Red Cross Line v. Atlantic Fruit Co, 112

• Citation: 264 U.S. 109,44 S.Ct. 274,68 L.Ed. 582
• Decision Date: 18 February 1924
• Docket Number: No. 112,112
• Parties: RED CROSS LINE v. ATLANTIC FRUIT CO
• Court: U.S. Supreme Court

264 U.S. 109

44 S.Ct. 274

68 L.Ed. 582

RED CROSS LINE

v ATLANTIC FRUIT CO.

No. 112.

Argued Nov. 14 and 15, 1924.

Decided Feb. 18, 1924.

Mr. Homer L. Loomis, of New York City, for petitioner.

[Argument of Counsel from pages 109-114 intentionally omitted] Mr. J. W. Crandall, of New York City, for respondent.

[Argument of Counsel from pages 114-118 intentionally omitted] Mr. Justice BRANDEIS delivered the opinion of the Court.

The Arbitration Law of New York (Consol. Laws, c. 72), enacted April 19, 1920 (Laws 1920, c. 275), and amended March 1, 1921 (Laws 1921, c. 14), declares that a provision in a written contract to settle by arbitration a controversy thereafter arising between the parties 'shall be valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.' Section 1. It authorizes the Supreme Court, or a judge thereof, to direct, upon the application of a party to such an agreement, that the arbitration proceed in the manner so provided; to appoint an arbitrator for the other party, in case he fails to avail himself of the method prescribed by the contract; and to stay trial of the action, if suit has been begun. The law applies to contracts made before its enactment, if the controversy arose thereafter. Matter of Berkovitz v. Arbib & Houlberg, 230 N. Y. 261, 270, 271, 130 N. E. 288. Prior to this statute an agreement to arbitrate was legal in New York and damages were recoverable for a breach thereof. Haggart v. Morgan, 5 N. Y. 422, 427, 55 Am. Dec. 350. But specific performance of the promise would not be enforced, the promise could not be pleaded in bar of an action, and it would not support a motion to stay. Finucane Co. v. Board of Education 190 N. Y. 76, 83, 82 N. E. 737. These limitations upon the enforcement of a promise to arbitrate had been held to be part of the law of remedies. Meacham v. James town, etc., R. R. Co., 211 N. Y. 346, 352, 105 N. E. 653, Ann. Cas. 1915C, 851. The purpose of the statute was to make specific performance compellable. 230 N. Y. 261, 269, 130 N. E. 288. Whether agreements for arbitration of disputes arising under maritime contracts are within the scope of the statute, and whether, if so construed and applied, the state law conflicts with the federal Constitution, are the questions for decision.

Proceeding under the Arbitration Law, the Red Cross Line applied to the Supreme Court of the state, on April 12, 1921, for an order directing the Atlantic Fruit Company to join with it in the arbitration of a dispute arising out of the charter of the steamship Runa. The substantive claim was that the master had not prosecuted the voyage with the utmost dispatch, and hence that certain amounts paid by the charterer should be returned. The charter party, which had been executed in New York on November 28, 1919, contained the following provision:

'That should any dispute arise between owners and charterers the matters in dispute shall be referred to three persons in New York, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision, or that of any two of them, shall be final and for the purpose of enforcing any award, this agreement may be made a rule of court. * * *'

Before instituting this proceeding the Red Cross Line had duly appointed its arbitrator; but the Atlantic Fruit Company had refused to appoint the one to be named by it. The court ordered the latter company to proceed to arbitration as provided in the contract, and to appoint its arbitrator by a day fixed. This order was affirmed by the Appellate Division without opinion. Its judgment was reversed by the Court of Appeals, which stated that the controversy between the parties is one of admiralty; that under article 3, § 2, of the federal Constitution, and section 256, cl. 3, of the Judicial Code (Comp. St. § 1233) such controversies are within the exclusive jurisdiction of the admiralty courts; and that the state had no power to compel the charter owner to proceed to arbitration. Matter of Red Cross Line v. Atlantic Fruit Co., 233 N. Y. 373, 135 N. E. 821. The case is here on writ of certiorari under section 237 of the Judicial Code, as amended (Comp. St. § 1214); 260 U. S. 716, 43 Sup. Ct. 95, 67 L. Ed. 479.

Respondent contends that the petition should be dismissed for lack of a federal question. The argument is that the Court of Appeals held, as a matter of statutory construction, that the Arbitration Law does not extend to controversies which are within the admiralty jurisdiction, and that the substantive claim sought to be enforced is so cognizable. The claim to recover an amount paid under a charter party as charter hire is within the admiralty jurisdiction. Morewood v. Enequist, 23 How. 491, 16 L. Ed. 516. If that court had construed the Arbitration Law as excluding from its scope controversies which are within the admiralty jurisdiction, the construction given to the state statute would bind us, and there would be no occasion to consider the constitutional question presented. Quong Ham Wah Co. v. Industrial Accident Commission, 255 U. S. 445, 41 Sup. Ct. 373, 65 L. Ed. 723; Ward & Gow v. Krinsky, 259 U. S. 503, 510, 42 Sup. Ct. 529, 66 L. Ed. 1033. An expression used by the Court of Appeals lends some color to respondent's contention. 233 N. Y. 373, 381, 135 N. E. 821. But a reading of the whole opinion shows that the state court excluded maritime contracts from the operation of the law, not as a matter of statutory construction, but because it thought the federal Constitution required such action. Compare State Industrial Commission v. Nordenholt Corporation, 259 U. S. 263, 42 Sup. Ct. 473, 66 L. Ed. 933, 25 A. L. R. 1013. We proceed, therefore, to the consideration of the constitutional question.

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 en force executory agreements to arbitrate disputes. They have declined to compel specific performance, Tobey v. County of Bristol, 3 Story, 800, 819-826, Fed. Cas. No. 14,065;¹ or to stay proceedings on the original cause of action. Story, Equity Jurisprudence, § 670. They have not given effect to the executory agreement as a plea in bar, except in those cases where the agreement, leaving the general question of liability to judicial decision, confines the arbitration to determining the amount payable or to furnishing essential evidence of specific facts, and makes it a condition precedent to the cause of action. Hamilton v. Liverpool, London & Globe Insurance Co., 136 U. S. 242, 255, 10 Sup. Ct. 945, 34 L. Ed. 419; Martinsburg & Potomac R. R. Co. v. March, 114 U. S. 549, 5 Sup. Ct. 1035, 29 L. Ed. 255. But an agreement for arbitration is valid, even if it provides for the determination of liability. If executory, a breach will support an action for damages. Hamilton v. Home Insurance Co., 137 U. S. 370, 385-386, 11 Sup. Ct. 133, 34 L. Ed. 708. If executed—that is, if the award has been made—effect will be given to the award in any appropriate proceeding at law, or in equity. Karthaus v. Ferrer, 1 Pet. 222, 7 L. Ed. 121; Burchell v. Marsh, 17 How. 344, 15 L. Ed. 96; Bayne v. Morris, 1 Wall. 97, 17 L. Ed. 495. And, although there is no federal legislation on the subject, an executory agreement, however comprehensive, will, if made a rule of court, be enforced in courts of the United States by any appropriate process. Heckers v. Fowler, 2 Wall. 123, 17 L. Ed. 759.²

In admiralty, also, agreements to submit controversies to arbitration are valid. Reference of maritime controversies to arbitration has long been common practice.³ Houseman v. Schooner North Carolina, 15 Pet. 40, 45, 10 L. Ed. 653. The insertion in a charter party of a provision for such settlement of disputes arising thereunder was practiced, at least, as early as the eighteenth century. Thompson v. Charnock, 2 Durnford & East, 139. For breach of an executory agreement a libel for damages will lie.⁴ An executory agreement may be made a rule of court. United States v. Farragut, 22 Wall. 406, 419, 22 L. Ed. 879; Kleine v. Catara, 2 Gall, 61, Fed. Cas. No. 7,869. AN AWARD WILL BE GIVEN FULL EFFECT.⁵ the agreement whether executory or executed, cannot be enforced in admiralty by specific performance; merely because that court lacks the power to grant equitable relief. The Eclipse, 135 U. S. 599, 608, 10 Sup. Ct. 873, 34 L. Ed. 269.⁶ The executory agreement (perhaps in deference to the rule prevailing at law and in equity) will not be given effect as a bar to a libel on the original cause of action. The reluctance of the admiralty court to lend full aid goes, however, merely to the remedy. The substantive right created by an agreement to submit it disputes to arbitration is recognized as a perfect obligation.⁷

By reason of the saving clause, state courts have jurisdiction in personam, concurrent with the admiralty courts, of all causes of action maritime in their nature arising under charter parties. Judiciary Act Sept. 24, 1789, c. 20, § 9, 1 Stat. 73, 77; Judicial Code, § 24, par. 3 (Comp. St. § 991); Leon v. Galceran, 11 Wall. 185, 20 L. Ed. 74; Schoonmaker v. Gilmore, 102 U. S. 118, 26 L. Ed. 95; Chappell v. Bradshaw, 128 U. S. 132; 9 Sup. Ct. 40, 32 L. Ed. 369; De Lovio v. Boit, 2 Gall. 398, 475, Fed. Cas. No. 3,776. The 'right of a common-law remedy,' so saved to suitors, does not, as has been held in cases which presently will be mentioned, include attempted changes by the states in the substantive admiralty law, but it does include all means other than proceedings in admiralty which may be employed to enforce the right or to redress the injury involved. It includes remedies in pais, as well as proceedings in court; judicial remedies conferred by statute, as well as those existing at the common law; remedies in equity, as well as those enforceable in a court of law....