American Arbitration Law: Reformation--Nationalization--Internationalization

283 Pages·1992·11.28 MB·English

by  Ian R. Macneil

American Arbitration Law
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American
Arbitration
Law
Reformation -
Nationalization -
Internationalization
IAN R. MACNEIL
New York Oxford
OXFORD UNIVERSITY PRESS
1992
Oxford University Press
Oxford New York Toronto
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Copyright © 1992 by Oxford University Press, Inc.
Published by Oxford University Press, Inc.
200 Madison Avenue, New York, New York 10016
Oxford is a registered trademark of Oxford University Press
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise,
without prior permission of Oxford University Press.
Library of Congress Cataloging-in-Publication Data
Macneil, Ian R.
American arbitration law : reformation, nationalization,
internationalization / Ian R. Macneil.
p. cm. Includes bibliographical references and index.
ISBN 0-19-507062-3
1. Arbitration and award—United States—
History—20th century.
I. Title.
KF9085.M33 1992 347.73'9-dc20
[347.3079] 91-42367
987654321
Printed in the United States of America
on acid-free paper
Preface
Genesis
Work on this book started not long after the decision in Southland
Corp. v. Keating (U.S. 1984),1 about the time my colleague Richard
Speidel and I were starting on a legal treatise on the United States
Arbitration Act (USAA).2 It soon became apparent that we could
not write a proper treatise for present day lawyers without a full
investigation of the events leading to the enactment of the USAA
in 1925.
A recent case illustrating this is Oklahoma City Assocs. v. Wal-
Mart Stores, Inc. (10th Cir. 1991).3 There, the absence of an entry
of judgment clause in an arbitration agreement led the court to
refuse enforcement of the agreement under the USAA. This result
is bad law stemming quite directly from a lack of judicial under-
standing of the historical development of the USAA.4 Nothing in
the opinion suggests that counsel for the party seeking to enforce
the agreement presented the court with a picture of that historical
development.
It also became apparent that no such investigation is possible
without a detailed understanding of the activities of the arbitration
reform movement starting about a decade before the enactment of
the USAA. In turn no understanding of the activities of the reform
movement 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 are
preceded, 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 American
arbitration law.
Part I describes the reformation of American arbitration law.
Part II describes the process and consequences of nationalization
of 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 out
at the level of the articulated word what the participants thought
they were doing, what they said they were doing, and what they
were actually doing. This is the level at which occurs most legal
analysis of the products of courts and legislatures. Descriptions of
this kind are examples of what Professor Edward Purcell calls "the
relevant history for purposes of legal argument and authoritative
judicial 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 it
pertains to the USAA, bears heavily on present day decisions and,
hence, is of major significance in the current law of arbitration.
Prefaceee vii
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 quality
of legislative history as written through the adversary process. As
Professor William Wiecik recently put it:
The historian who considers the uses to which the United States
Supreme Court has subjected the past comes to think that history
ought to be brought within the coverage of the [Federal Insecticide,
Fungicide, and Rodenticide Act], treated as if it were an insecticide
toxic to humans, and required to bear this warning label: "Caution:
Inept or improper use of this product may be dangerous to your
civic health."
For the past half-century, historians, judges, and lawyers have
bemoaned the ways that the Court has misunderstood, misapplied,
or otherwise abused the past on its way to formulating doctrines for
the present.11
A related factor provides a third reason for this study. When the
courts distort legislative history, historical public policy is distorted
as well. This is by no means to say that the courts should always be
governed by historical public policy. But inadvertent distortion or
deliberate 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 very
serious public policy consequences. (I am, however, sufficiently
old-fashioned to think that this is bad in its own right, completely
apart 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 decision
would have been the same with an accurate historical analysis, the
inaccurate analysis is likely to play important roles in the future
development 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 that
system, even respecting law founded in legislation, such as the
USAA. That is to say, the law develops largely, or even entirely,
through judgments in litigated cases. In modern conditions this
results all too often in a kind of mindless bureaucratic formalism.12
viii Preface
This formalism is a modification of what Karl Llewellyn called
the Formal Style of judicial opinion:
[In the Formal Style] the rules of law are to decide the cases; policy
is for the legislature, not for the courts, and so is change even in
pure common law. Opinions run in deductive form with an air or
expression of single-line inevitability. "Principle" is a generalization
producing order which can and should be used to prune away those
"anomalous" cases or rules which do not fit, such cases or rules have
no function, except, in places where the supposed "principle" does
not work well, to accomplish sense —but sense is no official concern
of 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; any
given case typically is enmeshed not in just one statute or regulation
involving complex bureaucratic rules, but often in more, perhaps
many.
Nowhere does this mindless bureaucratic formalism seem more
prevalent than in the work of the Supreme Court of the United
States. And there are few more vivid examples than the Court's
handling of the USAA.
Positivism and Bias
As I have said elsewhere,14 I believe genuine positivism in social
observation to be impossible, and hence reject the idea that any
social 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 with
whatever else the observer is up to.15 I have, nevertheless, tried in
this book to be as objective an observer as I can be. There are two
exceptions, the headings, where I have had a bit of fun with the
zealous 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
Prefacee ix
my biases as forthrightly as possible by summarizing my own views
of 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 available
if two conditions are met: (1) all parties really wish to bind them-
selves to use it; (2) the context, particularly the power relations of
the parties, justifies giving effect to their consent to be so bound.
As a corollary general proposition, where the two conditions
are met, the State18 should provide normal contractual remedies
reinforcing arbitration agreements. In dealing with arbitration
agreements, as with other contracts, the State should pay attention
to efficiency, in both the technical economic and ordinary sense of
the 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 when
it enforces contracts to arbitrate. The State should not pretend,
as has typically been the case with arbitration proponents, that
arbitration is, any more than other social behavior, always, or
perhaps even usually, reflective of neutral social principles. The
kinds of issues Jerold Auerbach raises'about arbitration,19 as well
as 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 neutral
only 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 something
of a Good Thing, but like all Good Things, hardly the Summum
Bonum 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 the
following 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 the
Faculty of Law and its law library and the University Library at