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The Presidents and Arbitration: from Washington to Trump
Posted on Categories ADR Generally, Arbitration, LegislationTags , ,

By George H. Friedman*

SAC Board Member and Contributing Legal Editor

A year ago, I published in the NY State Bar Association's Resolution Roundtable blog, “The Presidents and Arbitration: from Washington to Obama – and Beyond.” I of course had to hedge on the “beyond” part. No longer. The historical parts below of course remain the same; the material about President Trump isn’t nearly as conjectural as it was a year ago.

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. In a 2016 blog post I demonstrated that arbitration goes way back. For now, let’s prove the point by looking at our first Commander in Chief’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 pretty 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 $305 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.[1] 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 of the Supreme Court and an Associate Justice, 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[2] 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.[3] 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.[4] Parties could walk away from their promise to arbitrate, and arbitration Awards were virtually unenforceable. Then the Federal Arbitration Act (“FAA”)[5] 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,[6] and established very limited judicial review of arbitration Awards.[7] The FAA was passed by both houses of Congress, without a dissenting vote, and with the urging of then-Secretary of Commerce, Herbert Hoover.[8] And who do we have to thank in part for the FAA? President Calvin Coolidge, who signed it into law by 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 Arbitration Fairness Acts every two years. This lack of support manifested itself 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; a slightly revised Order was issued last August. The Department of Labor issued Final Guidance and the Federal Acquisition Regulatory Council published the Final Rule a day later.[9]

Donald Trump: a President who 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. Then Mr. 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 2010. And the Indisputably dispute resolution law profs’ blog reported that even Mr. Trump’s agreement with campaign volunteers had a PDAA giving the campaign the unilateral right to require arbitration of disputes. You can look for Executive Orders expanding use of arbitration by the federal government, and EOs undoing President Obama’s anti-arbitration directives. For example, former President Obama’s EO, barring companies with federal contracts valued at over $1 million from mandating arbitration of Title VII or sexual harassment or assault claims is in my opinion a goner for sure.[10]

And as I blogged recently, based on the few cases I found, President Trump’s Supreme Court nominee Judge Neil M. Gorsuch of the Tenth Circuit appears to be pro-arbitration. My favorite is his dissenting opinion in Ragab v. Howard, 2016 WL 6832870 (10th Cir. Nov. 21, 2016), where a divided court refused to compel arbitration, even though the parties executed six contracts with conflicting arbitration agreements. Judge Gorsuch’s dissent argues that the parties clearly agreed to arbitrate, but merely differed on what he considered non-essential terms over how arbitration should proceed:

My colleagues are of course correct that ‘arbitration clauses are only valid if the parties intended to arbitrate’ … But, respectfully, I just don’t see any doubt that the parties before us did intend to arbitrate. All six – yes six – of the parties’ interrelated commercial agreements contain arbitration clauses. The plaintiff himself, the party the court today permits to avoid arbitration, instructed his own counsel to draft three of these agreements. In my view, parties to a commercial deal could have hardly demonstrated with greater clarity an intention to arbitrate their disputes and I see no way we might lawfully rescue them from their choice…. I see two easy workarounds that I believe would be more consistent with the parties expressed purposes than the course my colleagues chart.

Conclusion: what’s next?

I suggest we are entering an era to “Make Arbitration Great Again” (sorry), where making arbitration better and fairer will trump (again, sorry!) getting rid of it.

_________________

*George H. Friedman, an ADR consultant and Chairman of the Board of Directors of Arbitration Resolution Services, Inc., 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] 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.

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

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

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

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

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

[7] See 9 U.S.C. § 10.

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

[9] In late October, implementation of the rules was enjoined. The 32-page Order in Associated Builders and Contractors of Southeast Texas v. Rung, No. 1:16-cv-00425 (E.D. Tex. Oct. 24, 2016), finds that there’s a “substantial likelihood of success on the merits” on the Plaintiffs’ claim that the Federal Arbitration Act prohibits the ban on PDAAs.

[10] Exercising its authority under the Congressional Review Act (“CRA”), 5 USC §§ 801-808, the House of Representatives on February 2nd passed House Joint Resolution 37, which would invalidate the rule. An identical resolution – S. J. Res. 12 – is pending in the Senate. If passed there and signed by President Trump, the rule would be nullified and a like regulation in “substantially the same form” could be not be promulgated thereafter unless specifically authorized by Congress. Moreover, disapproval under the CRA is retroactive; subsection (d) provides: “Any rule that takes effect and later is made of no force or effect by enactment of a joint resolution … shall be treated as though such rule had never taken effect. “

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