The Presidents and Arbitration: from Washington to Trump: An Update
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The Presidents and Arbitration: from Washington to Trump: An Update

By George H. Friedman*

SAC Contributing Legal Editor and Board of Editors Member

For the third year in a row, I’m updating my blog post on the Presidents and arbitration. The past year demonstrated that President Trump continues to be a big fan of arbitration. The material that follows about the past presidents is mostly repeated from my original 2016 blog post; the President Trump section is updated.

There’s a wonderful book, The Presidents Club, covering the unique and sometimes surprising relationships among the fraternity (sorry, Carly and Hillary, no sorority yet) of current and former presidents. For example, who knew that Bill Clinton and the Bushes are very close, with “W” often referring to Bill as his “brother of another mother”? Or that Richard Nixon sought advice from Herbert Hoover over whether to contest his razor-thin loss to JFK in 1960? Or that Jimmy Carter elicits a common reaction – not entirely flattering – from the former presidents? These rarely told stories are of course fascinating, but this blog post covers a different kind of relationship: that of the presidents and arbitration. As we approach Presidents Day, I offer this primer on the little-known and often surprising relationships between our presidents and this form of alternative dispute resolution.

George Washington: think arbitration is new?  

People have for years referred to arbitration as a bold new way of resolving disputes. I demonstrated in an early 2016 blog post that arbitration goes way back. For now, let’s prove the point by looking at our first[1] president’s Last Will and Testament. That’s right, George Washington’s Will from July 1799 calls for arbitration to resolve disputes among his heirs:

I hope and trust that no disputes will arise concerning [my Will]; but if, contrary to expectation, the case should be otherwise from the want of legal expression, or the unusual technical terms, or because too much or too little has been said on any of the devises to be consonant with the law, my will and direction expressly is, that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for  their probity and good understanding; -- two to be chosen by the disputants -- each having the choice of one -- and the third by those two -- which three men thus chosen, shall unfettered by Law, or legal constructions, declare their sense of the Testator's intention ... and shall be binding as if issued by the U.S. Supreme Court.

Ulysses S. Grant, the Civil War and arbitration

Ever hear of the Treaty of Washington of 1871? Neither had I. It seems that after the Civil War the U.S. asserted claims against the British, whose shipbuilders had supplied warships to the Confederacy. Things got serious. According to History Central, “at one point, a claim was made that Britain was responsible for half the cost of the war, and that the U.S. would consider Canada proper payment. This shocked the British and they realized they had better come to some agreement soon.” At the urging of President Grant, the Treaty included an arbitration clause to resolve the claims. The matter was submitted to arbitration in Geneva before a five-person arbitration tribunal. Arbitrators were designated by the heads of state of Britain, the United States, Brazil, Italy, and Switzerland. How did it turn out?  Although in the end they got to keep Canada, Britain had to pay the U.S. $15,500,000 – over $319 million today – and say they were sorry.

Grover Cleveland and the Venezuelan Crisis of 1895

Bet you never heard of the Venezuelan Crisis of 1895, which was a border dispute between the United Kingdom and Venezuela.[2] The real fight was about gold. The dispute escalated into a major crisis with the possibility of armed conflict, and President Cleveland, citing the Monroe Doctrine, intervened to compel the parties to arbitrate the dispute. The parties ultimately agreed to a five-member arbitration panel, consisting of two arbitrators chosen by the U.K., two representing Venezuelan interests – but named by the U.S. – and the neutral chair to be selected by these four arbitrators. The two arbitrators selected by the U.S. were the sitting Chief Justice and an Associate Justice of the Supreme Court, and the chair was a Russian judge and diplomat. The tribunal ultimately held hearings in Paris in 1898, and a year later ruled largely in favor of the Brits. Not to be left out, former President Benjamin Harrison represented Venezuela in the arbitration.

Teddy Roosevelt: Tippecanoe and ADR, too

A believer not only in arbitration, but mediation, too, the first President Roosevelt seemingly coined the phrase “alternative dispute resolution.” While the Hero of San Juan Hill has a reputation for rarely shying away from a fight, TR was actually a firm believer in peaceful conflict resolution. For example, in 1902 he settled via arbitration a financial dispute with Mexico[3] over the Pious Fund of the Californias (don’t ask, but here’s the award). Also, he received the Nobel Peace Prize for successfully mediating the Treaty of Portsmouth, ending the 1904-5 Russo-Japanese war.[4] In fact, the official Nobel Prize Website refers to TR by a nickname you’ve probably never before heard: “Imperialist and Peace Arbitrator.”

“Silent Cal,” the Father of modern arbitration?

How’s that? Before 1925, enforcing predispute arbitration agreements and arbitration awards was very difficult.[5] Parties could walk away from their promise to arbitrate, and arbitration awards were virtually unenforceable. Then the Federal Arbitration Act (“FAA”)[6] was enacted in 1925 and went into effect a year later. The FAA abrogated the existing law, which was based on Common Law hostility to arbitration, made written promises to arbitrate matters involving interstate commerce specifically enforceable,[7] and established very limited judicial review of arbitration awards.[8] The FAA was passed by both houses of Congress, without a dissenting vote, and with the urging of then-Secretary of Commerce, Herbert Hoover.[9] And who do we have to thank in part for the FAA? President Calvin Coolidge, who signed it into law on February 12, 1925.

FDR: another President Roosevelt, another arbitration advocate

During World War II, it was essential that labor peace be maintained to ensure production of war-related materiel. What did FDR do? He reinstated the National War Labor Board to serve as final arbiter of labor disputes. In exchange for giving up their right to strike, the unions gained an impartial arbitration process to resolve their disputes with management. The Board had the Presidents Club written all over it. The original Board was a World War I creation of President Woodrow Wilson. Its first director was none other than former President William Howard Taft.

Barack Obama: I first thought he might be fond of arbitration – but he wasn’t

When he was first elected, I thought President Obama might have a fondness for arbitration. Why? As a young attorney with Davis, Miner, Barnhill & Galland, in Chicago, President Obama in 1994 argued successfully to enforce an NASD arbitration award in the Seventh Circuit in Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704 (7th Cir. 1994). Alas, the former President did not support arbitration. This is perhaps because the Democrats largely oppose mandatory arbitration, introducing anti-arbitration bills every session of Congress. This lack of support from the former president was demonstrated every so often. For example, Mr. Obama signed the Fair Pay and Safe Workplaces Executive Order 13673 in July 2014 barring companies with federal contracts valued at over $1 million from mandating arbitration of Title VII or sexual harassment or assault claims.[10]

The New Stuff: Donald Trump A President who still likes and uses arbitration

As I’ve blogged before, President Trump believes in arbitration and uses the process. In 2012, he won $5 million in a dispute with a former Miss USA contestant who defamed the pageant, which he owned at the time. President Trump in 2015 filed an arbitration claim against NBC after the network cancelled a contract to televise the Miss USA and Miss Universe pageants. He also won an Internet domain name arbitration, back in 2011. And I read in the Indisputably blog that even Mr. Trump’s agreement with campaign volunteers had a predispute arbitration agreement (“PDAA”) giving the campaign the unilateral right to require arbitration of disputes.

Without doubt, President Trump by his actions in 2018 demonstrated that he remains pro-arbitration. You can read chapter and verse in my December blog post, A Final Assessment of My 2018 Consumer and Employment Arbitration Predictions – Part I, but here are some examples:

  • In June 2017, the Centers for Medicare and Medicaid Services eliminated its Obama-era regulation banning predispute arbitration agreements in nursing home admission agreements, and has dropped its appeal of a District Court preliminary injunction banning implementation of the original rule. The amended regulation was published in the Federal Register in June 2017. A CMS Factsheet leads with news that the prohibition on PDAAs is out, and then states the proposed regulation adds several requirements for PDAA use, all focused on clear notice and fairness.
  • The Department of Education published a Notice in June 2017 announcing that it was postponing indefinitely the planned July 1, 2017 effective date of another Obama-era regulation, that would have banned mandatory predispute arbitration agreements and class action waivers in college enrollment agreements for schools receiving federal financial aid for student borrowers. The other shoe dropped on this one last summer. The Trump DOE followed through with a proposed Regulation officially killing the old Obama-era Rule and replacing it with a proposal allowing predispute arbitration agreements and class action waivers in college enrollment agreements and requiring robust disclosures.
  • President Trump nominated to the Supreme Court Justice Neil Gorsuch, who as predicted has been pro-arbitration (more on that below).
  • The Trump Administration Department of Justice has been switching sides in some court cases, taking pro-arbitration positions against those taken by federal agencies. For example, the Acting Solicitor General filed an Amicus Brief siding with the employers and against the National Labor Relations Board (“NLRB”) in Epic Systems Corp. v. Lewis, 137 S. Ct. 809 (2018), three cases that were pending at the Supreme Court involving whether the Federal Arbitration Act prevails over the National Labor Relations Act when it comes to enforcing class action waivers in employment arbitration agreements. The NLRB had to represent itself,[11] which reminded me of a scene[12] from “Blazing Saddles.”
  • What ultimately happened in Epic Systems? In a narrow 5-4 decision splitalong ideological lines, the Supreme Court in May 2018 ruled that the FAA permits employers to use arbitration clauses containing class action waivers, notwithstanding the National Labor Relations Act’s protections of workers’ rights to act collectively. And who wrote the majority Opinion? None other than Justice Gorsuch.[13]
  • President Trump last July nominated, and the Senate later confirmed, Judge Brett M. Kavanaugh to fill the open Supreme Court seat created by the retirement of Justice Anthony Kennedy. In the first Opinion authored by Justice Kavanaugh, the Supreme Court on January 8th held unanimously in Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272, that there is no delegation carveout for “wholly groundless” assertions of arbitrability under the Federal Arbitration Act. This came as no shock to me; based on a review of the new Justice’s cases[14] involving arbitration, it was pretty clear he is pro-arbitration.
  • And, last but by no means least, the Trump-Stormy Daniels settlement agreement[15] contained an arbitration clause!

 

Trust me, folks. President Trump is all-in on arbitration.[16]

Conclusion

I cannot tell a lie. The presidents have enthusiastically supported arbitration from the beginning. Just ask George Washington

 

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*George H. Friedman, Chairman of the Board of Directors of Arbitration Resolution Services, Inc. and an ADR consultant, retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He is an Adjunct Professor of Law at Fordham Law School. Mr. Friedman serves on the Board of Editors and is a Contributing Legal Editor of the Securities Arbitration Commentator.  He is also a member of the AAA’s national roster of arbitrators.  He holds a B.A. from Queens College, a J.D. from Rutgers Law School, and is a Certified Regulatory and Compliance Professional. 

[1] To be absolutely accurate, George Washington was elected in 1789 as the first President of the Constitutional Republic known as the United States of America. In 1781, John Hanson was the first person elected president under the Articles of Confederation, the precursor to the Constitution. He evidently didn’t have a very good press agent because no one remembers that fact.

[2] About what? According to Wikipedia, it had something to do with “Britain's refusal to include in the proposed international arbitration the territory east of the ‘Schomburgk Line’, which a surveyor had drawn half a century earlier as a boundary between Venezuela and the former Dutch territory of British Guiana.” Hey, you asked.

[3] See http://www.theodore-roosevelt.com/images/research/trtreaties/treaty13.pdf

[4] See http://www.nobelprize.org/nobel_prizes/peace/laureates/1906/roosevelt-facts.html

[5] See A Brief History of Commercial Arbitration, available at https://dynalex.wordpress.com/2012/12/28/a-brief-history-of-commercial-arbitration/.

[6] See 9 U.S.C. §§ 1 et seq., available at http://codes.lp.findlaw.com/uscode/9.

[7] See 9 U.S.C. §§ 1 and 2. Note, too, that almost every state has enacted arbitration laws covering intra-state commerce.

[8] See 9 U.S.C. § 10.

[9]  See Christopher, Leslie, The Arbitration Bootstrap, 94 Tex. L. Rev. 265 at 303, 305 (2015).

[10] A slightly revised Order was issued in August 2016.

[11] The NLRB issued a Statement reporting that the Acting Solicitor General had given the Agency authority to represent itself.

[12] No, not that scene!

[13] Yes, he also wrote the Opinion in New Prime, Inc. v. Oliveira, No. 17-340 (Jan. 15, 2019), where the Supreme Court ruled that the Federal Arbitration Act exempts from coverage independent contractors engaged in interstate commerce, and that this issue must be decided before arbitration is compelled, but that one was unanimous, easy to see coming a mile away, and largely based on statutory construction versus an anti-arbitration animus.

[14] See Securities Arbitration Commentator, Supreme Court Nominee Kavanaugh Seems to Be Pro-Arbitration (or so We Think), Part I (July 13, 2018).

[15] See B. Farkas, Donald Trump and Stormy Daniels: An Arbitration Case Study, ABA DR Magazine p. 12 (Summer 2018).

[16] Some of the NAFTA dispute resolution mechanisms did not survive in the new US-Mexico-Canada Agreement announced by President Trump on October 1, but on closer review this is not shocking. Why? Ceding authority to a foreign tribunal has elements of globalism, which this Administration clearly opposes

 

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