Atlantic Fruit Co. v. Red Cross Line
Appeal Court of Appeals for the Second Circuit, Case No. 103

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5 F.2d 218 (1924)


No. 103.

Circuit Court of Appeals, Second Circuit.

December 8, 1924.

*219 Loomis & Ruebush, of New York City (Homer L. Loomis and Reginald B. Williams, both of New York City, of counsel), for appellant.

Hunt, Hill & Betts, of New York City (John W. Crandall and Edna Rapallo, both of New York City, of counsel), for appellee.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

HOUGH, Circuit Judge (after stating the facts as above).

That we may take cognizance without plea or proof of the judicial opinions of any state in the Union is undoubted (Vagaszki v. Consolidation Coal Co., 225 F. 913, 141 C. C. A. 37), and a fortiori is this true of the opinions of United States courts. How far this notice of opinions permits the investigation of the record that produced the opinion is a subject not free from doubt. Eyster v. Gaff, 91 U. S. 521, 23 L. Ed. 403; Re Manderson, 51 F. 501, 2 C. C. A. 490. We think it clear, however, that it is permissible to examine the record resulting in an opinion, to ascertain the grounds upon which the opinion is based. This does not imply acceptance as proven facts, of what the court writing the opinion so regarded.

Material to this appeal there are no controverted facts, and we have therefore excerpted from the transcript in the Supreme Court of the United States the history of events above given. This action is not to be taken as a precedent for a right so to do in respect of any matter of fact denied or doubted.

The arbitration statute of New York changed the common law, or at least the common-law method of thinking about arbitration in that state. What New York and other courts regarded as the "common-law limitation upon enforcement of promises to arbitrate" was a part of the law of remedies, which is always a portion of the law of the forum. Therefore the statute itself relates altogether to remedies. Such is the ruling of the New York Court of Appeals. Berkovitz v. Arbib & Houlberg, 230 N. Y. 261, at page 270, 130 N. E. 288, 290. This, as the learned court declares, is because "arbitration is a form of procedure whereby differences may be settled. It is not a definition of the rights and wrongs out of which differences grow. (The statute) did not attach a new obligation to (contracts) already made. It vindicated by a new method the obligation then existing."

Since The Lottawanna, 21 Wall. 558, 22 L. Ed. 654, it seems superfluous to further discuss the proposition that the states acting through their Legislature or their courts cannot create a new remedy enforceable in the admiralty, nor take away any remedy there already existing. There are instances in which new substantive legal rights created by the states may be enforced by remedies of its own in the admiralty, but it is entirely plain that this matter of arbitration, whether based on a New York statute or resting upon traditional and judge-made law, is wholly matter of remedy.

*220 We therefore hold that the Arbitration Act of New York, although affording a remedy in respect of this charter party, has no effect upon whatever remedy the admiralty offered for the settlement of disputes arising under the same charter party.

But even admitting this point, it is strenuously urged that the arguments presented at this bar when The Atlanten, 252 U. S. 313, 40 S. Ct. 332, 64 L. Ed. 586, was before us (Aktieselskabet Korn-og Foderstof Kompagniet v. Rederiaktiebolaget Atlanten, 250 F. 935, 163 C. C. A. 185, Ann. Cas. 1918E, 491), and in The Eros, 251 F. 45, 163 C. C. A. 295, have now received such additional strength by the decision of the Supreme Court in Red Cross Line v. Atlantic Fruit Co., supra, that it is our duty to reverse the interlocutory order entered herein on the opinion of Mack, J., supra, and hold that the second defense was good.

In other words, we are asked to assume that the Supreme Court, without the compulsion of any statute, is now ready to hold that in proceeding upon an executory contract containing an agreement to arbitrate any and all disputatious matters arising therefrom, no action would lie upon an arbitrable dispute, if the party sued pleads (as here) the arbitration clause and willingness to abide thereby.

This is asking a good deal. For some years, and certainly since the publication in 1918 by the Chamber of Commerce of the City of New York of Mr. J. H. Cohen's "Commercial Arbitration and the Law," argument over this matter has arisen in many places and been presented to many courts.

It is common knowledge that this movement resulted in the New York Arbitration Act, and it is similarly known that efforts to induce the Congress to pursue substantially the same course have hitherto failed. Thus without legislation, and because the trend of modern opinion is toward the literal enforcement of the contracts of men of mature years and presumably sound mind, this court is asked to provide some method of overriding, or explaining away not only its own previous decisions but those of the Supreme Court, which for a generation or so have been regarded as declaring the law to be that any agreement contained in an executory contract, ousting in advance all courts of every whit of jurisdiction to decide contests arising out of that contract, will not be enforced by the courts so ousted.

It is true enough that the executory contract to arbitrate is not usually denounced as per se illegal, but the rulings amount to the same thing in the end, for courts will not specifically enforce arbitration but leave the party who wishes to arbitrate to bring suit for breach of the contract so to do, and award him nominal damages. Munson v. Straits of Dover (D. C.) 99 F. 787.

The matter is one of general law. We are not in the technical sense "bound" by state decisions; but we are bound by the authoritative language of the Supreme Court of the United States until that tribunal and none other concludes to reverse what it has declared for law, or precipitate by the chemistry of new language, all meaning out of what it has said aforetime.

The general doctrine (probably arguendo) was set forth by Hunt, J., in Insurance Co. v. Morse, 20 Wall. 445, 451, 452, 22 L. Ed. 365. There it was assumed as the basis for further argument that the well-known principle announced by Story, J., in his Commentaries on Equity Jurisprudence, was sound law.

The rule was relied on by dwelling on the exception in Hamilton v. Home Ins. Co., 137 U. S. 370, 385, 11 S. Ct. 133, 34 L. Ed. 708, which was merely a repetition of the assumption and course of argument pursued in Hamilton v. Liverpool Co., 136 U. S. 242, 255, 10 S. Ct. 945, 34 L. Ed. 419. As for the lower courts, the adherence to the doctrine thus recognized in the Supreme Court could be shown by wearisome citations, of which one of the latest, showing the elementary form which the question has long assumed, is Robert Grace Co. v. Chesapeake, etc., Co. (C. C. A.) 281 F. 904.

The point has been conveniently presented before now to the Supreme Court. The appeal in The Atlanten, supra, afforded an opportunity which was confessedly avoided because, as Holmes, J., remarked (252 U. S. at page 315 [40 S. Ct. 333]), "it is not necessary to [decide the matter] in order to decide the case before us."

And in the case so pressed on us (264 U. S. 109 [44 S. Ct. 274]), Brandeis, J., confined opinion very carefully to the New York statute, while remarking (page 120 [44 S. Ct. 276]) that the "federal courts like those of the states and of England have, both in equity and at law, denied, in large measure, the aid of their processes to those seeking to enforce executory agreements to arbitrate disputes."

That refusal still continues, and it is not only permitted, but generally believed to be required by the decisions of the Supreme Court, if adherence to the spirit as well as *221 the letter of controlling opinion be loyal obedience to the precedent system.

The situation above depicted is beyond all question one that calls for remedial action. Yet those recognizing the evil, recognize also the difficulty of devising a remedy suitable to agreements like charter parties, made in all parts of the world, to be performed on any waters and where the natural, yet tyrannical inclination of the stronger party to the bargain will be to insert a clause requiring arbitration in his own "home town."

This particular charter party called for arbitration in New York. It is common knowledge, however, that the majority of such charters, especially if they be on time and not for a voyage, are drawn with provisions for arbitration in London, and with an eye to the existing arbitration statutes of Great Britain.

Very wisely, the New York Court of Appeals called attention to this difficulty in Berkovitz v. Arbib & Houlberg, 230 N. Y. at page 273, 130 N. E. 288, and especially reserved the question (not yet presented) whether the New York statute can or should be so read as to cover arbitrations in foreign parts.

This is but one of the thorny questions presented by the demand that we abandon, overrule, or explain away a multitude of decisions, and hold that a general agreement to arbitrate all questions arising under the contract in which the agreement is inserted is a good bar in admiralty to suit for breach of said contract.

Until that tribunal whose decisions are binding upon us takes that step, we cannot do it. Whether any court by decision can cover all the ramifications of doubt, the confusion and possible injustice that would arise from such holding may well be doubted. But that the situation is one calling for legislative action seems to us free of all doubt.

Decree affirmed, with costs.


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