 (1988). It is difficult to believe that the Arbitration Society of America was


serious when it labeled an arbitration tribunal it created in the early 1920s thePeople's Tribunal of Arbitration, but that is what it did. Note, Arbitration Societyof 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 Tribu-

nal, supra note 2, at 119.10. Gwynne sets out three:

[I]ts financial support was to have come from the Legislature, which after1878 refused to make any appropriation; secondly, decisions were arrived atwith increasing formality and even reached the dignity of a court of justice;third, it gave merchants a special court which was regarded as being favor-able to a special class, and met with considerable unpopularity from the restof 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, althoughdiscussed 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 businessin wholesale dry goods in New York, where he became a successful merchant. Hewas active in city reform politics and was an amateur explorer and paleontologist inthe American Southwest. He was the writer of numerous magazine articles. Hefounded the Arbitration Foundation, which in 1926 merged with the ArbitrationSociety of America to become the present American Arbitration Association, ofwhich 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 ABill to Make Valid and Enforceable Written Provisions or Agreements for Arbitra-tion of Disputes Arising out of Contracts, Maritime Transactions, or CommerceAmong the States or Territories or with Foreign Nations: Hearing on S. 4213 andS. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67thCong., 4th Sess. 7-14 (1923) (testimony of Charles L. Bernheimer) (hereafter 1923Hearing).


22. Julius Henry Cohen, 1873-1950, was educated at New York University LawSchool and became a successful lawyer in New York City. He held a number ofimportant 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 1916and 1919. Like Charles L. Bernheimer, he became a director of the AmericanArbitration 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 tohave been truly indefatigable in the cause of arbitration reform.

23. Bills to Make Valid and Enforceable Written Provisions or Agreements forArbitration of Disputes Arising out of Contracts, Maritime Transactions, or Com-merce Among the States or Territories or with Foreign Nations: Joint Hearings onS. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judi-ciary, 68th Cong., 1st Sess. 31 (1924) (statement of Charles L. Bernheimer) (hereaf-ter 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 appearsthat this proposal may have played a role in the chamber's overture to the New YorkState Bar Association. J. Auerbach, Justice Without Law? 104 (1983) (hereafterAuerbach, Justice). As will be seen, this joinder of business and bar did not preventa schism in the movement in New York later between a businessmen's wing and alawyers' wing. See Chapter 4.

27. The statement in the text is not, however, accurate as to Chicago reformersrespecting 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, andinternational arbitration, to mention but some.

35. See L. Brown and E. Dauer, Planning by Lawyers: Materials On A Non-adversarial 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). Bern-heimer was not a lawyer, and hence not an A.B.A. member, and proffered hisviews as Chairman, Committee on Arbitration of the New York State Chamber ofCommerce.


Another version is found in Bernheimer's testimony before the congressionalcommittee on the United States Arbitration Act:

The bill on the one hand aims to eliminate friction, delay, and waste, and onthe other to establish and maintain business amity and to reduce the price ofcommodities to the consumer: this latter on the theory that a merchant infiguring his cost adds to his price a certain amount representing the risk ofrejection, claims, fault-finding, etc., even including litigation. If inexpensivebut dependable arbitration were possible instead of costly, time-consuming,and troublesome litigation, the risk would be correspondingly smaller andthe price made to conform therewith. Not only will the suggested law accom-plish all of this, but it will help to conserve perishable and semiperishablefood products, and save many millions of dollars in foodstuffs now wastedbecause 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 regardedas 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 execu-tory 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, NewYork 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 com-

ments of the chairman of the committee, Daniel S. Remsen. Id. at 398-99. "Fear oflost legal business, and lost professional respect, echoed through the arbitrationdebates." 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 col-leagues on the committee, while agreeing to the desirability of judicial correctionand that efforts to follow that route should continue, nevertheless called for legisla-tion rather than awaiting the results of that "slow and tedious process of judicialcorrection of judicial error to be applied in this field." Id. at 127-28.


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 wasalso 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 Stur-

ges, Arbitration Under the New North Carolina Arbitration Statute— The UniformArbitration Act, 6 N.C.L. Rev. 363, 407-8 (1927), who states that "the [identicalNorth 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 Arbi-

tration 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. SeeChapter 4.

64. Julius Henry Cohen sets out the Illinois law in an appendix in Cohen, Com-mercial Arbitration, supra note 14, at 294-98, but otherwise makes no comment onit in that volume.

65. Note, Arbitration in the United States, supra note 5, at 57.66. Id.67. Id. at 58.

Chapter 4Reform 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 perfor-mance and explicitly made invalid any agreements for damages for revocation.§2385. The code also preserved revocability by death and proceedings in lunacyuntil the award was filed or delivered, but not afterward. Id. §2382.

4. An earlier statute had reversed the common law rule of unanimity for bothstatutory and common law submissions. The code left that provision intact respect-


ing statutory submissions, but restored the common law rule of unanimity respect-ing 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 havebeen more of a concern than it seems to have been, but for the right to a summaryhearing 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 byJulius Henry Cohen, 43 N.Y. St. Bar Ass'n Rep. 96 (1920), would have avoided thissituation. It proposed to amend the Code of Civil Procedure, rather than enact aseparate statute. It would have deleted all formal requirements except a writing andhave extended the coverage of the code to agreements respecting future as well aspresent disputes. 41 N.Y. St. Bar Ass'n Rep. 154 (1918). It was, however, decidedin 1920 to recommend a separate law (with some peripheral amendments of thecode):

The special reason for this change is a belief that the preservation of a jurytrial is necessary to the constitutionality of a bill providing for the enforce-ment of contracts for arbitration of future differences. Then, too, by present-ing this bill as a separate law the Code provisions can be made use of as faras applicable and at the same time left standing for use in arbitrations volun-tarily entered into after dispute had arisen. It also has the additional advan-tage of presenting to the Legislature in a more concrete form the question ofirrevocability 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.


23. Id. §5.24. Id. §7. Code of Civil Procedure §§2383-84 dealing with revocations of sub-

missions were also repealed, being no longer necessary with enactment of the broadprovisions 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 thiswholesale reform has been. Cf. Chapter 6 dealing with the public policy defense andone-sidedness. Also, a casual review of reported prereform cases raises questionsconcerning the "main breeding ground." Maybe the great majority of arbitrationmatters were such. But those which ran into sufficient trouble to find their wayinto appellate reports suggest a far broader usage. Nonetheless, the basic thrust iscorrect.

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 ArbitrationAssociation 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. Nowheredoes Cohen's name appear.

The omission could be excused on the ground that Cohen was a founding memberof neither of the organizations joined to form the AAA in 1926, nor even a directorof the AAA until 1947, shortly before his death. That does not, however, accountfor 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 StateBar Association and the Chamber of Commerce, and says that Cohen's book "wasinfluential in obtaining the law." Id. at 10 n.4. No mention is made, however, ofCohen's being general counsel of the chamber, nor of the fact that he personallydrafted the act. Nor does she ever mention his manifold activities that led, interalia, to the enactment of the New Jersey statute, and most important of all, theUnited States Arbitration Act, which he also drafted. ("[W]hile Mr. Piatt gave methe credit for drafting it, and while it is true I made the first draft, there were manyothers who went over it." Bills to Make Valid and Enforceable Written Provisionsor Agreements for Arbitration of Disputes Arising out of Contracts, MaritimeTransactions, 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 theCommittees on the Judiciary, 68th Cong., 1st Sess. 15 [1924][hereafter 1924 Hear-ings].) Indeed, he is mentioned nowhere else in her book except in a chapter of longlists 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 LawSchool, practiced law in New York City. He was active in a number of eleemosynaryaffairs, and was a member of a great many organizations, including learned andprofessional associations, fraternal organizations, and curiosities such as the Na-tional 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 reformmovement who made it into the Dictionary of American Biography. (Her selectionobviously was not because of her twenty-five-year career in arbitration; in a twoand 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, butthen turned to what we might now call participatory sociology both studying (at theUniversity of Chicago and in the field) and working in black women's prisons, withurban problems of various kinds, and with immigrants. She was active nationallyin the progressive movement. She turned her attention to arbitration relatively latein her career, becoming 1st Vice President of the American Arbitration Associa-tion on its founding in 1926. Always a prolific author, she was the most produc-tive of the early arbitration reformers on that score. See American ArbitrationAssociation, Arbitration Bibliography 7, 28, 56, 68, 85 (1954) (hereafter AAA,Bibliography); 3 Who Was Who In America 468 (1960); 4 Notable AmericanWomen 393 (1980).

Kellor's interest in arbitration may have been stimulated by her work with immi-grants:

The campaigns to "Americanize" the immigrant, rehabilitate the delinquent,the deviant, and the discontent are examples of programs for the socializa-tion of the law . . . . One of the first active Americanizing groups, the NorthAmerican Civil League for Immigrants (1907), focused public attention onthe political significance of "petty litigation" and the role of courts in process-ing such conflict. The league was a private philanthropic organizationformed to represent Northeastern conservative economic interests . . . . In1908, Frances Kellor, a member of the league, was appointed to the NewYork State Immigration Commission by Governor Charles Evans Hughesand charged with directing research on the relationship of immigrants tocriminal and civil law. As a result of its study the commission established theNew York State Bureau of Industries and Immigration (1910). Kellor de-scribed this bureau as an "immigrants court" . . . . Unlike the inferiorcourts, however, this government agency served as "mediator in bringingtogether the disputants in cases concerning immigrants."

196 No tes to pages 38-40

C. Harrington, Shadow Justice: The Ideology and Institutionalization of Alterna-tives 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 arbitrationfor sixty New York judges, followed by a conference at which 400 business andprofessional men discussed arbitration's future! Id. at 12. Something of the spiritof the reformers is captured in a statement made shortly before his death by LuciusRoot Eastman during World War II:

I think voluntary arbitration is to all of us less of a procedure than it is a symbolof the peace on earth and goodwill toward men which exists in the heart of allAmericans in this great struggle for freedom which now encompasses theworld. Many of us believe that in arbitration we have a concept that stands outin opposition to war. We believe that a science of arbitration can be equallywell organized and intelligently administered and that under the banner of arbi-tration the scattered forces of those who strive for peace can be united. But tobe effective, the concept of voluntary arbitration must be vitalized. We mustorganize it scientifically. We must through education and actual performancebring its potential values home to every American and through him to the worldof 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 NewYork as a national prototype for large cities had "been editorially approved byinfluential newspapers in almost every state in the union." Note, Arbitration Societyof America, 6 J. Am. Judicature Soc'y, 59 (1922). If the society's statement inthis note is any indication, hyperbole was the word of the day. Speaking of thisendorsement, the society said: "There is a reason for it. Newspaper editors —alertof mind, fingers on the public pulse, and attention riveted upon the public needsand 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 NewYork 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?) hisbeing 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, Jus-

tice). The legalistic view was clearly enunciated as early as January 1917 by DanielS. Remsen at the New York State Bar Association meeting:

We propose simply to formulate rules that will help lawyers to get togetherand use the provisions in the Code that are already in the Code for arbitra-


tion, instead of having our disputes arbitrated in commercial bodies, whomay give very good consideration to the facts but mighty poor considerationto the law. It seems to us that we will get better results if those same facts areconsidered by lawyers as arbitrators rather than by laymen, and there is agreat demand by commercial bodies for that very thing. The object of therule is simply to make it easy for lawyers to get together and utilize thatmachinery 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 Uni-

versity and was a member of the Boston bar for eight years before becoming presi-dent of Hills Brothers Company. He was president of the American ArbitrationAssociation for eight years and chairman of the board for five more. The work ofthe merger committee came in the middle of his four years as president of theMerchants Association. AAA, Bibliography, supra note 40, at //';'.

52. Charles L. Bernheimer and Moses H. Grossman were appointed honorarypresidents, along with Newton D. Baker, Herbert Hoover, and Charles EvansHughes. 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 5A.B.A. J. 15-81 (1919). Although the conference did endorse a fairly long resolu-tion urging bar associations to take steps to help prevent unnecessary litigation,there is nothing in it specifically about arbitration. W. H. H. Piatt discussing theconference years later simply referred to discussion, not to a resolution. See A BillRelating to Sales and Contracts to Sell in Interstate Commerce; and A Bill toMake Valid and Enforceable Written Provisions or Agreements for Arbitration ofDisputes Arising out of Contracts, Maritime Transactions, or Commerce Amongthe States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4thSess. 8 (1923) (hereafter 1923 Hearing).

55. Two of the members of this committee at this time were Francis B. Jamesand William H. H. Piatt, both of whom were active in pushing the United StatesArbitration Act until it was finally enacted. See 1924 Hearings supra note 36, at 10-11, 19. In 1924 James said that he had been on the committee for a dozen or moreyears and also said that he was the person who had suggested that the committeetake 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 committeewould continue an active role in arbitration reform.

58. Id. at 52-54; Sturges, Arbitration Under the New North Carolina ArbitrationStatute- The Uniform Arbitration Act, 6 N.C.L. Rev. 365 (1927) (hereafter Stur-ges, North Carolina).

59. 47 A.B.A. Rep. at 288 et seq. (1922).


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 thatwere not unanimously approved and upon which one would expect there was consid-erable 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. Hewas active in many professional and fraternal organizations. The most prolific ofour dramatis personae, he fathered 12 children some of whom he favored withancient Irish names. At the time of these comments, 1925, he had been a Commis-sioners on Uniform State Laws from Massachusetts for a decade. 2 Who Was Whoin 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 Arbitra-

tion, 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 fromany firm assertion that it did. W. Sturges, Commercial Arbitration and Awards at89-91 (1930).

88. Section 2 (a) was amended to read:

Written Agreement, (a) A provision in any written contract to settle byarbitration a controversy thereafter arising out of such contract, or out of


the refusal to perform the whole or any part thereof, or an agreement inwriting between two or more persons to submit to arbitration any contro-versy existing between them at the time of the agreement to submit, shall,provided the arbitration be held within the state of Oregon, be valid, irrevo-cable and enforceable, save upon such grounds as exist at law or in equityfor the revocation of any contract.

1931 Or. Laws ch. 36.89. It became effective January 1, 1926.

Chapter 5After 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 ArbitrationCommittee'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 hebecame a successful lawyer in Chicago. He was president of the Illinois State Bar in1916 and president of the National Conference of Commissioners on UniformLaws, 1922-25. He was an officer in the Illinois National Guard and reached therank of brigadier general on active duty during World War I. He held a number ofdiplomatic posts and was active in a wide range of public, eleemosynary, andprofessional affairs. He was the author of a wide range of books on Americanhistory and on law. Of those whose brief biographies are set out in this book, hewas the most prominent during his life and had by far the longest entry in Who'sWho. 3 Who Was Who in America 540 (1960). Unlike Frances Kellor, however, heis not in the Dictionary of American Biography. An extensive treatment of his earlycareer and character appearing the year he was president of the Illinois State BarAssociation 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 mem-ber of that bar association committee.

13. Id. at 52.


14. Report of the Committee on the Uniform Arbitration Act Regarding a Uni-form 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 wasincorporated from the Illinois act, id. at 63. I have, however, been unable to findany such provision in the Illinois act, either as passed in 1917, Laws of 111. 1917, at202, 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 laudatoryreport in 1923, see supra text at note 5. His changing relation to the reform cause isdiscussed 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 Arbitra-tion of Disputes Arising out of Contracts, Maritime Transactions, or CommerceAmong the States or Territories or with Foreign Nations: Hearing on S. 4213 andS. 4214 Before a Subcommittee of the Senate Committee on the Judiciary, 67thCong., 4th Sess. 9 (1923). See Chapter 7.

23. 34 Nat'l Conf. Comm'rs Uniform St. Laws 62-63 (1924). MacChesney re-ferred 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 the1924 hearings on the USAA, treated in Chapter 6. Concern about adhesion contractsis 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 classof men who shall practise before arbitration tribunals who are not permitted topractise law." Id. at 90. This support for "legalization" of the process may possiblyhave 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 infratext at notes 71-79.

32. 34 Nat'l Conf. Comm'rs Uniform St. Laws 163 (1924). Voting at the NationalConference is by states and territories. The dissenters were Connecticut, Massachu-setts, 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.


38. And made this remark: "Mr. Cohen, as a matter of history, is really thefather of the proposition [modern arbitration acts], as far as the present day isconcerned. 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 tothe reforms and how much was to the reformers, how much was founded on genuinebelief in the substantive objections raised to the reform proposals and how muchwas based on such factors as general populist or regional distaste for the easternestablishment, for pushy reformers, and perhaps for Jews, particularly Jews con-nected with the New York commercial establishment. All these resonate throughO'Connell's comments. For example, see especially id. at 74. A few years laterWesley Sturges, a reformer himself, wrote that "Strains of petty sectional prejudiceand of provincialism, if not also of personal animus, [were] sounded every now andthen by Messrs. MacChesney and O'Connell." Sturges, North Carolina, supra note2, at 374-75.

41. 35 Nat'l Conf. Comm'rs Uniform St. Laws 80-81 (1925). The dissenters wereMassachusetts, New Jersey, New York (back in the reform fold), Pennsylvania,and Wisconsin. Illinois was in the majority, although Professor Ernst Freund, oneof 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 lingeringirritation at the action of the commissioners. Although they had formally adoptedUAA (1924) as a uniform act and the A.B.A. had approved it as such, in his treatisehe 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" thatremained an official uniform act of the commissioners for nineteen years and, asDomke notes and as will be seen, was adopted as such by a number of states in itsearly 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, contraryto the information in 9 U.L.A. Table III, at xvi (1957). At any rate, Pennsylvaniaadopted a modern statute in 1927. See Comisky and Comisky, Commercial Arbitra-tion: 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 includingWisconsin, since its 1923 statute was related to 1924 UAA, although enacted beforeUAA was approved by the commissioners and the A.B.A.

56. F. Kellor, American Arbitration: Its History, Functions and Achievements173-74 (1948) (hereafter Kellor, American Arbitration). Wisconsin must have beenparticularly gratifying to the reformers, since only eight years earlier it had followedthe 1917 Illinois pattern, the progenitor of UAA (1924). See Chapter 3.

57. No instance of a jurisdiction reverting from a modern statute to a nonmodernstatute or to the common law has been found. There have, however, been othermanifestations 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 compre-

hensive article on arbitration law by Wesley Sturges. Sturges, Some General Stan-dards 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 substi-

tuted UAA (1955) for their earlier modern statutes. In addition both the Californiaand New York arbitration statutes had been revised, New York's in particular beingsubstantively very close to UAA (1955). See Feldman, Arbitration Modernized—the New California Arbitration Act, 34 S. Cal. L. Rev. 413 (1961); Falls, ArbitrationUnder 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 newarbitration statutes of California, Michigan, New York, and Texas." M. Domke,Commercial Arbitration §4.02, at 30 (rev. ed. 1983) (hereafter Domke, CommercialArbitration). Domke's exclusion of Michigan and Texas from the ranks of thoseadopting UAA (1955) is inconsistent with the Uniform Law Annotated MasterEdition, which claims Michigan and Texas for UAA 1955, but not California orNew York. See Chart in 7 U.L.A. 1 (1978). In the text I have followed the MasterEdition 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 Supple-ment 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 constructioncontracts 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 Steel-workers v. Warrior & Gulf Nav. Co., 363 U.S. 574 (1960). The three are oftenknown as The Trilogy, suggesting even more exalted metaphors than those ofearthly 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 Arbitra-tion Awards, 64 Ind. L.J. 1 (1988).

83. For a criticism of any deferral, see Peck, A Proposal to EndNLRB Deferralto the Arbitration Process, 60 Wash. L. Rev. 355 (1985). See also Lynch, Deferral,Waiver, and Arbitration under the NLRA: From Status to Contract and BackAgain, 44 U. Miami L. Rev. 237 (1989); Edwards, Deferral to Arbitration andWaiver of the Duty to Bargain: A Possible Way Out of Everlasting Confusion atthe NLRB, 46 Ohio St. L.J. 23 (1985); Comment, Distinguishing Arbitration andPrivate Settlement in NLRB Deferral Policy, 44 U. Miami L. Rev. 341 (1989); Note,Further Convolutions in a Convoluted Policy: Olin, Taylor, and NLRB Deferral toArbitral Decision, 82 Nw. U.L. Rev. 443 (1988).

84. Nevertheless, as will be seen in Chapter 6, there has been considerable nib-bling away at other parts of the king's crown. In addition to those mentioned inChapter 6 it is also possible that AT & T Technologies v. Communications Workersof 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 commer-cial and construction cases has climbed slowly but steadily in the years 1984-90, butsecurities 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.


Chapter 6Countercurrents

1. It will be recalled that in arbitration terminology a nonmodern statute isone failing to provide for enforceability of executory arbitration agreements, partic-ularly 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, orCommerce Among the States or Territories or with Foreign Nations: Joint Hearingson S. 1005 and H.R. 646 Before the Subcommittees of the Committees on theJudiciary, 68th Cong., 1st Sess. 15 (1924). Cohen also said there was "some histori-cal basis" for supporting "some of the justices [who] have been unkind enough totheir predecessors to say that there was a time when the judges were paid accordingto the cases they acted upon and the fees they got." He, however, did "not want toreflect on the judiciary in that way."

6. Parsons v. Ambos, 121 Ga. 98, 101 (1904). For an extensive older discussionof equity's refusal to enforce agreements to arbitrate, focusing on the quality ofjustice afforded in arbitration, see Mr. Justice Story's opinion in Tobey v. Countyof Bristol, 23 F. Cas, 1313 (C.C. Mass. 1845) (#14,065). See Annotation, Validityof 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 wordswith the following:

Some of the early cases put their rule upon the ground that a provision wherebythe courts may be ousted of their jurisdiction is repugnant to that other provi-sion, implied in every contract, that its validity and effect shall be determinedby the courts and the law of the land. But whether predicated on the idea thatthe agreement is repugnant to the contract or to public policy, the principle isuniversally recognized that such general submissions are revocable.

121 Ga. at 101-02. I have made no study of the cases to see whether judicialdiscussions of the ouster rule reveal more of either the regulatory or the one-sidedness argument than the text suggests. The extensive annotation, Annot., Valid-ity, supra note 6, provides no reason for thinking there is much more. But onceagain 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. Itmay be that a careful study of the doctrine without that bias would reveal rathermore genuinely considered underlying public policy than we currently think.

8. See Heinrich Kronstein's differentiation between traditional and institu-tional arbitration, infra text at notes 34-49.

9. For example a case involving relative equals and an openly negotiated arbi-tration clause, but nonetheless denying enforcement.


10. The earliest published example I have found is Senator Walsh's raising ofthe adhesion question in the January 1923 hearing on the USAA. A Bill Relating toSales and Contracts to Sell in Interstate Commerce; and A Bill to Make Valid andEnforceable Written Provisions or Agreements for Arbitration of Disputes Arisingout of Contracts, Maritime Transactions, or Commerce Among the States or Terri-tories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcom-mittee 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 nowhereearlier in unrecorded debates. The issue was certainly very live a year later indiscussions 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 commer-cial contracts between two business men, this element of coercion is suffi-ciently mutual, in all probability, to prevent one side acquiring by an arbitra-tion contract any undue advantage over the other. There is thereforeapparently no valid objection to letting the parties "coerce" each other intosubmission to the "rule" of the arbitrators. The latter have been chosen, in asense, democratically, by the parties affected. And if a permanent board ofarbitrators, such as the London Court of Arbitration . . . should "make law"by establishing a series of precedents, it would then be time enough to con-sider 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, BookReview, 40 Yale L. J. 149 (1930).

14. Auerbach, Justice, supra note 3, at 112. Philip G. Phillips, then in privatepractice in Boston, shortly to work for the National Labor Relations Board, ledthis prong of the attack. Phillips, The Paradox in Arbitration Law: Compulsion asApplied 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 Arbitra-

tion 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 notto have preclusive effect respecting FLSA claims. Insofar as arbitration under theUSAA is concerned, however, Barrentine has been undermined by Gilmer v. Inter-state/Johnson Lane Corp., HIS . Ct. 1647 (1991), see infra text at notes 105-11.


22. Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs.631, 651 (1952). Jerome Auerbach cites as another example Soia Mentschikoffscontribution, The Significance of Arbitration—A Preliminary Inquiry, 17 Law &Contemp. Probs. 698 (1952). Auerbach, Justice, supra note 3, at 114, 168. Hespecifies no page references in his citation, however; if Mentschikoff had suchconcern 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, andmost 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 antitrustviolations was the one seeking to arbitrate them.

31. Sterk, Enforceability of Agreements to Arbitrate: An Examination of thePublic 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 Arbi-tration 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 arbitratorsproceeding under its auspices. This includes not only the Commercial ArbitrationRules (1990), commonly incorporated into arbitration agreements by reference, andthe Code of Ethics for Arbitrators in Commercial Disputes (1977), but also A Guidefor Commercial Arbitrators (1985). I was particularly struck by the potentiality forde facto AAA lawmaking suggested by the statement in the latter, "An arbitratorshould not compromise." Id. at 16. No such principal appears in the rules, to theapplication of which parties give their consent. The guide is not commonly, if ever,incorporated in arbitration agreements by reference. Nonetheless, the principle thatthe arbitrator should not compromise is undoubtedly followed by countless arbitra-tors 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).


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 andapply statutory law, he may not have the contractual authority to do so.An arbitrator's power is both derived from, and limited by, the collective-bargaining agreement. He "has no general authority to invoke public lawsthat conflict with the bargain between the parties." [cite.] His task is limitedto construing the meaning of the collective-bargaining agreement so as toeffectuate the collective intent of the parties. Accordingly,

"[i]f an arbitrable decision is based 'solely upon the arbitrator's view ofthe requirements of enacted legislation,' rather than on an interpretationof the collective-bargaining agreement, the arbitrator has 'exceeded thescope 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 tothe public policies underlying the FLSA, thus depriving an employee ofprotected 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 casesthan in collective bargaining cases. In the latter the dispute has invariably beenarbitrated, and the public policy defense is raised against giving full preclusive effectto the award. In the USAA cases the defense is typically raised against a demand toarbitrate. Thus, when the defense is allowed under the USAA, it is a more stringentdefense than it is under the NLRA collective bargaining cases.

48. In Gilmer v. Interstate/Johnson Lane Corp., Ill S. Ct. 1647 (1991), treatedin detail in the text infra at notes 105-11, the Court for the first time addressed theinconsistencies between the two lines of cases.

49. In 1967 Bernstein wrote that the "charge of victimization is extremelyrare. 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 Experi-

ence (1982) (hereafter Abel, Informal Justice).52. For a summary of developments and issues respecting ADR, see J. Marks,


E. Johnson, Jr., and P. Szanton, Dispute Resolution in America: Processes inEvolution (1984).

53. de Sousa Santos, Law and Community: The Changing Nature of StatePower in Late Capitalism, in 1 Abel, Informal Justice, supra note 51, at 249, 260-61.

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 tononexistent or defective consent and is considered in the following discussion ofone-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 civilrights." 12 Vt. Stat. Ann. §5653(b).

63. USAA §9 provides: "If the parties in their agreement have agreed that ajudgment of the court shall be entered upon the award made pursuant to the arbitra-tion . . . then at any time within one year after the award is made any party to thearbitration may apply to the court ... for an order confirming the award." Al-though a reading of section 9 certainly does not compel such a result, some courtshave held that failure to include such an "entry of judgment" clause makes anyaward under the agreement not binding on the parties. I. Macneil, R. Speidel,and T. Stipanowich, The Federal Arbitration Act §40.2 (forthcoming) (hereafterMacneil, Speidel, and Stipanowich, FAA). This might well be viewed as an addi-tional formal requirement. Cases raising the issue are, however, relatively rare. Thecurrent AAA rules include an entry of judgment provision. An arbitration clauseincorporating 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 hasbeen held to conflict with the FAA and hence unconstitutional under the SupremacyClause of the U.S. Constitution. Webb v. R. Rowland & Co., 800 F.2d 803 (8thCir. 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 StockExchange, and Amex and has been approved by the SEC. See C. Fletcher, Arbitrat-ing Securities Disputes 72-73 (1990) (hereafter Fletcher, Securities Disputes).

68. For example, Fletcher has concluded that, based on the data he has exam-ined, "a customer can, with difficulty, gain access to securities markets for optionand margin trading without signing an arbitration agreement." Fletcher, SecuritiesDisputes, supra note 67, at 177.

Notes to pages 70- 76 209

69. See Gilmer v. Interstate/Johnson Lane Corp., Ill S. Ct. 1647 (1991), dis-cussed 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 domesticantitrust area. As the prime impact of this attack on the public policy defense was onthe domestic scene, it is treated infra text at notes 93-101. Mitsubishi's internationalaspects 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 thiswas 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 transac-tions." 473 U.S. at 629.

102. 482 U.S. 220(1987).

210 Notes to pages 76- 78

103. The only real uncertainty was how soon the Supreme Court would finishthe job. Some lower courts, seeing the inevitable, jumped the gun and held Wilkoto be dead, thereby affronting the dignity of the Supreme Court, which later roundlyrebuked 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 cover-

age certain contracts of employment. The majority avoided deciding whether theexclusion 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 norin the Supreme Court, but only by amicus curiae. The other was that the obligationto arbitrate was found in the broker's registration application with various stockexchanges, not in his contract of employment. The fatuousness of this latter reason-ing is illustrated by the way the majority had to explain how Gilmer happened toenter the agreement to arbitrate: "As required by his employment, Gilmer registered. . . ." Id. What this means, of course, is, "As required by his contract of employ-ment, 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 onan ADEA claim, after the New York human rights agency had found no probablecause for the claim. The question before the Court was whether his claim was barredby the principle of administrative estoppel. Without mentioning Gilmer, the Courtheld the claim not to be barred, quoting the following: "Although administrativeestoppel is favored as a matter of general policy, its suitability may vary accordingto the specific context of the rights at stake, the power of the agency, and therelative adequacy of agency procedures." Ill S. Ct. at 2170. In the light of JusticeSouter's failure to mention Gilmer, it is somewhat ironic that the quoted wordscome 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 tothe law of the shop, not the law of the land." . . . An arbitrator may not, thereforehave the expertise required to resolve the complex legal questions that arise in §1983actions." 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 note63, ch.41.

116. Ill S. Ct. 1647(1991).


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 livedin the state of Washington a clause in a cruise passenger ticket requiring all suitsagainst the line to be brought in Florida. The lower courts have taken equallyrestrictive positions respecting adhesion and arbitration. See Macneil, Speidel, andStipanowich, FAA, supra note 63, §19.3.

120. Supra note 102. See Macneil, Speidel, and Stipanowich, FAA, supra note63, ch. 13; Fletcher, Securities Disputes, supra note 67, at 70-78. Availability ofSEC regulation was a substantial factor in the Court's justification for the results inShearson/American Exp., Inc. v. McMahon, 482 U.S. 220 (1987), and in its opinionoverruling Wilko v. Swan, 346 U.S. 427 (1953), in Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477 (1989).

Chapter 7USAA: 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 therepeal of section 14. This occurred when U.S.C. Title 9, the codification of theUSAA, 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 asthe USAA even for periods since 1947.

4. 350 U.S. 198 (1956). Bernhardt established that in a federal diversity casestate arbitration law governed. The apparent anomaly of how this led to the USAAsuperseding state arbitration law is treated in Chapter 11.

5. The matter was raised at the National Conference of Bar Associations thatyear. 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 courtsalso had jurisdiction of the matter and could apply the New York act, Red CrossLine v. Atlantic Fruit Company, 264 U.S. 109 (1924). In that decision the SupremeCourt had explicitly refrained from considering "whether the unwillingness of thefederal courts to give full effect to executory agreements for arbitration can bejustified." 264 U.S. at 125.


13. 276 Fed. at 323.14. The District Court decision in Atlantic Fruit was, however, useful in provid-

ing the reformers with valuable ammunition in their battle for a modern federalarbitration act. See, e.g., Charles Bernheimer's testimony, A Bill Relating To Salesand Contracts to Sell in Interstate Commerce; and A Bill to Make Valid and En-forceable Written Provisions or Agreements for Arbitration of Disputes Arising outof Contracts, Maritime Transactions, or Commerce Among the States or Territoriesor with Foreign Nations: Hearing on S. 4213 and S. 4214 Before a Subcommittee ofthe Senate Committee on the Judiciary, 67th Cong., 4th Sess. 2 (1923) (hereafter1923 Hearing); and Julius Henry Cohen's testimony, Bills to Make Valid and En-

forceable Written Provisions or Agreements for Arbitration of Disputes Arising outof Contracts, Maritime Transactions, or Commerce Among the States or Territoriesor with Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before theSubcommittees 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 Linev. Atlantic Fruit Co., 264 U.S. 109 (1924). By that time, however, the reformer'sefforts 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 commit-tee as pertains to a tentative draft of a Bill Relating to the Arbitration ofDisputes in Interstate and Foreign Commerce and that a resolution beadopted that the committee give further consideration to the same in thelight 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 transac-

tion involving commerce shall agree that a controversy thereafter arisingbetween them out of such transaction shall be settled by arbitration, or theyshall submit in writing a controversy which has arisen out of such transac-tion, such agreement or submission shall be valid, enforceable and irrevoca-ble, save upon such grounds as exist at law or in equity for the revocation ofany 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 notedin Chapter 4, New York's older Code of Civil Procedure continued to requirefurther 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.


25. See Chapter 2.26. See Chapter 3.27. "[C]harter parties, bills of lading of water carriers, wharfage, supplies fur-

nished 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 anyterritory of the United States or in the District of Columbia, or between any suchterritory 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 ofseveral 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 incontroversy exceeded, exclusive of interest and costs, the sum or value ofthree thousand dollars, shall have jurisdiction to proceed hereunder notwith-standing the amount in controversy is unascertained or is to be determinedby arbitration; provided, however, that the contract or submission out ofwhich such controversy arises exceeds in whole or in part exclusive of interestand 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 agree-ment would be within the admiralty jurisdiction and would give a right tothe party aggrieved to sue in rem, then notwithstanding anything herein tothe contrary, the party aggrieved by failure, neglect or refusal to proceedwith arbitration may begin his proceeding hereunder by libel and seizure ofthe vessel or other property of the party in default subject to such action inrem and the court shall then have jurisdiction to direct the parties to proceedwith the arbitration and shall retain jurisdiction in rem to make its proceed-ings 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 courtshall be entered upon the award made pursuant to the arbitration, and shallspecify 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 manneras a deed for the conveyance of real estate, and delivered to one of theparties or his attorney, any party to the arbitration may apply to the court sospecified for an order confirming the award and thereupon the court mustgrant such an order, unless the award is vacated, modified or corrected as


prescribed in the next two sections. If no court is specified in the agreementof the parties, then such application may be made to the United States courtin and for the district within which such award was made. Notice of themotion must be served upon the adverse party or his attorney as prescribedby 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 beforelast 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 hear-ing, which was had at New York in March, which was a public hearing, atentative draft of the bill was sent out and requests for discussion of it weremade.

Then there was a printed copy of the report, embodying the exact languageof the bill as submitted here, sent to every member of the American BarAssociation; and there was a combined set of all the reports that went out inthat form to the American Bar Association; and then, with it in that condi-tion, it was brought before the general body on the floor at the conventionin San Francisco and unanimously passed at that time, after having had allthat publicity in the matter of requests for hearings and disseminationthrough 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 Sea-

men's Union of America, at 204 (1923), quoted in Mr. Justice Frankfurter's dissentin 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 suggestedsomewhat similar wording. 1923 Hearing, supra note 14, at 14. This change wouldhave had an important impact thirty-five years later on labor relations in this coun-try if the Supreme Court had paid any attention to its obvious import. See UnitedSteelworkers 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); 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), wherethe Court had held that insurance was not interstate commerce. Under that decision,limiting coverage of the act to transactions involving commerce would effectivelyexclude insurance contracts from its coverage.

48. Nothing ever was done about it in the federal act. In the course of thedialogue with Senator Walsh, Piatt stated that the point Walsh was raising "hasnever been raised by anybody objecting to it in the forcible way you have." 1923Hearing, supra note 14, at 11.

Senator Walsh's concern was the first I have found expressed, but it seems highlyunlikely 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 futuredisputes, see Chapter 5. The roots of that opposition went back at least to the 1917Illinois statute, see Chapter 3.

Francis B. James, the only remaining witness, followed Piatt, but he dealt almostexclusively with the federal sales act, the other bill being considered by the com-mittee.

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 SenatorSterling at the same time in 1924 as S. 1005 (the USAA) died in committee, noteven making it as far as a subcommittee hearing. The A.B.A. committee reportedto the A.B.A. that "while not meeting with stated objections, [it] failed of passageat that Congress by reason of the congested condition of the congressional calen-dars, and must be reintroduced at the 69th Congress, at which it will undoubtedlypass, as the commercial interests of the country are becoming informed as to itsimportance to the commerce of the country." 50 A.B.A. Rep. 362 (1925). Thisconfident prediction was not borne out; a federal sales bill never reached the emi-nence of having a committee report or even another hearing in spite of repeatedA.B.A. efforts. By 1928 the A.B.A. committee was reporting that retirements ofinterested members of the 69th Congress had made it hard to secure anyone to dothe 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 hadnot even been introduced in the 72d Congress. 57 A.B.A. Rep. 405 (1932). We arethus left solely with the discussion in the abortive 1923 subcommittee hearing forenlightenment about congressional concerns respecting the proposed federal salesact. (For an account of the revival of the federal sales bill and its relation to thesubsequent development of the Uniform Commercial Code, see Wiseman, TheLimits 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 Com-missioners on Uniform State Laws, see Chapter 5, but no record of any mention ofthis 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 addi-tions of the word "That" to commence sections and a couple of changes in number-ing 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 reportrecommended that "a resolution be adopted, approving the re-draft and its introduc-tion into the next Congress of [Senator Sterling's 1922 bill] (Appendix B)." 48A.B.A. Rep. 284 (1923). Appendix B does indeed set out the redraft. Unfortunately,however, Appendix B inaccurately identifies the redraft as the bill CongressmanMills 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, irrevocableand 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. SeeChapters 8 and 9.

Chapter 8USAA: 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 Com-merce Among the States or Territories or with Foreign Nations: Joint Hearings onS. 1005 and H.R. 646 Before the Subcommittees of the Committees on the Judi-ciary, 68th Cong., 1st Sess. (1924) (hereafter 1924 Hearings).

The Senate subcommittee consisted of the same three senators who had com-prised the 1922 Senate Judiciary Subcommittee, Sterling (chairman), Ernst, andWalsh (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 evidentlyhad been occurring: ". . . my people in the West . . . are wiring and writing andasking me to indorse the proposed legislation, and even to appear before yoursubcommittee here and indicate to you their approval of the bill." 1924 Hearings,supra note 3, at 5.

5. Id. at 21.


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 opposi-

tion 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 haveno reason to believe that the evasion was intended to mask the existence of oppo-nents to the bill.

7. 1924 Hearings, supra note 3, at 1. S. 1005 is printed in the report just afterthis 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 everdid 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 StateChamber of Commerce, said:

The reasons for indorsing a Federal measure have been well put forwardhere, and I need not dwell upon them at length. But we are so enthusiasticallyin favor of it that we feel that we can ask in a modest way the Congress toextend 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 methodwhereby 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 inuniformity and often in conflict; and

Whereas the law of any given State are not applicable in other States:Now, therefore, be itResolved. That the commerce and marine commission of the American


Bankers Association is thoroughly in accord with the efforts being madeto create Federal legislation legalizing the settlement of commercial dis-putes; . . .

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 ofsection 14, which provided that upon an order confirming, modifying, or correctingan award, judgment was to be entered thereon, and that no objections could betaken thereto, although the judgment was appealable; and deletion of section 16,dealing with appeals from orders vacating or confirming awards. Some of theamendments 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 bythe phrase in section 2 "written provision in any maritime transaction," pointingout that a transaction is an event and not a written contract in which a writtenprovision could exist. After considerable effort he failed in his efforts to secure acosmetic amendment, Senator Sterling saying, "Mr. President, I think I am quitecontent to leave the language stand as it is in the amendment." Senator Carawayresponded, "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 indefi-nitely.

39. Upon being asked whether the proponents were legal societies or commercial,Representative Graham replied with only partial accuracy: "Commercial." Id. atH3004.

40. Id. (statement of Rep. Graham).41. Id.42. USAA §15.


Chapter 9USAA: Analysis of Legislative History

1. This was also true of the A.B.A. draft submitted in 1922. This is in sharpcontrast to the very first A.B.A. draft of a USAA, see Chapter 7. No inferenceconcerning congressional intention should be drawn from this, however, as the 1921draft was never submitted to Congress. I have found no evidence to show thatanyone in Congress knew about it, or if they did that it affected their understandingof what was presented to them later.

2. In the 1920s this basic law was supplied by the states in our state-federalsystem. To a large extent it still is. See, e.g., Perry v. Thomas, 482 U.S. 483, 492-93 n.9 (1987). But see Shell, Substituting Ethical Standards for Common Law Rulesin 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 4simply replicated jurisdiction the courts would have had in the absence of an arbitra-tion agreement, section 8 enlarged federal court jurisdiction by eliminating thejurisdictional 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. Inthe text discussion following the section numbers of the original bill are used, withfootnotes giving the section numbers in the USAA as enacted.

5. "Or otherwise" might be argued to open up the applicability of this section toarbitrators selected under state arbitration law, statutory or common. In the contextof arbitration legislation it more obviously means to include arbitrators chosen bythe 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 possiblybe intended to apply to courts of another jurisdiction —whenever the statute pro-vides 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 ap-pointed arbitrators were more rigorously regulated. In the modern Uniform Arbitra-tion Act, the "or otherwise" of specific sections has been replaced by a catchall insection 3: "An arbitrator so appointed has all the powers of one specifically namedin 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 affectthe outcome in individual cases.

8. It is extremely unlikely that the reformers intended the section to have any-thing to do with the state court question. More likely, they intended only to assurethe parties the freedom to choose a court to which an award could be submitted forconfirmation and to provide for a court when no choice was made. The 1922 draftof the Uniform Arbitration Act, 47 A.B.A. Rep. 318 (1922), where the question ofstate or federal courts had no relevance, also directed itself to this matter. Id. at319.

This provision of the USAA has given difficulty of a different nature. Somecourts have, most unfortunately, held that failure to include a submission provision


precludes confirmation. Oklahoma City Assocs. v. Wal-Mart Stores, Inc., 923 F.2d791 (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, TheFederal 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 Com-merce Among the States or Territories or with Foreign Nations: Joint Hearings onS. 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 Relatingto Sales and Contracts to Sell in Interstate Commerce; and A Bill to Make Validand Enforceable Written Provisions or Agreements for Arbitration of DisputesArising out of Contracts, Maritime Transactions, or Commerce Among the Statesor Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214 Before aSubcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. 10(1923) (hereafter 1923 Hearing). Such a concern is consistent with an intention thatthe act apply only in federal courts and that small arbitration matters can be safelyleft 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 courtsor courts of equity. For a great many purposes the distinction is unimportant. Inthis 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:


"Valid," . . . apparently was meant to overrule the doctrine that future-disputes provisions are "invalid" as attempts to oust courts of their jurisdic-tion, 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 arbitrationstatute, which the 1920 act modified. Under the old New York act, whichdealt only with submission agreements and not with future-disputes provi-sions, a party could "revoke" the arbitrators' authority at any time beforefinal hearing, although a revoking party would be liable for "costs, expensesand damages incurred by his opponent in preparing for arbitration." Bywithdrawing a right to revoke, "irrevocable" may be said to have granted theconverse right to have an arbitration provision respected. The term "enforce-able" seems included in the New York formula only as a prelude to provisionsfor specific performance remedies ... in succeeding sections of the statute.

Note, Erie, Bernhardt, and Section 2 of the United States Arbitration Act: A Far-rago 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 waschanged 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 withmodern arbitration acts. In the case of New York, that was because the New YorkCode of Civil Procedure (1903) already contained them. In the case of the 1921USAA draft, it was almost surely due to the reformers' slavish copying of the NewYork act without remembering that there was no federal statute like the New YorkCode of Civil Procedure. Both, of course, contained provisions like sections 3 and4 of the USAA.

31. Or for that matter anywhere else in the world of arbitration, so far as Iknow.

32. See Chapter 8. See also the testimony of Julius Henry Cohen at the 1924hearings:

. . . 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 youhave jurisdiction." That is all there is to it. The language is such as to makeit clear. That polishing work has been done for two years. The bill has beenapproved twice by the American Bar Association; . . . .

1924 Hearings, supra note 17, at 17. [Emphasis added.] The Report of the HouseJudiciary Committee also states that the bill "was drafted by a committee of theAmerican Bar Association." H.R. Rep. No. 96, 68th Congress, 1st Sess. 1 (HouseReport).

33. The A.B.A.'s federal sales act was before the committee at the same time,see below.


34. 1923 Hearing, supra note 19, at 13. [Emphasis added.]35. Baum and Pressman, The Enforcement of Commercial Arbitration Agree-

ments 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 peril-

ous idea given the complexity of that institution. The USAA is, however, largely freeof problems on that score, as nothing in the floor debate or elsewhere creates a prob-lem of possibly differing intentions among members of the committees, between acommittee 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 beindirectly pertinent to our inquiry. Our assessment of congressional understandingof what was presented to Congress at the time is more likely to be accurate if weunderstand the purpose of those speaking to Congress. Thus, I think the wholehistory of the reform movement in context is important to understanding both whatthe reformers were up to with the USAA and how Congress understood them. It is,however, unnecessary to press this point because the conventional legislative recordis entirely clear to anyone not desiring to misuse it and entirely consistent with allthe other things the reformers (including the A.B.A.) did before and during thelobbying 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 aNew York court could not, in a maritime case in which it had concurrent jurisdictionwith federal courts in admiralty, order specific performance of an agreement toarbitrate. Red Cross Line v. Atlantic Fruit Co., 233 N.Y. 373 (1922). But taken incontext with his brief and other testimony, it is clear enough that Cohen was think-ing of state incapacity to affect outcomes in federal courts, not of their incapacity


to affect outcomes in their own courts. A month after the 1924 hearings, the Su-preme Court reversed the New York Court of Appeals and held that the New Yorkarbitration act could be applied by the New York courts in a case based on maritimejurisdiction. Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109 (1924). For commu-nications 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 some-

thing more than govern the federal courts. The phrase also can be interpreted assimply laying a ground for the proposition that since Congress could control thestate courts under the commerce and admiralty clauses the proposed bill, eventhough limited to federal courts, has an additional constitutional support. Takenout of context, the former might seem the more reasonable interpretation; in contextit is a most unreasonable one.

61. Mr. Cohen's insertion of this additional constitutional authority for congres-sional enactment of the statute is more likely attributable to lawyerly caution thanit is to any attempt to slip in by the back door a major change in the statute, onecontrary 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 didnot 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. ConeMem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26; see also id., at 26nn.34-35, it is immaterial to the resolution of this case whether §§3 and 4actually "apply." . . .

While we have held the USAA's "substantive provisions" —§§1 and 2 —areapplicable 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 termsappear to apply only to proceedings in federal court, . . . are nonethelessapplicable 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.


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 consider-ing this question, only one, Shanferoke Coal & Supply Corp. v. Westchester ServiceCorp., 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, eventhough the basic section, section 2, did not. The other three, Krauss Bros. LumberCo. v. Louis Boissert & Sons, 62 F.2d 1004 (2d Cir. 1933) (dictum); in re ColdMetal 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 theact. 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 withwhether Congress had the constitutional power to require the USAA to be appliedto intrastate transactions in litigation in the federal courts. In 1925, during the reignof Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842), it almost surely did have power toenact such a law. Given the language of USAA §2, it clearly did not exercise thatpower.

85. For example, in Hammer v. Dagenhart, 247 U.S. 251 (1918), the Court hadheld unconstitutional an act of Congress prohibiting transportation in interstatecommerce of goods made at any factory that employed children for more than aspecified number of hours. The Court stated that: "The grant of power to Congressover 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 powerover local trade and manufacture." 247 U.S. at 273. Hammer v. Dagenhart was, ofcourse, decades later swept away in the massive expansion of the interstate com-merce 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 inflat contradiction of its provisions or to have overruled Bernhardt v. PolygraphicCo. of America, 350 U.S. 198 (1956) (state arbitration law governs in federal diver-sity cases involving intrastate commerce). Reading the word "or" as a true alternativewould have had both effects. One may wonder whether the Chief Justice realizedthe danger of a careful reading of the sentence and avoided it deliberately, orwhether 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.


They are, however, concepts necessarily and only slightly confusingly used at thelevels of understanding with which we are concerned in this book, notwithstandingtheir 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 10USAA: 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 Com-merce Among the States or Territories or with Foreign Nations: Joint Hearings onS. 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 arti-

cle. A. Dobie, Federal Procedure §87, at 341 (1928) (hereafter Dobie, Federal Proce-dure).

22. [Ed.] This is a reference to UAA (1924), which did not provide enforcementfor agreements to arbitrate future disputes. See Chapter 5.


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 extensiveargument that the enforcement of arbitration agreements is substantive for thepurpose of conflicts of law. There is not a word in the article suggesting that theUSAA 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 tothis question:

Conflicts between the federal and state laws will undoubtedly arise in thefuture. If interstate commerce is involved, then of course arbitration musttake place in accordance with the Federal Act. So if the subject matter iswithin the admiralty jurisdiction, relief in accordance with the United StatesAct must be sought. Difficulty will often arise in solving this question ofjurisdiction. Very many contracts are on the border line between intra- andinter-state transactions. In the same way, it is also often difficult to be surewhether a contract is within the jurisdiction of the admiralty courts. In theabsence of an arbitration clause, suit in cases of doubt can always be broughtat common law since the common law jurisdiction is substantially all-embracing. When, however, arbitration is sought, it will be necessary to becertain which court has jurisdiction. An erroneous choice at the outset mightresult in having all of the proceedings subsequently set aside.

Poor, Arbitration Under the Federal Statute, 36 Yale L.J. 667, 671-72 (1927) (em-phasis added). The final two sentences make plain that Poor understands the abso-lute language in USAA §2 respecting maritime transactions to be limited to federalcourts. That being the case, there is no reason to think that the italicized words arenot 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 thefederal 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 Agree-

ments in the Federal Courts, 8 N.Y.U. L.Q. Rev. 238 (1931-32) (hereafter Baumand 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.


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, 284U.S. 263 (1932) (hereafter Cohen and Dayton, Brief).

36. S. Williston, Law of Contracts (rev. ed. 1938) (hereafter Williston, Con-tracts).

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 arbitra-

tion law to apply where otherwise the USAA would govern. Volt InformationSciences 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 beenforced and that refusal to arbitrate is not available to the parties in an actiongrowing out of the contract." 153 Neb. at 174. The single dissenter gave no reasonsfor 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 theUSAA maritime provision applied.

47. 185 N.Y.S.2d 857 (Sup. Ct. 1958). The transaction involved clearly evidencedinterstate commerce; there was thus, no question on that score that the USAAwould 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 drasti-cally in the 1930s, countless such transactions found their way into disputes in statecourts.

54. If we carried on past 1959 we would begin to come to more state casestreating the USAA, including those starting to grapple with the changes in theUSAA being wrought in federal courts. The most important of these is probablyLudwig Mowinckels Rederi v. Dow Chemical Co., 25 N.Y.2d 576 (1969), where theNew York court, following Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388U.S. 395 (1967), and Robert Lawrence Co., Inc. v. Devonshire Fabrics, Inc., 271F.2d 402 (2d Cir. 1959), and anticipating Southland Corp. v. Keating, 465 U.S. 1(1984), surrendered to federal power.


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 concernourselves 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 thesection constitutes the core of the USAA, a unified statute, none of which wasintended to govern unless all of it governs. See Chapter 9. Conceding this wouldhave 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 thatmay have involved interstate commerce, is in fact a nonleaner. The contract inquestion 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 heldthis, 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); ZipMfg. 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 Handlimited his prior dictum in Krauss to USAA §4, now holding that section 3 appliedwhen the federal court had jurisdiction, even though section 2 did not apply. Thisview was both unnoted and undisturbed when the case was affirmed by the SupremeCourt. 293 U.S. 449 (1935).


Chapter 11USAA: As Amended by the Supreme Court

1. 304 U.S. 64 (1938). A citizen of Pennsylvania was injured while walkingalong a railroad track belonging to Erie, a New York corporation. He sued Erie infederal court in Pennsylvania. Liability turned on whether he was a trespasser. Thequestion before the Supreme Court was whether his status was to be determined byPennsylvania law or "federal general common law." The Court held that Pennsyl-vania 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 fidu-

ciary obligations that the state law governing included the state statute of limitationssince 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 pay-ment for overtime work under the federal Fair Labor Standards Act. The employ-ment 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, orcommerce among states or territories or with foreign nations.

12. The title of the Act suggests, though it does not compel, the conclusion thatthe provisions of the statute are applicable to three kinds of things: (1)contracts, (2) maritime transactions and (3) commerce, interstate and for-eign . . . .

The generality of the language used in the statute does not suggest anyself-imposed limitation. . . . We think it clear that the provisions of §3 arenot 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 Circuitcontinued to adhere to its distinction between section 3, which applied to bothsection 2 and non-section 2 contracts, and section 4, which applied only to section2 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).


19. 236 F.2d 776 (6th Cir.), cert, denied, 243 U.S. 910 (1957). See also StandardMagnesium 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 forVermont for breach of his employment contract, made in New York, but for workin Vermont. Polygraphic moved for a stay pending arbitration in New York. Ver-mont 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 issueoutcome determinative under Guaranty Trust!

21. The Court also raised a question, unanswered, about the continuing validityof 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 appliedthe 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 thatan arbitral, rather than judicial, determination could sufficiently alter the rightsgranted security buyers under the Securities Act to make an agreement to arbitrateinvalid 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 developedsubsequent to Bernhardt, that the Wilko court also assumed that the USAA wasapplicable only in federal courts: "In unrestricted submissions, . . . the interpreta-tions of the law by the arbitrators . . . are not subject, in the federal courts, tojudicial 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 withMr. Justice Frankfurter, see Note, Erie, Bernhardt, and Section 2 of the UnitedStates 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 (6thCir.), 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 disputesabout terms of the renewal of expired airline leases.

28. The Sixth Circuit was unwilling to accept the District Court's conclusion thatmaking the arbitration agreement was not ultra vires the Air Board under Kentuckylaw. Having determined that this issue was governed by Kentucky law, not by theUSAA, it proceeded so that the parties could find the answer to the ultra viresquestion 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 As-

sociation, 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 with-out, however, feeling any need to mention his institutional position and that theAAA 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 thepublic interest in a different ethical category respecting conflict of interest frompartisanship 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 thatestablished earlier for collective bargaining arbitration and held that fraud in theinducement of the contract as a whole is for the arbitrator where the arbitrationclause 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) (hereafterMacneil, Speidel, and Stipanowich, FAA). In 1986 I was engaged as a consultantnear the end of a very sizeable case unquestionably governed by the USAA. Boththe major law firms involved had handled it throughout under the state UniformArbitration 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 inquestion!

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.2d599 (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 toavoid anyone's thinking Congress has enacted a replacement arbitration act.

49. Unless one considers the American Arbitration Association, amicus in PrimaPaint, "democratic" in this narrow sense.

50. Examination of the briefs in Southland, as in prior cases, is beyond the scopeof this work. This is partly to avoid excessive length and partly because I am notsure what one would make of briefs respecting legislative history in any event. Forexample, the appellee's brief in Southland contains a fairly thin legislative historywhich, as one would expect, fits nicely with that in Justice O'Connor's opinion. Onthe 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 farmore detail. Which one, or both, or neither, influenced her account?


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 usesevery 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 notat all sure that one could draw general conclusions about the specific role of briefsin creating judicial legislative history, pathological or otherwise. This is not todiscourage 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.] (hereaf-

ter 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 itsextensive legislative history. See Chapter 9.

58. As noted in Chapter 9, literal reading of the word would have led to theapplication 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 noranyone else could effectively argue that to be the case in the face of the clearlanguage 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 Con-tracts, Maritime Transactions, or Commerce Among the States or Territories orwith Foreign Nations: Joint Hearings on S. 1005 and H.R. 646 Before the Subcom-mittees 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 finallyenacted. Although the Chief Justice misuses it, it is an appropriate source of legisla-tive 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 1923hearing where he responded to an argument he had heard that many states, one


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 technicalarbitration by which, if you agree to arbitrate under the method provided bythe statute, you have an arbitration by statute, but it has nothing to do withvalidating the contract to arbitrate. A contract to arbitrate under our practicewould be held invalid so far as our State is concerned, because it has noarbitration to it at all.

A Bill Relating to Sales and Contracts to Sell in Interstate Commerce; and A Bill toMake Valid and Enforceable Written Provisions or Agreements for Arbitration ofDisputes Arising out of Contracts, Maritime Transactions, or Commerce Amongthe States or Territories or with Foreign Nations: Hearing on S. 4213 and S. 4214Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4thSess. (1923). Evidently Piatt was referring to Mo. Rev. Stat. §§595-622 (1919),which provided very limited enforcement of agreements to arbitrate existing dis-putes. Id. §§596, 619-21. Apparently the Chief Justice's phrase, "state laws inade-quately 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 along history. As early as 1911, the A.B. A. had called for a uniform system of federalprocedure, and for twenty years Congressman Shelton of Virginia had annuallyintroduced a bill so providing. In opposition throughout was a key player in thehistory of the FAA, Senator Walsh. After Senator Walsh's death in 1933, AttorneyGeneral Homer Cummings successfully took up the crusade, against remarkablylittle 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 "appre-hension over the power of Congress in this connection," which deterred extensionof the act beyond Congress' clear areas of substantive regulatory power over com-merce and admiralty. Sturges and Murphy, Some Confusing Matters Relating toArbitration 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 doin 1933 and thereafter.


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 thescope of interstate commerce prevailed, and countless important transactions instate courts would have remained uncovered by a modern arbitration act, even withsuch an extension.

86. Alexander Rose did mention the problem, asserting that the USAA wouldhave a moral effect, encouraging the states to take care of it. 1924 Hearings, supranote 64 at 27-28.

Chapter 12The Legal Consequences

1. In Bernhardt v. Polygraphic Co. of America, 350 U.S. 198 (1956), the Courtheld 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 lawregulating 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 effectfreedom of contract has depends on the circumstances, including the nature of theagreements in question. Thus a statute such as USAA, changing the law to treatarbitration agreements like other contracts, cannot be policy neutral in any generalsense.

5. Justice Whittaker's dissent in United Steelworkers v. Warrior & Gulf Nav.Co., 363 U.S. 574, 589-90 (1960), nicely, if somewhat anachronistically, summa-rized 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 theintention of the parties to submit their contractual disputes to final determi-nation outside the courts should be made manifest by plain language" (em-phasis 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 conclu-sive requires plain language in the contract. It is not to be implied." (Empha-sis added.) 205 U.S., at 309. "A party is never required to submit to arbi-tration any question which he has not agreed so to submit, and contractsproviding for arbitration will be carefully construed in order not to force aparty to submit to arbitration a question which he did not intend to besubmitted." (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 mostdistinguished legal scholars continued to place his treatment of arbitration in a


chapter titled, "Bargains Harmful to the Administration of Justice" located in thevolume titled, "Illegal Bargains." 6A Corbin, Contracts (1962). To this day thisorganization remains one of the less complimentary monuments to the memory ofthis 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); SouthlandCorp. 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. SolerChrysler-Plymouth, Inc., 473 U.S. 414 (1985).

11. United Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960); UnitedSteelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); United Steel-workers 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 anarbitration clause. When a dispute arose, Stanford sued Volt and Volt moved tostay the litigation and compel arbitration. Stanford, which was seeking indemnityfrom other parties as well as Volt, moved to stay arbitration under California law,"which permits the court to stay arbitration pending resolution of related litigationbetween 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 orfact.'" 489 U.S. at 471.


27. Commonwealth Edison Corp. v. Gulf Oil Corp., 541 F.2d 1263, 1269 (7thCir. 1976). For other pre-Volt cases, see I. Macneil, R. Speidel, and T. Stipanowich,The Federal Arbitration Act §10.9 (forthcoming) (hereafter Macneil, Speidel, andStipanowich, 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 whilelitigation goes ahead. Cal. Code Civ. Proc. §1281.2(c). This is the opposite of therule 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" andthat "any doubts concerning the scope of arbitrable issues ... be resolved in favorof arbitration." 460 U.S. at 24-25.

36. 473 U.S. 414 (1985). "[A]s with any other contract, the parties' intentionscontrol, 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 principlesof contract interpretation to the interpretation of an arbitration agreementwithin 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 infavor 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 enforce-

ment of what the parties have agreed to" and they can "write an agreement toarbitrate outside the coverage of the FAA [USAA]." Their doing so "would permita 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.


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 statearbitration laws differ from the USAA. Whatever else Volt is, it is very likely agreat bonanza for the legal profession. And to the extent it is, all the virtues ofarbitration —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 PrimaPaint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), rather clearlygoverned by specific language of the USAA. At the other end of the spectrum arefederal rules simply following the general pro-arbitration stance of Moses H. ConeMemorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983), such as MosesCone itself, which applies the pro-arbitration bias in determining the scope of thearbitration 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 13Internationalization

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 Leagueof Nations arbitration treaties. Report of the Comm. on Int'l Unification of PrivateLaw, 1960 A.B.A. Section Int'l & Comp. Law Proceedings 205-7 [hereafter 1960A.B.A. International].) In 1960, American accession to the U.N. Convention onthe Recognition and Enforcement of Foreign Arbitral Awards was first brought tothe attention of the A.B.A. Id. at 211.


10. See generally, Quigley, Accession by the United States to the United NationsConvention on the Recognition and Enforcement of Foreign Arbitral Awards, 70YaleL.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 note10, 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 Inter-national 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 lawsand judicial procedures, will confer no meaningful advantages on theUnited States.

2. The convention, if accepted on a basis that assures such advantages, willoverride the arbitration laws of a substantial number of States and entailchanges in State and possibly Federal court procedures.

3. The United States lack a sufficient legal basis for acceptance of an ad-vanced international convention on this subject matter.

4. The convention embodies principles of arbitration law which it would notbe 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 Stateother than the State where the recognition and enforcement of such awards aresought" and to "arbitral awards not considered as domestic awards in the Statewhere their recognition and enforcement are sought." par. I, §2. Since no awardexists 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 twotests, it may not be possible to tell whether the Convention governs the enforcementof the agreement to arbitrate. The Second Circuit's interpretation of "not consideredas domestic," however, will lead to numerous occasions where it is possible to tellwhether the award-to-come will be subject to the Convention, and hence whetherthe Convention applies to enforcement of the agreement to arbitrate:


We adopt the view that awards "not considered as domestic" denotes awardsnot because made abroad, but because made within the legal framework ofanother country, e.g., pronounced in accord with foreign law or involvingparties domiciled or having their principal place of business outside the en-forcing jurisdiction."

Bergeson v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983). Although thecase was governed by New York law, the dispute was between Norwegian and Swissparties, and hence, the Convention governed. See Smit, A-National Arbitration, 63Tul. 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 arbitrationprocess.

29. 1. Recognition and enforcement of the award may be refused, at the requestof the party against whom it is invoked, only if that party furnishes to thecompetent authority where the recognition and enforcement is sought, proofthat:

(a) ... the . . . agreement is not valid under the law to which the partieshave subjected it or, failing any indication thereon, under the law of thecountry where the award was made.

Art. V, par. 1. Since the parties may have chosen law other than the United Statesor the award may have been made outside the United States this clause may oftennot serve as a limitation on the "internationalizing" effect of the Convention andUnited States adherence to it. But the Supreme Court has made plain that it willnot allow complete freedom via choice of law clauses to avoid American regulatorylaw. 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 intandem as a prospective waiver of a party's right to pursue statutory remediesfor antitrust violations, we would have little hesitation in condemning theagreement as against public policy.

30. 2. Recognition and enforcement of an arbitral award may ... be refused ifthe competent authority in the country where recognition and enforcementis sought finds that:

(a) the subject matter of the difference is not capable of settlement byarbitration under the law of that country; or(b) the recognition or enforcement of the award would be contrary to thepublic policy of that country.

Art. V, par. 2.31. Art. II, par. 1.


32. 417 U.S. 506 (1974). This case and the Mitsubishi case discussed below aretreated in greater detail in Chapter 6, in the context of their impact on domesticlaw.

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/AmericanExpress, 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 Con-str. 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 missedPalsgraf.

36. The sales agreement contained fifteen articles. The five covered by the arbi-tration clause treated terms and conditions of direct sales, technical and engineeringchanges, compliance with customs laws and regulations, trademark and patentrights, and Mitsubishi's rights to discontinue product lines.

37. Soler did not "question the Court of Appeals' application of [the arbitrationclause] to the disputes involved ... as a matter of standard contract interpreta-tion." 473 U.S. at 624 n.13.

38. The Court's discussion of the public policy defense is treated in detail inChapter 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 arbitra-tion agreements since the common law already enforced awards. In them it is theaward enforcement provisions that were secondary.

42. The dissent focuses on the language in Article II, paragraph 1, conditioningthe duty to enforce arbitration agreements on the dispute's concerning "a subjectmatter capable of settlement by arbitration." It argues that this "clause plainlysuggests the possibility that some subject matters are not capable of arbitrationunder the domestic laws of the signatory nation, and that agreements to arbitratesuch 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 legaltraining 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 casesand the Court's decisions in Mitsubishi and Shearson. As to all of which, seeChapter 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).

Notes to pages 166- 70 241

53. Cal. Code Civ. Proc. §1297.11-432 (1988); Goldbert and Kolkey, California'sAdoption of a Code for International Commercial Arbitration and Conciliation, 10Loy. 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 amajor site for international commercial arbitration. This important step for-ward has taken several different forms, including the enactment of a highlyprogressive statute entitled the Florida International Arbitration Act("FIAA"), the formation of a regional arbitration center known as the Inter-national Commercial Dispute Resolution Center ("ICDRC"), and the estab-lishment of a specialized Maritime Arbitration Board ("MAB").

Comment, 19 U. Miami Inter-Am. L. Rev. 363-64 (1987-88). Much of this com-ment is devoted to the developmental aspects of the "giant leap."

55. 489 U.S. 468 (1989).

Chapter 14The 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 whatconstitutes the outcome of a case could the Court conclude that ordering the sub-stantive disputes to be tried before an arbitrator was a different outcome fromhaving them tried before a court and jury.

5. As is seen in Chapter 2, the USAA is inapplicable to nonmaritime cases wherethe transaction in question does not involve commerce. The Court held that theparticular employment contract in Bernhardt did not involve commerce. See Chap-ter 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 experiencethat has the power to declare history; that is, to articulate some understand-ing of the past and then compel the rest of society to conform its behavior tothat understanding. No Ministry of State Security, no Thought Police, hasever succeeded in establishing such authority. This power exists irrespectiveof 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 judicialhistory, as absorbed into a decision, and then a doctrine, becomes the pro-genitor 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 Notes to pages 170- 72

9. That the dissent has by far the better of it by any proper historigraphicalstandard does not alter this fact.

10. Karl Klare asserts that the use of legislative history is nothing but pathologyas I am using the word:

In light of the weak constraints that legislative history imposes on manypolitically significant interpretive decisions, most contemporary observershave come to understand arguments about legislative history —like argu-ments about precedent and institutional competence —to be specialized, ste-reotyped rhetorical maneuvers that lawyers habitually make, but not a dis-tinct mode of "reasoning" in a determinate manner from general principle tospecific result. In a word, most sophisticated modern lawyers understand,though they do not always say, that reasoning from legislative history ulti-mately rests on political choices.

Klare, Traditional Law Scholarship and the Crisis of Collective Bargaining Law: AReply to Professor Finkin, 44 Md. L. Rev. 731, 784-86 (1985).

It is difficult, and somewhat, but not entirely, artificial, to separate reporting ofhistory from use of history. To the extent separation is possible, my concern is withreporting rather than use. One can, however, hardly read Chief Justice Burger'sopinion in Southland without thinking it a prime example of both pathologicalreporting 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 thatthere are degrees of pathology in both reporting and use.

For the rest of the heated Klare and Finkin discussion of the nature of legislativehistory in the context of the NLRA, see Klare, The Judicial Deradicalization of theWagner 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 historicalwriting.

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 gooddeal more accurate. Unless the prior judicial account has by judicial fiat becomethe Official History and acquired the force of law, the more accurate account maystill carry the day.

14. There is a certain Reaganesque quality here, irrespective of the political slantof 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 agreementsshould be treated like other contracts. To the extent that the Court has converted itinto a pro-arbitration statute, with presumptions favoring arbitration, the Courthas abandoned the consent principle. It is difficult to think of any reason for thison 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 verywell be reasons other than docket clearing for such an abdication, such as hostilityto regulatory legislation.


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) (here-

after 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, asthe 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 investigationof the articulated word justifies.

25. HIS . 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 com-

ment 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 arbitrationstatute. Even here there would be no difference between the result in federal courtand one of the two states whose citizens are involved where that state would alsoapply 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), September26, 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.


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Articles

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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)

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Coulson, Prima Paint: An Arbitration Milestone, 23 Bus. Law. 241(1967)

Edwards, Deferral to Arbitration and Waiver of the Duty to Bargain: APossible Way Out of Everlasting Confusion at the NLRB, 46 OhioSt. L.J. 23 (1985)

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201-08

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State Statutes

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Index

AAA (American Arbitration Asso-ciation), 40-41, 58

A.B.A. (American Bar Associa-tion). See International arbi-tration; UAA (1924); UAA(1955); USAA

A.B.A. committee (Committee onCommerce, Trade and Com-mercial Law). See Interna-tional arbitration; UAA(1924); USAA

Adhesion and one-sidedness. Seealso Public policy defense

concern aboutCommissioners, 50-51earliest, 205 n. 10judicial lack of, under USAA,

71reformers' lack of, 51, 60, 68,

200 n.24Senator Walsh, 91, 215 n.48

protections againstcommon law, 68legislative, 69-71SEC, 70state, invalid under USAA,

71,73

"ousting of jurisdiction," rela-tion to, 60-61

rarely successful as a defense,78-79

ADR (Alternative Dispute Resolu-tion)

arbitration neglected by ADRmovement, 10

criticism from the left, 67-68in hierarchies, 6mediation and negotiation, 4-6nondispute relations of parties

and, 5-6rediscovery and revived interest

in, 3-4, 10self-help, 4, 6State law, relation to, 3-6types, 3-6

Alexander v. Gardner-Denver Co.,65-66, 77

Alternative Dispute Resolution.See ADR

American Airlines, Inc. v. Louis-ville & Jefferson County AirBd., 137

American Arbitration Association(AAA), 40-41,58

257

258 Index

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 Federa-tion, 92

American Safety Equip. Corp. v.J. P.Maguire&Co.,64, 73,75-76, 165

Anti-reform. See Reform and re-formers

Arbitration. See also Adhesion andone-sidedness; Arbitrationlaw; International arbitra-tion; Labor arbitration;New York, Arbitration Actof 1920; Public policy de-fense; Reform and reform-ers; UAA (1924); UAA(1955); USAA

advisory, 7, 182 n.12binding, 7-8compliance with agreements

lacking legal enforceability,27-28

court-annexed, 7criticism of, 67-68definition, 7-8dispensable technique, 9-10hierarchies, distinguished from

dispute resolution within,8-9

importance of, 10legalistic views of, 196-97 n.49neglected by ADR movement, 10non-collective bargaining arbitra-

tion, no good term for,182 n.16

public policy respecting, ix

Arbitration law. See also Adhesionand one-sidedness; Arbitra-tion; International arbitra-tion; Labor arbitration;New York, Arbitration Actof 1920; Public policy de-fense; Reform and reform-ers; UAA (1924); UAA(1955); USAA

heretical view of, 176-80modern

adhesive effect, 50-51definition, 15-16enactments in states, 54-57irrevocability and enforceabil-

ity of arbitration agreementskey factor, 15-16

"long arm" effect, 51-52, 95premodern, 15-24. See also New

York Code of Civil Proce-dure; UAA (1924)

agreements to arbitrate,damages for breach, 20,185n.39

federal law, 22-24Illinois Statute of 1873, 17-18Illinois Statute of 1917, 31-33introduction, 15-17judicial criticism, but refusal

to change, 27, 30label for, difficulty of finding

satisfactory, 17legislation required to reform,

27limitations of, 20-21statutory or judge-made, 15-

17studies, lack of, 16-17superseded in 47 states, 57supportive of arbitration, but

limited, 19-21prognosis, 175-76proposal, 178-80

Index 259

Arbitration Society of America,38-41,92,96

Atlantic Fruit Co. v. Red CrossLine, 84-85, 94, 212 n.14

Auerbach, Jerold S., 40, 62

Bailey, Hollis, 44, 49, 123-24Baker, Newton D., 197 n.52Barrentine v. Arkansas-Best

Freight Sys., Inc., 77Barrett, JoeC., 56Baum and Pressman, 126-27Berkovitz v. Arbib & Houlberg,

84-85, 106, 110, 233n.78Bernhardt v. Polygraphic Co. of

America, 83, 119cited in Volt, 151effect in expanding applicability

ofUSAA, 234 n.lexample of case with ignored

choice of law clause, 153prevalence of state arbitration

statutes, 177-78state arbitration law governs in

diversity case, 136-37Bernheimer, Charles L.

AAA, honorary president,197 n.52

American Arbitration Founda-tion, 40

biographical note, 189 n.20National Conference of Bar As-

sociations, appearance be-fore, 41

O'Connell, comments on, 50proselytizing, 38, 41reform leader since 1907, 28USAA

commentary on, 123goals of, summary, 29-30,

190-91 n.37lobbying, 88testimony, 88-89, 92-93, 110

Bias, author's, viii-ixBoard of Contract Appeals, 7-8Briefs, relation to judicial opin-

ions, 231 n.50Brown, Louis M., 29Bureaucratic formalism, vii, 171-

73

Central Committee to Promote Ar-bitration, 33

Chamber of Commerce of Chi-cago, 50

Chamber of Commerce of State ofNew York

active in arbitration very early,25

American Arbitration Founda-tion, founded by, 40

Arbitration Committee andCourt of Arbitration, 26

co-drafts model arbitrationtreaty, 159

Cohen general counsel, 28committee on arbitration, 28joins forces with New York State

Bar Association, 29-30, 33Rules for the Prevention of Un-

necessary Litigation, 29Chicago Association of Credit

Men, 31,33Cohen, Julius Henry

A.B.A. committee, member,197 n.56

biographical note, 190 n.22Chamber of Commerce of State

of New York, general coun-sel of, 28

Commercial Arbitration and theLaw, 31,38

Kellor's hagiography, omissionfrom, 194 n.36

Massachusetts, denies activitiesin, 43-45

260 Index

Cohen, Julius Henry (continued)New Jersey, promoting modern

act, 41New York Arbitration Act of

1920, drafter of, 194 n.36O'Connell, comments on, 50one-sidedness, views on, 60UAA (1924), 50-54USAA

brief for congressional com-mittee, 97, 110-14

brief in Marine Transit, 132-33

commentary, 124-25, 127drafter of, 85, 108lobbying, 88testimony, 92, 94-95, 110,

112Commissioners (Commissioners on

Uniform State Laws). SeeAdhesion and one-sidedness; UAA (1924);UAA (1955); USAA

Commonwealth Coatings Corp. v.Continental Cas. Co., viii

Coolidge, President, 101Corpus Juris, 22Countercurrents against pro-

arbitration policies, 31-33,59-80

Credit Association of the BuildingTrades of New York, 26

Dean Witter Reynolds, Inc. v.Byrd, 73-74, 154, 178

de Sousa Santos, 67-68Domke, Martin, 15-16, 201 n.52Dyer, Congressman, 95-96, 101

Eastman, Lucius R., 40-41,196 n.41, 197 n.51

English Arbitration Act of 1889,27, 33, 37

Entry of judgment clause, v,208 n.63, 219-20 n.8

Erie RR. v. Tompkins, 109and bureaucratic formalism,

173nationalization of USAA, foun-

dation, vipre-Erie understanding of Ma-

rine Transit, 132post-Erie hindsight view of arbi-

tration, 23Swift v. Tyson, overruled by, 83,

134USAA

Erie not prevent from govern-ing 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 pol-icy defense, 62-63

Formalism, bureaucratic, vii, 171-73

Formal style, viiiFreedom of contract not policy

neutral, 234 n.4

Gilmer v. Interstate/JohnsonLane Corp., 76-78, 165,175, 177

Grossman, Moses H.AAA, honorary president,

197 n.52Arbitration Society of America,

founding of, 38biographical sketch, 195 n.37Massachusetts, activities in, 43-

45O'Connell, comments on, 50, 53

Guaranty Trust Co. v. York, 135

Index 261

Hickey, Congressman, 95Hinkley, John, 54History

context and causation, 173-75legislative, nature, vii, 170-71reporting and use, 242 n.10of USAA, example of bureau-

cratic formalism, 172value to modern lawyer, v

Hoover, Herbert, 92, 197 n.52,214n.45

Hough, Judge Charles M., 27, 30Hughes, Charles Evans, 53,

197 n.52

Illinois. See Arbitration law, pre-modern

Insurance, not intended to becovered by USAA, 90,215n.47

International arbitrationA.B.A.,58, 159, 161bilateral arbitration treaties,

160model arbitration treaty,

159-60New York Chamber of Com-

merce, 159New York Convention, 160-66

effect, generally, 162-66effect on domestic law, 165-66history, 160-62United States adopts, 162

public policy defense, 72-73, 77-78, 152-53, 163, 179

state international arbitrationacts, 166

Isaacs, Nathan, 205 n.13

James, Francis B.A.B.A. committee, 85, 197 n.55federal sales act, 215 n.48USAA, testimony, 95, 108

Kellor, FrancesArbitration Society of America,

activities, 39biographical sketch, 194 n.40Cohen omitted from hagiogra-

phy, 194 n.36proselytizing, describes, 38-39

Kendrick, Senator, 92, 216 n.4Kronstein, Heinrich, 62, 64-65, 67,

206 n.38

Labor arbitrationdominates collective bargaining

relation, 57public policy defense, 65-66, 77-

78, 89-90, 176, 207 n.47Seamen's Union, concerns, 89-

90Llewellyn, Karl, viiiLondon Court of Arbitration, 30,

191 n.40

MacChesney, Nathanbiographical sketch, 199 n.8mentioned, 56personal animus alleged,

201 n.40UAA (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, 56Mentschikoff, Soia, 56, 206 n.22Miller, Jesse A., 124Mills, Congressman, 88, 91Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc.international antitrust not too

complicated for arbitrators,77-78

internationalization of law, ex-ample, 163-64

262 Index

Mitsubishi v. Soler (continued)public policy defense, 72-74, 77-

78, 151-52, 163-64, 179student notes, large number,

240 n.35subject to congressional superses-

sion, 179Volt, 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 ofNew York, 26

National Conference of Bar Associ-ations, 41, 197 n.54

National Conference of Commis-sioners on Uniform StateLaws. See Commissionersunder Adhesion and one-sidedness; UAA (1924);UAA (1955); USAA

New Jersey, reformers secure mod-ern arbitration statute, 42-43

New Jersey State Chamber of Com-merce, 217 n.20

New YorkArbitration Act of 1920

drafting, 31English law, relation to, 37formal requirements, early

draft, 35-36, 193 n. 17incomplete arbitration statute,

37irrevocability and enforceabil-

ity respecting future dis-putes, most important, 35

provisions, summary of,35-36

relation to USAA, 106significance, 36, 194 n.27

source of words valid, irrevo-cable, and enforceable, 220-21 n.27

Stone, reservations about, 33USAA, 1921 A.B.A. draft,

similar, also incomplete, 86Chamber of Commerce of State

of. See Chamber of Com-merce of State of New York

Code of Civil Procedure, 26, 34-36, 221 n.30

Convention. See Internationalarbitration

State Bar Association, 28-31, 33North Carolina, enactment of non-

modern act, 54

O'Connell, Joseph Francisadhesive character of arbitration

agreements, objection, 50-51

biographical sketch, 198 n.74personal animus alleged,

201 n.40reformer who switched sides, 43role in enactment of Massachu-

setts statute, 43-45UAA (1924), 50-51,53-54

O'Connor, Justicecomment on clarity of USAA leg-

islative history, 121error in Southland opinion,

187n.79Olson, Chief Justice Harry, 32, 33Oregon, enacts modern arbitration

statute, 45-47, 54-55"Ouster of jurisdiction," 22, 24,

60-61

Paton, Thomas B, American Bank-er's Association, 217 n.20

Perry v. Thomas, 154, 219 n.2Phillips, Phillip G., 61-62

Index 263

Piatt, William H. H.A.B.A. committee, 197 n.55Missouri commissioner, 44UAA(1924), 49, 53-54USAA

letter to Senate committee, 99-100,119-20

lobbying, 88testimony, 89-90, 92

Pirsig, Maynard E., 56Positivism, limited possibility of,

viiiPreventive law, 29Prima Paint Corp. v. Flood & Con-

klinMfg. Co.,vii 138-39,227 n.54

Public policy defense. See also Ad-hesion and one-sidedness

critics favoring public policy de-fense, 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 jurisdic-tion," 60-61

resurgence of almost certain, 79scholarly disinterest in public

policy defense, 63two types, 59-60USAA invalidates state public

policy defenses, 71, 73, 139

Red Cross Line v. Atlantic Fruit Co.A.B.A. communications, 99,

119-20Cohen cites in brief, 132Cohen refers to, in testimony, 94Marine Transit, cited in, 131-32

questions decision in AtlanticFruit Co. v. Red CrossLine, 212 n.14

state court jurisdiction of mari-time arbitration, 211 n. 12,222-23 n.58, 233 n.79

Reform and reformers. See also Ar-bitration law; Internationalarbitration; New York, Ar-bitration Act of 1920; Pub-lic policy defense; UAA(1924); UAA (1955); USAA

academics not in forefront, 27countercurrents, 31-33, 59-80goals of reformers, 28-30

arbitrator freedom to deter-mine and apply law also im-portant, 33, 192 n.60

irrevocability and enforceabil-ity central concern, 28

judicial correction, preference ofreformers for, 31, 191 n.48

legislation, move to reform by, 30Massachusetts, 43-45New York, 25-27, 34-37personal nature of some opposi-

tion to reform, 201 n.40proselytizing, 38-39, 42-45, 50,

216 n.4revival and slowdown of reform,

55-58sources of, 25-28successes in various states, 54-57

Robert Lawrence Co. v. Devon-shire Fabrics, Inc., 137-38,257 n.54

Rose, Alexander, Arbitration Soci-ety, 96-97, 111

Scherk v. Alberto-Culver Co., 72-73, 153, 163-64

Scots law of arbitration, 189 n.14Scott v. Avery, 20, 27

264 Index

Seamen's Union, 89-90Shearson/American Express, Inc.

v. McMahon, 76, 165,235n.l7,240n.35

Southland Corp. v. Keating, 71Justice O'Connor's dissent, 121,

187 n.79legislative history, poor quality,

vii, 170-71, 220 n.25student notes, only four,

240 n.35tension created with states, 175USAA

choice of law clauses, 150-155integrated statute, 115-116,

220 n.25nationalizes American arbitra-

tion law, vi, 73, 124, 137-49pro-arbitration policy,

203 n.86supersedes state law and gov-

erns in state courts, vi, 73,124,137-49

supersedes state public policydefense, 73, 124, 137-49

State, spelled with capital refers toforeign state, 182 n.3

State law. See also Arbitration law;Public policy defense; UAA(1924); UAA (1955); namesof particular states

rebirth of state arbitration law?,150-55

USAA supersedes state law andgoverns in state courts, 73,124, 137-49

Stengle, Charles I., 92Sterk, Stewart, 64, 68-69Sterling, Senator

expanding diversity jurisdiction,90

introduces bills, 88, 92

"long arm" effect of USAA, 95USAA is A.B.A.'s legislation,

107-8Stone, HarlanF., 33, 38Sturges, Wesley

first scholarly treatise onAmerican arbitration law,184 n.29

New York and English law, errorrespecting, 37

reformer competes unsuccess-fully with scholar, 198 n.87

UAA (1955), 56USAA, 125

Swift v. Tyson, 23-24, 132, 134,224 n.84

Thompson, George Jarvis, 127

UAA (1924) (Uniform ArbitrationAct, 1924). See also UAA(1955)

adhesive character of arbitrationagreements, 50-51

enactmentA.B.A., 41-42, 49-50, 52-54commissioners, 41-42, 48-53,

55debate couched in terms of re-

gional partisanship, 50-52"long arm" effect and provi-

sional and special remedies,51-52

passed in five states only, 54-55Commissioners withdraw ap-

proval as Uniform Law,55

UAA (1955) (Uniform ArbitrationAct, 1955), 55-57. See alsoUAA (1924)

Uniform Arbitration Act, 1924.See UAA (1924)

Index 265

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, 7United Steelworkers v. Warrior &

GulfNav. Co.,57, 234 n.5USAA (United States Arbitration

Act). See also Adhesion andone-sidedness; Arbitrationlaw; International arbitra-tion; Labor arbitration;Public policy defense; Re-form and reformers

choice of law clauses, 150-55commentaries, early, 122-27,

132-33diversity cases

governs where interstate, 83not govern where intrastate,

136-37dropping of name USAA from

act, 211 n.3enactment, 92-101, 216 n.3

A.B.A. role, 41-42, 84-101campaign, 41-42, 84-101jurisdictional amount, 99-100"long arm" effect, 95no opposition, 92-93, 95-96supporters, 92-101

goals, summary of, 29-30heretical view of, 176-80history of, reasons for writing,

v-viintegrated statute, 105-7, 115-

16, 220 n.25judicial interpretation. See also

International arbitration;Public policy defense

Bernhardt to Prima Paint,136-37

Burger, Chief Justice, opinionin Southland, 139-47

early, 127-33Erie to Bernhardt, 134-36Prima Paint to Southland,

138Southland, 139-147transformation of, 134-55,

234 n.llegislative history, analysis, 102-

21A.B.A., 108-9, 119Cohen testimony and brief

made plain USAA to applyonly in federal courts, 111-15

Congressional debate, little,120-21

context, all-important, 107-111

federal sales act, relation toUSAA, 116-17

forum-remedial nature ofUSAA clearly understood,110-11, 117-19

integrated statute, 105-7, 115-16

legal background essential ele-ment of legislative history,109

New York Arbitration Law of1920, relation to, 106

opposition, lack of, 115-17reform movement itself essen-

tial element of legislative his-tory, 109, 222 n.38

rubber-stamped legislation,107-111

structure of bills, 102-7supporters made plain USAA

to apply only in federalcourts, 111-15

266 Index

USAA (continued)"valid, irrevocable, and en-

forceable," derived directlyfrom New York ArbitrationLaw of 1920, 106

"valid, irrevocable, and en-forceable," meaning in NewYork Arbitration Law of1920, 220-21 n.27

prognosis, 175-76proposal, 178-80rebirth of state arbitration law?,

150-55referred to in book as USAA,

not FAA, 181 n.2supersedes state law and governs

in state courts, 73, 124, 137-49

two stories, not one, 83transformation of, 134-55,

234 n.l

Vance, Wilson J., New Jersey StateChamber of Commerce,217 n.20

Volt Information Services v. Stan-ford University, 150-55, 175

Walsh, Senatorapparently absent from 1924

hearings, 217 n.9concern about adhesive aspects

of USAA, 50, 90explains USAA to Senate, 101inquires about arguments against

USAA, 89opposed Federal Rules of Civil

Procedure, 233 n.76Washington, W. H., UAA (1924),

54Werner, Percy, 28Wilko V. Swan, 63-64, 71, 148-49,

166Williston, Samuel

federal sales act, drafted by, 91Parsons on Contracts, edition

by, 22, 127USAA

not drafter of, 108treatise, 127

Wisconsinenacts modern arbitration stat-

ute, 55enacts nonmodern arbitration

statute, 48

Documents

American Arbitration Law: Reformation--Nationalization--Internationalization