U.S. Supreme Court

RED CROSS LINE v. ATLANTIC FRUIT CO., 264 U.S. 109 (1924)

264 U.S. 109

RED CROSS LINEv.

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.[ Red Cross Line v. Atlantic Fruit Co. 264 U.S. 109 (1924) ]

Mr. J. W. Crandall, of New York City, for respondent.

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.

'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. ...' 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:

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.

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. 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; Ward & Gow v. Krinsky,  259 U.S. 503, 510 , 42 S. Sup. Ct. 529. 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, 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 S. Sup. Ct. 945; Martinsburg & Potomac R. R. Co. v. March,  114 U.S. 549 , 5 Sup. Ct. 1035. 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. 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; Burchell v. Marsh, 17 How. 344; Bayne v. Morris, 1 Wall. 97. 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. 123.2

In admiralty, also, agreements to submit controversies to arbitration are valid. Reference of maritime controversies to arbitration has long been common practice. [^{Footnote 3} ] Houseman v. Schooner North Carolina, 15 Pet. 40, 45. 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. [^{Footnote 4} ] An executory agreement may be made a rule of court. United States v. Farragut, 22 Wall. 406, 419; Kleine v. Catara, 2 Gall, 61, Fed. Cas. No. 7,869.

AN AWARD WILL BE GIVEN FULL EFFECT. [^{Footnote 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 S. Sup. Ct. 873.6 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. [^{Footnote 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; Schoonmaker v. Gilmore,  102 U.S. 118 ; Chappell v. Bradshaw,  128 U.S. 132 ; 9 Sup. Ct. 40; 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. Knapp, Stout & Co. v. McCaffrey,  177 U.S. 638 , 644, et seq., 20 Sup. Ct. 824; Rounds v. Cloverport Foundry & Machine Co.,  237 U.S. 303 , 35 Sup. Ct. 596. A state may not provide a remedy in rem for any cause of action within the admiralty jurisdiction. The Hine v. Trevor, 4 Wall. 555; The Glide,  167 U.S. 606 , 17 Sup. Ct. 930. But otherwise the state, having concurrent jurisdiction, is free to adopt such remedies, and to attach to them such incidents, as it sees fit. New York, therefore, had the power to confer upon its courts the authority to compel parties within its jurisdiction to specifically perform an agreement for arbitration which is valid by the general maritime law, as well as by the law of the state, which is contained in a contract made in New York and which, by its terms, is to be performed there.

This state statute is wholly unlike those which have recently been held invalid by this court. The Arbitration Law deals merely with the remedy in the state courts in respect of obligations voluntarily and lawfully incurred. It does not attempt either to modify the substantive maritime law or to deal with the remedy in courts of admiralty. The Workmen's Compensation Laws involved in Southern Pacific Co. v. Jensen,  244 U.S. 205 , 37 Sup. Ct. 524, L. R. A. 1918C, 451, Ann. Cas. 1917E, 900, Clyde Steamship Co. v. Walker,  244 U.S. 255 , 37 Sup. Ct. 545, Peters v. Veasey,  251 U.S. 121 , 40 Sup. Ct. 65, and Knickerbocker Ice Co. v. Stewart,  253 U.S. 149 , 40 Sup. Ct. 438, 11A. L. R. 1145, were declared invalid, because their provisions were held to modify or displace essential features of the substantive maritime law. In Union Fish Co. v. Erickson,  248 U.S. 308 , 39 Sup. Ct. 112, the state statute did not deal with the substantive maritime law. It was held invalid, because, as construed

and applied, it attempted to modify the remedial law of the admiralty courts. The state statutes involved in all the other cases were declared valid. Those giving the substantive right to recover for negligence resulting in death were upheld, because they merely supplemented the substantive maritime law and did not conflict with any essential feature of it. Western Fuel Co. v. Garcia,  257 U.S. 233 , 42 Sup. Ct. 89; Great Lakes Dredge & Dock Co. v. Kierejewski,  261 U.S. 479 , 43 Sup. Ct. 418. See, also, Steamboat Co. v. Chase, 16 Wall. 522; Sherlock v. Alling,  93 U.S. 99 , 104; The Hamilton,  207 U.S. 398 , 28 Sup. Ct. 133. La Bourgogne,  210 U.S. 95, 138 , 28 S. Sup. Ct. 664. The Workmen's Compensation Laws involved in other cases were upheld, because their provisions, as applied, were found not to be in conflict with any essential feature of the general maritime law. Grant Smith-Porter Co. v. Rohde,  257 U.S. 469 , 42 Sup. Ct. 157, 25 A. L. R. 1008; Industrial Commission v. Nordenholt Co.,  259 U.S. 263 , 42 Sup. Ct. 473, 25 A. L. R. 1013. No state statute was involved in Chelentis v. Luckenbach,  247 U.S. 372 , 38 Sup. Ct. 501. The court held there that under the general maritime law the seaman had no substantive right to recover; that this rule of substantive maritime law applied whether he sued in the state courts or in the court of admiralty; and that the Seaman's Act of 1915 (38 Stat. 1164) did not change this rule of substantive law. In no case has this court held void a state statute which neither modified the substantive maritime law, nor dealt with the remedies enforceable in admiralty.

As the constitutionality of the remedy provided by New York for use in its own courts is not dependent upon the practice or procedure which may prevail in admiralty, we have no occasion to consider whether the unwillingness of the federal courts to give full effect to executory agreements for arbitration can be justified. [^{Footnote 8} ]

Reversed.

The separate opinion of Mr. Justice McREYNOLDS.

This controversy arose out of a charter party dated November 28, 1919, a maritime contract, which contains a clause providing for the settlement of disputes by arbitration. 233 N. Y. 373, 135 N. E. 821.

Parties to such agreements contract with reference to the maritime law; consequent rights and liabilities depend upon its rules and are the same in all courts, admiralty or state. This general doctrine, definitely stated in Southern Pacific Co. v. Jensen,  244 U.S. 205 , 37 Sup. Ct. 524, L. R. A. 1918C, 451, Ann. Cas. 1917E, 900, has been reaffirmed and applied again and again. Clyde S. S. Co. v. Walker,  244 U.S. 255 , 37 Sup. Ct. 545; Chelentis v. Luckenbach S. S. Co.,  247 U.S. 372 , 38 Sup. Ct. 501; Union Fish Co. v. Erickson, 248 U. 308, 39 Sup. Ct. 112; Knickerbocker Ice Co. v. Stewart,  253 U.S. 149 , 40 Sup. Ct. 438, 11 A. L. R. 1145; Western Fuel Co. v. Garcia,  257 U.S. 233 , 42 Sup. Ct. 89; Grant Smith-Porter Co. v. Rohde,  257 U.S. 469 , 42 Sup. Ct. 157, 25 A. L. R. 1008; Carlisle Packing Co. v. Sandanger,  259 U.S. 255 , 42 Sup. Ct. 475; Industrial Comm. v. Nordenholt Co.,  259 U.S. 263 , 42 Sup. Ct. 473, 25 A. L. R. 1013; Osaka Shosen Kaisha v. Lumber Co.,  260 U.S. 490 , 43 Sup. Ct. 172; Great Lakes Co. v. Kierejewski,  261 U.S. 479 , 43 Sup. Ct. 418.

No admiralty court would enforce the arbitration clause of the charter party before us; their accepted policy forbids. Accordingly it was not obligatory upon the parties. The law of the sea became part of their agreement.

But it is said under the local law a state court may enforce arbitration and thus effectuate the provision, although unenforceable in admiralty, since the statute relates to the remedy and not to substantive rights. In Union Fish Co. v. Erickson, an admiralty cause, we refused to give effect to the state statute of frauds, holding that the parties had contracted with reference to maritime law, not the local enactment. Here, also, the effort is to modify an agreement made with reference to the general rules of maritime law by applying the local law. Certainly this could not be done in an admiralty court;

no more should it be possible under state practice. If Union Fish Co. v. Erickson had been before a state tribunal the applicable rule would have been the same and would have required enforcement of the contract notwithstanding the local statute. Obligations under maritime contracts do not vary with the tribunal.

Fifty years ago this court pointed out the essential relationship between rights and remedies. Von Hoffman v. City of Quincy, 4 Wall. 535, 552. 'Nothing can be more material to the obligation than the means of enforcement. Without the remedy the contract may, indeed, in the sense of the law, be said not to exist, and its obligation to fall within the class of those moral and social duties which depend for their fulfilment wholly upon the will of the individual. The ideas of validity and remedy are inseparable, and both are parts of the obligation, which is guaranteed by the Constitution against invasion. The obligation of a contract 'is the law which binds the parties to perform their agreement."

Under the guise of providing remedies no state state statute may add to or take from the obligations imposed by the contract within the admiralty jurisdiction. The doctrine concerning the general maritime law announced here over and over again forbids. If state courts can enforce provisions for compulsory arbitration contrary to the policy of the admiralty courts, what will become of the uniformity of maritime rules which the Constitution undertook to establish?

Judicial Code, 256 (Comp. St. 1233), endows the District Court with exclusive jurisdiction 'of all civil causes of admiralty and maritime jurisdiction, saving to suitors, in all cases, the right of a common-law remedy where the common law is competent to give it.' The remedy saved must relate to some right or liability given or imposed by maritime law- certainly not one which that law does

'The cognizance of civil causes of admiralty and maritime jurisdiction, vested in the District Courts by the ninth section of the Judiciary Act, may be supported upon like considerations. It has been made exclusive by Congress, and that is sufficient, even if we should admit that in the absence of its legislation the state courts might have taken cognizance of these causes. But there are many weighty reasons why it was so declared. 'The admiralty jurisdiction,' says Mr. Justice Story, 'naturally connects itself, on the one hand, with our diplomatic relations and the duties to foreign nations and their subjects, and, on the other hand, with the great interests of navigation and commerce, foreign and domestic. There is, then, a peculiar wisdom in giving to the national government a jurisdiction of this sort which cannot be yielded, except for the general good, and which multiplies the securities for the public peace abroad, and gives to commerce and navigation the most encouraging support at home.'

'The case before us is not within the saving clause of the ninth section. That clause only saves to suitors 'the right of a common-law remedy, where the common law is competent to give it.' It is not a remedy in the common-law courts which is saved, but a common-law remedy. A proceeding in rem, as used in the admiralty courts, is not a remedy afforded by the common law; it is a proceeding under the civil law. When used in the common-law courts, it is given by statute.' not recognize. Furthermore, common-law remedy is the thing excepted from the exclusive jurisdiction, not a remedy wholly unknown to that law. The Moses Taylor, 4 Wall. 411, 430, 431, distinctly announced this construction:

The same view is approved by The Hine v. Trevor, 4 Wall. 555, 571; The Glide,  167 U.S. 606, 616 , 617 S., 17 Sup. Ct. 930; and Knapp, Stout & Co. v. McCaffrey,  177 U.S. 638, 644 , 648 S., 20 Sup. Ct. 824.

The latter cause 'was clearly one in personam to enforce a common-law remedy.' The opinion carefully points out that the state court enforced such a remedy and, further (177 U.S. 640, 20 Sup. Ct. 825), that not until 1866, The Moses Taylor, was the exclusive character of admiralty jurisdiction brought to this court's attention. Earlier opinions must be read accordingly, with Southern Pacific Co. v. Jensen and the uniformity of maritime rules in mind. Rounds v. Cloverport Foundry & Machine Co.,  237 U.S. 303, 308 , 35 S. Sup. Ct. 596, follows Knapp, Stout & Co. v. McCaffrey.

'A proceeding in rem, as used in the admiralty courts, is not a remedy afforded by the common law; it is a proceeding under the civil law. When used in the common-law courts, it is given by statute.' Even where permitted by local law, state courts cannot entertain proceedings in rem for the reason stated by the Moses Taylor:

The same reason inhibits state courts from enforcing any remedy not recognized at common law when the controversy is within the admiralty cognizance. Common-law remedies are within the saving clause, and no others. It is not enough that one has been provided by statute.

'But it could not have been the intention of Congress, by the exception in that section, to give the suitor all such remedies as might afterwards be enacted by state statutes, for this would have enabled the states to make the jurisdiction of their courts concurrent in all cases, by simply providing a statutory remedy for all cases. Thus the exclusive jurisdiction of the federal courts would be defeated.' The Hine v. Trevor, 4 Wall. 571, declares:

This negatives the suggestion that the remedy of the saving clause includes any means other than proceedings in rem which may be provided for the enforcement of rights or to redress injuries.

'The true distinction between Knapp, Stout & Co. v. McCaffrey, 177 U.S. 648, 20 Sup. Ct. 829, clearly affirms that the thing saved to suitors is the right of a common-law remedy:

such proceedings as are and such as are not invasions of the exclusive admiralty jurisdiction is this: If the cause of action be one cognizable in admiralty, and the suit be in rem against the thing itself, though a monition be also issued to the owner, the proceeding is essentially one in admiralty. If, upon the other hand, the cause of action be not one of which a court of admiralty has jurisdiction, or if the suit be in personam against an individual defendant, with an auxiliary attachment against a particular thing, or against the property of the defendant in general, it is essentially a proceeding according to the course of the common law, and within the saving clause of the statute (section 563) of a common-law remedy. The suit in this case being one in equity to enforce a common-law remedy, the state courts were correct in assuming jurisdiction.'

I can find no authority for the broad claim that the 'right of a common-law remedy' extends to any and all means other than proceedings in rem which may be employed to enforce rights or redress injuries, including remedies in pais as well as proceedings in court, those conferred by statute as well as those existing at common law. Neither Knapp, Stout & Co. v. McCaffrey nor Rounds v. Cloverport Foundry supports it. It conflicts with The Hine v. Trevor, and is clearly opposed by the reason advanced in The Moses Taylor for excluding proceedings in rem from state courts.

The court below has held9 that the New York Arbitration Law (chapter 275, Laws N. Y. 1920)10 provides 'a statutory

legal remedy of a character unknown to the common-law ... declares a new public policy and abrogates an ancient rule.' This statutory remedy is not of the common law nor were the proceedings under review instituted to enforce such a remedy, as was Knapp, Stout & Co. v. McCaffrey. See Southern Pacific Co. v. Jensen.

If petitioner is right why may not a state require the parties to any maritime contract to submit their controversies to varying methods of arbitration and thus introduce the very discord which framers of the Constitution intended to prevent by adopting general maritime rules as laws of the United States. Also why may it not apply other than common-law remedies to controversies within admiralty jurisdiction contrary to plain congressional enactment and repeated decisions of this court?

To announce principles is not enough; they should be followed. I think opinions of this court led the conclusion of the court below and require affirmation of its judgment.

Footnotes