Petition for Writ of Certiorari — Reconstruction Finance Corp. v. Harrisons & Crosfield, Ltd. ex rel. Fred Pusinelli & Co.

Supreme Court brief1953

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INDEX

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a DO es RAS OR OKA ae Re Te 1

TE INR SOE POLO RCL ET OY LY CE ee Pee 2

CI MN oi is 65 oie eh hd eee SS SOO) + Rae 2

SS SOE SARE TARO BPRS SE SOR EE LTS 2

IN oie oe iss cae tone eee aa casi hes ECR 2

Reasons for granting the writ................ 52.000 e. e000 7

oe EEE Roe aL pee iy ie ee tr ey ee sina 21

DOIN 8 iS EREDAR SRE A ERT OS 22

CITATIONS

Cases :

Airedale Worsted Mills, Inc. v. Bonnie Classics, 198 Mise.

, MER a GF Beer rte wry ue rye ey 14

Albrecht Chemical Co. (Anderson Trad. Corp.), Matter of,

208 N. Y. 437, 84 N.EB. 24 625...................... 14

Almacenes Fernandez, S.A. v. Golodetz, 148 F. 2d 625.... 10

Alsop v. Riker, 155 U.8. 448...................00005. 19

American Locomotive Co. v. Gyro Process Co., 171 F. 2d

115, certiorari denied, 336 U.S. 909.................. 11

American Locomotive Co. v. Gyro Process Co., 185 F. 2d

BN Es Resa aes aes ck Ree rat 11

Anaconda, The v. Amer. Sugar Co., 322 U.S, 42........ 16,17

Arthur Philip Export Corp. v. Leathertone, 275 App.

Bie; 208; BF es BR Oe oo ee es es 14

“Astley & Tyldesley Coal & Salt & Tyldesley Coal Co.,

Re Arbitration Between, (1899) 80 L.T.116.......... 13

; Bauer Co., Matter of, 206 App. Div. 423, 201 N.Y.S.

: MO GS os PRs eR ae Ok ee eee 11

4 Behrens (Feuerring), Matter of, 296 N.Y. 172, 71 N.E.

: We ee a eas Cee ee ait 13

E Benedict v. City of New York, 250 U.S. 321............ 19

; Cargo Carriers v. Erie &@ St. Lawrence Corp., 105 F.

URS TUE os shins oa ee kare on ees ON coed a kiss 1l

Cope v. Anderson, 331 U.S. 461.................0.005. 6, 19

Exeter Manufacturing Co., Matter of v. Marrus, 254 App.

Div. 406, 6 WTB. BE AOS sooo he a es 13

Feuer Transportation, Matter of , 295 N.Y. 87, 65 N.E. 2d

L.A NER RT Une SAG © Uo SLAY GoD EA MER os erie 16

Galion Iron Works & Mfg. Co. v. J. D. Adams Mfg.

Co, 208 Fi SG AS CCEA AS 11

Gardner v. Panama R. Co., 342 U.S. 29...........0..... 18

Gitelson & Sons, Matter of , 274 App. Div. 480, 84 N.Y.S.

GE BS oe skh sc hoe OE OTE) he BSE PERS 14

(1)

= 217308

Cases—Continued p

age

Godden v. Kimmell, 99 U.S. 201 ..........---- +++ +--+ 19

Guaranty Trust Co. v. York, 326 U.S. 99.........-..--. 6, 19

Hecht Co. v. Bowles, 321 U.S. 321.........-.-....---: 16

Holmberg v. Armbrecht, 327 U.S. 392............ ..-. 6, 18, 19

Kramer, Matter of v. Uchitelle, Inc., 288 N.Y. 467, 43 N.E.

eR ey Send oe eae kt mea cee tes 13,14

Kulukundis Shipping Co. v. Amtorg Trading Corp., 126

eo ae Ce Chan ace Bik RA See 16

La Nacional Plantanera v. North American F. ¢ 8.8.

Corp., 84 F. 2d 881 ...... 2... 6s ee eee eee eee ee 10

Lipman (Haeuser Shellac Co.), Matter of, 289 N.Y. 76,

I oe ca Ch iw actics das be nece gives ss 13

Marine Transit Co. v. Dreyfus, 284 U.S. 263............ 8

Meredith v. Winterhaven, 320 U.S. 228................ 16

Metro Plan, Imc., Matter of v. Miscione, 257 App. Div.

G26, 16 N.V.S. BAS ..... 2... eee eee eee 14

Murray Oil Products Co. v. Mitswi & Co., 146 F. 2d 381. . 8

Nagy v. Arcas Brass ¢ Iron Co., 242 N.Y. 97, 150 N.E.

RR a ate ee uid 4s heen ke Se se ea 10, 11

Radiator Specialty Co. v. Cannon Mills, 97 F. 2d 318.... 11

Raphael v. Silberberg, 274 App. Div. 625, 86 N.Y.S. 2d

421

SUIS AA eee AR Senet arent Car PPE oe ees 14

Red Cross Line v. Atlantic Fruit Co., 264 U.S.109... .. 8

’ Robinson, Matter of v. Robinson, 61 N.Y.S. 2d 859,

’ affirmed, 296 N.Y. 778, 71 N.E. 2d 214............... 14

Roselle Fabrics, Inc., Application of, 108 N.Y.S. “d 921,

affirmed, 279 App. Div. 1044, 113 N.Y.S. 2d 280...... 14

Russell vy. Todd, 309 U.S. 280..............5-- eee ees 6

Shell v. Strong, 151 F. 2d 909..............-----5---- 17

Son Shipping Co. v. De Fosse & Tanghe, 199 F. 2d

eee a Lava Sine se ercw tc Riamy ye 89,80 Mae 11

Stanley v. Schwalby, 147 U.S. 508... ..........-.-+--. 6

Tanenbaum Textile Co., Inc., Matter of v. Schlanger,

287 N.Y. 400, 40 N.E. 2d 225.............-...5.55. 13

Telegraphers v. Ry. Express Agency, 321 U.S. 342...... 8

Wilko v. Swan, No. 39, this Term...................-. 20

, Zimmerman, Matier of v. Cohen, 236 N.Y. 15, 139 N.E.

Be ce cs CAR Kes Ra meh bbe Re Malacn bea wads ae 10, 11

Statutes :

Act of July 30, 1947, ec. 392, 61 Stat. 669, Section 1...... 2

Federal Arbitration Act, 9 U.S.C. 1, et seg............- 20

ee SS wea hawde ka wadla be 10, 15, 22

OSS SRRER Se Se pect Oe ee eee wee ey 10

I ea a vee hen eks ae et euk 5, 10, 12, 16, 22

RI ook A ON h oe aha nae peas o5,5 12,

I Soe eda s coh’ caN eae ekaeme 12, 24

Joint Resolution approved June 30, 1945 (59 Stat. 310) . 3

Statutes—Continued

Reconstruction Finance Corporation Act of January 22,

1932, 47 Stat. 5, as amended by § 5 of the Act of June

25, 1940, c. 427, 54 Stat. 572, 573-574, 15 U.S.C.

GO 1), Welles GBA oo ee ea

New York Civil Practice Act:

Miscellaneous :

13: CPR. 100) Saupe. p. 100. 2... ee

13 C.F.R. 1946 Supp. 01.1 et seg............-...-----

H. Rep. No. 96, 68th Cong., Ist Sess. p.1..............

SR BA eae Sareea eee wena ee ee

Inthe Supreme Gourt of the United States

OctToBER TERM, 1953

No. 226

RECONSTRUCTION FINANCE CORPORATION, PETITIONER

Vv.

Harrisons & CrosFIELD, Ltp., By FRED PUSINELLI

& COMPANY, INCORPORATED, AGENT

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE SEC-

OND CIRCUIT

The Acting Solicitor General, on behalf of the

Reconstruction Finance Corporation, prays that a

writ of certiorari issue to review the judgment of

the United States Court of Appeals for the Second

Circuit, entered in the above-entitled cause on May

8, 1953.

OPINONS BELOW

The opinion of the United States District Court

for the Southern District of New York (R. 46-53)

is reported ot 106 F', Supp. 358. The opinion of the

Court of Appeals (R. 61-68) is reported at 204 F.

2d 366,

(1)

JURISDICTION

The judgment of the Court of Appeals was en-

tered on May 8, 1953 (R. 68). The jurisdiction

of this Court is invoked under 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

1. Whether an action to compel arbitration

under Section 4 of the Arbitration Act is barred by

the applicable six year statute of limitations where

the demand for arbitration was made and the ac-

tion to compel arbitration was instituted more than

nine years after the contractual right to arbitrate

arose.

9. Whether the burden of pleading and proving

freedom from laches should not be placed upon an

applicant who seeks, in a district court, to compel

arbitration of a claim which arose more than nine

years before the demand to arbitrate was made or

the suit to compel arbitration was instituted.

3. Whether a district court, sitting as a court

of equity, should order compulsory arbitration

pursuant to Section 4 of the Arbitration Act with-

out passing on the defense that the claim involved

in the proceeding is time barred.

STATUTE INVOLVED

9 U.S.C. 2, 4, 10, and 11 are set forth in the Ap-

pendix, infra, pp. 22-25."

STATEMENT

In December, 1941, the Rubber Reserve Com-

pany, a corporate subsidiary of the Reconstruction

l'Title 9 of the U.S. Code became positive law pursuant to

§ 1 of the Act of July 30, 1947, c. 392, 61 Stat. 669.

Finance Corporation,’ entered into a series of

crude rubber contracts with Pagel, Horton & Co.

By the terms of the agreements, Rubber Reserve

agreed to purchase various quantities of crude

rubber which was to be shipped to the United

States from the Netherland East Indies by Jan-

uary 31, 1942 (Exh. F, R. 25).

The contracts (six in number) evidencing the

agreements were identical in form (see Exh. F, R.

25-27) and designated Pagel, Horton & Co. as

‘‘Seller’’ and Rubber Reserve as ‘‘Buyer.’’ Pay-

ment for the shipments, however, was to be made

to Harrisons & Crosfield, Ltd., designated in the

contract as ‘‘Seller’s Eastern Shipper.’’ For pay-

ment purposes, Rubber Reserve was to open a line

of credit through the Bank of The Manhattan Com-

pany, New York, in favor of the Eastern Shipper,

Harrisons & Crosfield, Ltd. (R. 25). Payment for

the rubber was to be made against confirmed letter

of credit upon presentation to an intermediate bank

of shipping documents transferring the title to the

crude rubber to Rubber Reserve (R. 6, 47-48), and,

as a condition to payment, the shipping documents

? Rubber Reserve Company, a corporate subsidiary of R.F.C.,

was created on June 28, 1940, under authority of § 5d of the

Reconstruction Finance Corporation Act of January 22, 1932,

47 Stat. 5, as amended by § 5 of the Act of June 25, 1940, c.

427, 54 Stat. 572, 573-574, 15 U.S.C. 606b(3). The pur-

poses and object of the corporation were to perform the acts

and transactions in connection with the acquisition, storage,

egy , manufacturing, etc. of natural raw or cured rub-

r. (6 F.R. 2970; 18 C.F.R. 1941 Supp., p. 1561).

By Joint Resolution approved June 30, 1945 (59 Stat. 310),

Rubber Reserve Company was dissolved and its functions,

rights, and liabilities were transferred to the Reconstruction

Finance Corporation (13 C.F.R. 1946 Supp. 01.1 et seq.).

were to ‘‘include ‘On-Board’ bills of lading of

~ ocean-carrying vessel destined for Continental

U.S.A. ports, or local or through bill of lading en-

dorsed ‘On-Board’ by ocean-carrying vessel des-

_tined for Continental U.S.A. ports” (Exh. F, R.

25). The contracts all contained arbitration clauses

reading as follows (Exh. F, R. 26):

Failing amicable settlement, all claims, dis-

putes or controversies arising under or in rela-

tion to this contract shall be determined by

arbitration under the Temporary Procedure

for Arbitration between Eastern Shippers,

American Dealers, American Consumers, and

the Rubber Reserve Company approved by

Rubber Reserve Company, September 12, 1941,

and such Procedure shall be considered part

hereof as if herein set forth in full. *

_/ In January, 1942, 661 packages and cases of

crude rubber were allegedly ‘‘destroyed by enemy

action or otherwise lost while in transit’’ before de-

livery on board an ocean carrier destined for a

United States port (R. 7, 12-13, 47). Although

Harrisons & Crosfield was thus unable to present

the required on-board bills of lading, nevertheless

payment in the amount of $18,622.37, the value of

the 661 packages and cases, was obtained under the

letter of credit arrangement from an intermediate

Far Eastern bank (R. 47-48). Subsequently, Har-

risons & Crosfield was required to refund this

8 The “Temporary Procedure for Arbitration between East-

re ny meng nar Dealers, American Consumers, and the

Rubber Company,” approved September 12, 1941, is

set forth at R. 19-24.

amount (R. 48) and thereafter, through Pusinelli,

an agent, laid claim to the same amount on the

basis of an alleged breach, by Rubber Reserve, of

the war and marine insurance provisions of the

contract (R. 48).*

On September 14, 1951, after Reconstruction

Finance Corporation, as successor to Rubber Re-

serve, declined to recognize the claim, Harrisons &

Crosfield invoked the arbitration clause of the con-

tract to settle its claim (R. 12-13; Exh. F, Condi-

tion 10, R. 26). By letters dated October 2 and

October 10, 1951, R.F.C. was notified by the Rub-

ber Manufacturers Association Incorporated (des-

ignated for this purpose in the arbitration proce-

dure incorporated in the contract) of the appoint-

ment of arbitrators (R. 14-16), and by letter of De-

cember 4, 1951, that the arbitration would be held

on December 11, 1951 (R. 17-18).

On December 6, 1951, R.F.C. petitioned the dis-

trict court for an injunction restraining Harrisons

& Crosfield from seeking arbitration (R. 5-11).

Harrisons & Crosfield moved to dismiss the peti-

tion and cross petitioned, on January 3, 1952, for

an order under 9 U.S.C. 4 (infra, pp. 22-24) to

direct R.F.C. to arbitrate the claim allegedly arising

under the insurance provisions of the contracts (R.

30-39). R.F.C. opposed the cross petition on the

ground, among others, that the claim was barred,

* The relative responsibilities and duties of the parties to

the contract with regard to the placing or assumption of war

and marine insurance risks were covered by complex provi-

sions of the contract, designed to fit varying situations (Exh.

F, R. 25).

having accrued more than six years prior to the

commencement of the proceeding (R. 43).

The district court held (R. 46-53) that only two

issues were triable in a proceeding under 9 U.S.C.

4: (1) the making of the arbitration agreement,

and (2) the failure, neglect or refusal to perform

the agreement (R. 52). The court declined-+te-pass

on the statute of limitations defense, holding that,

| the question was within the competence—of the

“aritientots ce 52). Accordingly, R.F.C.’s peti-

tion was dismissed and the cross petition of Harri-

sons & Crosfield granted (R. 53).

The Court of Appeals, Judge Clark dissenting,

. affirmed the order of the district court, holding

/ (1) that the action to compel arbitration was not

time barred since, for this purpose, the six-year

period ° was to be measured from the date of Har-

risons & Crosfield’s demand for arbitration (in

1951) rather than from the date of the accrual of

the claim (jn 1942) ; (2) that the effect of the stat-

ute of limitations on Harrisons & Crosfield’s claim,

although the court assumed the claim to be time

barred, was to be remitted to the arbitrators for

decision; and (3) that R.F.C. had not discharged

its burden of showing circumstances which would

5 It is common ground in this case that the applicable limita-

tion period is six years as provided by New York law for

contract actions or special proceedings. New York Civil

Practice Act, § 48, infra, n. 13. The federal arbitrative

statute contains no independent limitations provision. As to

the applicability of state statutes of limitations to proceedings

in the federal courts, see Cope v. Anderson, 331 US. 461,

463-464; Guaranty Trust Co. v. York, 326 U.S. 99; Holmberg

v. Armbrecht, 327 U.S. 392; Russell v. Todd, 309 U.S. 280;

Stanley v. Schwalby, 147 U.S. 508.

warrant applying the doctrine of laches to Harri-

sons & Crosfield’s asserted right to arbitration, al-

though the judgment of the district court, which

had limited the hearing to the two issues specified

above, was affirmed (204 F. 2d 366 ff., R. 61-68).

REASONS FOR GRANTING THE WRIT

The Second Circuit, presiding over the center of

American commercial activity where arbitration

clauses are commonplace, has held that arbitration

will be enforced by federal courts even though the

underlying claim to be resolved has long been time

barred. This strange ruling does not fall into the

valid pattern of court decisions designed to foster

and encourage the proper use of arbitration proce-

dures. On the contrary, this conclusion, reached

through what appears to be legalistic over-refine-

ment, will necessarily encourage the resuscitation

and litigation of stale claims and make necessary

expensive and prolonged hearings which ought to

be avoided. The decision merits, therefore, the

attention and consideration of this Court.

1. The core of the holding below is the separa-

tion into two parts of the R.F.C.’s defénse that the

applicable six-year statute of limitations had long

run on Harrisons & Crosfield’s claim that a breach

of the insurance provision of the contract had taken

place. The court first held that the statute had

not run as to the proceeding, under Section 4 of

the Arbitration Act, to compel arbitration since |

the suit had been instituted within six years of the

1951 demand for arbitration. This holding was ~

announced without regard to the fact, assumed by

Fe,

the court below, that the six-year limitation period

had clearly run on the sole contractual dispute in-

volved. The latter question was then said to be

wholly within the competence of the arbitrators,

to be determined by them in the course of the ar-

bitration proceedings. 204 F. 2d at 369, R. 65. We

submit that this disposition of the problem entirely

misconceives the nature of an agreement to arbi-

trate disputes as well as the power and function of

a district caurt sitting in a Section 4 proceeding.

As stated in Murray Oil Products Co. v. Mitsui

£ Co,, 146 F. 2d 381, 383 (C.A. 2), ‘‘[a]rbitration

is merely a form of trial, to be adopted in the action

itself, in place of the trial at common law.’’ By a

contractual agreement to arbitrate, the parties

elect, in lieu of their right to a judicial resolution

of controversies, to submit their disputes to deci-

sion by third persons of their own choosing. * Since

arbitration is an alternative remedy, the same con-

siderations which have justified the imposition of

time limitations on common law and statutory ac-

tions, should apply with equal force. Whether a

claim be asserted in a court of law or submitted to

arbitrators, it is ‘‘unjust not to put the adversary

on notice to defend within the period of limitation

and * * * the right to be free of stale claims in

time comes to prevail over the right to prosecute

them.’”’ Telegraphers v. Ry. Express Agency, 321

U.S. 342, 349.

The basic error of the court below was the at-

‘. ®Cf. Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109;

Marine Transit Co. v. Dreyfus, 284 U.S. 263, 277-279.

eee sama ames

tempt to view the arbitration procedure, comprised

of the demand for arbitration and the right to com-

pel arbitration if the demand is not honored, as

a substantive and separate Tight, not connected

with or dependent upon the claim sought to be as-

serted. As with all remedies, the validity of th

assertion of the right to arbitrate must be measured,

for limitations purposes, from the date when the

right to invoke the remedy accrued. Here, the

right to demand and compel arbitration became vr

rfect when the alleged breach by Rubber Reserve ~~

of the insurance obligations of the contract took

j Respondent should, therefore, be

time barred from enforcing the arbitration remedy

which the parties had selected, in the same manner

as it would have been time barred from attempting

to assert a right to judicial resolution of a dispute.

The contrary view, adopted by the court below,

permits a claim, no matter how stale it may be, to

be asserted by means of arbitration long after

court action on the same claim would be barred.

To hold this is to permit those who, for one reason

* In answer to the suggestion that the court’s holding could

well result. in compelling arbitration of disputes after the

lapse of 30 or 50 years, the court suggested, in addition to

the possibility of laches, that the parties to a contract em-

bodying an arbitration clause could “easily put in it an ‘express

time limitation.’ ” 204 F. 2d at 370, R. 66-67. But we do not

conceive how a time limitation placed by the parties upon an

agreement to arbitrate could or should be more efficacious

for this purpose than a statutory time limitation plainly ap-

plicable to arbitration since, if the court’s interpretation is

correct, such a limitation would presumably not commence to

run until there had been a request and refusal to arbitrate, or,

if that were not the case, the issue of limitations would still

be left for the lay arbitrators.

or another, failed to assert their rights in a reason-

able time, to wait with safety until long after mem-

ories have faded, evidence is lost and witnesses

have died or disappeared. *

Nothing prevents the district court from taking

account of these very pertinent considerations.

While the Federal Arbitration Act ascribes an ir-

revocable character to arbitration agreements (9

U.S.C. 2)° and provides for their enforcement in

the federal courts (9 U.S.C. 4), the right to arbi-

trate is nonetheless not an absolute one, to be en-

forced by the mechanical issuance of a court order.

‘suit or proceeding * * * brought in any of

the courts of the United States upon any issue

referable to arbitration under an agreement in

writing for such arbitration’’ may be stayed by

the court until the ‘‘arbitration has been had * * *,

providing the applicant for the stay is not in de-

fault in proceeding with such arbitration”? (em-

phasis supplied). Under this section, applica-

tions for a stay of court proceedings have been

denied because of the applicant’s delay in invoking

the arbitration clause. Almacenes Fernandez, S.A.

v. Golodetz, 148 F. 2d 625 (C.A. 2); La Nacional

[: Section 3 of the Act, for example, provides that a

Plantanera v. North American F. & S.S. Corp., 84

8See Nagy v. Arcas Brass & Iron Co., 242 N.Y. 97, 150

N.E. 614: “But the Arbitration Law contemplates prompt

action, and too long a delay in seeking appropriate relief may

easily construed as an indication that this claim is waived.”

bs agers of Zimmerman v. Cohen, 236 N.Y. 15, 139

9«* * * save upon such grounds as exist at law or in equity

for the revocation of any contract.” Ibid.

| aceaeeana

F. 2d 881 (C.A. 5); American Locomotive Co. v.

Gyro Process Co., 171 F. 2d 115 (C.A. 6), certiorari

denied, 336 U.S..909; Radiator Specialty Co. v.

Cannon Mills, 97 F. 2d 318 (C.A. 4); Cargo Car-

riers v. Erie & St. Lawrence Corp., 105 F. Supp.

638 (W.D. N.Y.) ; cf. under the New York Arbi-

tration Law, Matter of Bauer Co., 206 App. Div.

423, 201 N.Y.S. 438; Nagy v. Arcas Brass & Iron

Co., 242 N.Y. 97, 150 N.E. 614; Matter of Zimmer-

man v. Cohen, 236 N.Y .15, 139 N.E. 764.

The Second Circuit has stated that a demand for

arbitration must be made ‘within a reasonable

time,’’ Son Shipping Co. v. De Fosse and Tanghe,

199 F’, 2d 687, 689; and, in a proceeding under Sec-

tion 4 of the Act, the Sixth Circuit has held that a

contractual right of arbitration was waived by the _-

party seeking enforcement of the agreement to

arbitrate where it had actively participated in a

law suit and delayed asserting its right to arbitra-

tion for over seven years. American Locomotive

Co. v. Gyro Process Co., 185 F. 2a 316, 318. See

also Galion Iron Works & Mfg. Co. v. J. D. Adams

Mfg. Co., 128 F. 2d 411, 414 (C.A.7 }s

The plain import of these and like holdings is’

that a district court possesses and must exercise

discretion in determining whether an order com-

peling arbitration is appropriate. However, in the

instant case, both the district court and the court

of appeals have declined to pass on the question of

the effect of the statute of limitations on respond-

ent’s claim and have held that the issue must be de-

termined by the arbitrators. The holding of the

prc of appeals on this point was predicated upon

the assumption that the claim was barred. If the

claim is barred, however, and the arbitrators are

bound to give effect to the statute of limitations,

the court performs a useless act by remitting the

question to the arbitrators and, in so doing, puts

the parties to unnecessary delay and expense, both

of which are contrary to the purpose of arbitration

and inconsistent with equitable principles which

should govern a proceeding under Section 4. If

the arbitrators are bound to give effect to the stat-

ute of limitations and fail to do so, their award may

be subject to review under Section 10 of the Act

(App.,-iyfra, p. 24). This would merely achieve

yf treatment. It would be far better that

the district court pass on the statute of limitations

issue in the first instance.

If, on the other hand, the arbitrators are not

bound to give the same effect to the statute of

limitations as would a court, or if their determina-

tion of the limitations issue is ‘‘final and bind-

ing’”’ (Exh. E, R. 22) with no appeal on the correct-

ness of their decision (see Sections 10 and 11 of the

Arbitration Act, infra, pp. 24-25), legal matters

be remitted to the unreviewable determination of

lay arbitrators. It is not lightly to be assumed that

the parties contemplated such treatment of a purely

legal defense as basic as that of limitations and

generally so little dependent on particular facts

or on unique commercial or mercantile knowl-

edge. *°

Though we believe these principles to be plain,

_there is no judicial decision directly in point on

_the question.of remitting the statute of limitations

issue to arbitrators. The New York Court of Ap-

peals held, under the New York Arbitration Law,

that the issue of the cancellation of a contract con-

taining an arbitration clause is for the arbitra-

tors. Matter of Lipman (Haeuser Shellac Co.),

289 N.Y. 76, 78, 43 N.E. 2d 817. But the Court of

Appeais decided, on the same day, that, where per-

formance of contracts had been frustrated by or-

ders of the Federal Price Administrator, a stay of

arbitration proceedings was properly granted.

Matter of Kramer v. Uchitelle, Inc., 288 N.Y. 467,

43 N.E. 2d 493; but see Matter of Behrens (Feuer-

ring ), 296 N.Y. 172, 71 N.E. 2d 454, where it was

held that whether a party was released from a con-

tract when the war precluded performance was a

matter within the competence of the arbitrators.

With respect to the statute of frauds as a defense

to a proceeding to compel arbitration, the New

York courts are in apparent disagreement. ™

of members appointed by the Rubber Manufacturers Asso-

ciation, drawn bin the various rubber companies. (Exhs. A,

B, C, D, E, R. 12-24). Cf. Re Arbitration Between Astley &

Tyldesley Coal & Salt & Tyldesley Coal Co. (1899) 80 L. T.

116; cf. dissenting opinion in Matter of Exeter Manufacturing

Co. v. Marrus, 254 App. Div. 496, 499, 501, 5 N.Y.S. 2d 438.

1 See e.g., Matter of Exeter Manufacturing Co. v. Marrus,

254 App. Div. 496, 5 N.Y.S. 2d 438; Matter of Tanenbaum,

Textile Co., Inc. v. Schlanger, 287 N.Y. 400, 40 N.E. 2d 225;

It has been said that ‘‘proceedings to enforce

arbitration presuppose the existence of a valid and

enforceable contract at the time when the remedy is

sought.’’ Raphael v. Silberberg, 274 App. Div.

625, 86 N.Y.S. 2d 421; Matter of Kramer v.

Uchitelle, Inc., supra." And this, we believe, con-

stitutes a reasonable approach in determining

whether an order to compel arbitration should issue.

For the court to determine initially whether the

claim is barred by the statute of limitations will in

no way determine the merits of a claim or dispute

since the limitation pertains only to the remedy.

The merits of a claim, if not barred by time, will

remain for the arbitrators, more than likely all

that the parties intended in the first place. If the

claim is barred, the fault lies with those who have

inexcusably delayed. *

Matter of Ailbrecht Chemical Co. (Anderson Trading Corp.),

298 N.Y. 437, 440, 84 N.E. 2d 625; Matter of Gitelson & Sons,

274 App. Div. 480, 482, 84 N.Y.S. 2d 605, 607; Arthur Philip

Export Corp. v. Leathertone, 275 App. Div. 102, 104, 87 N.YS.

2d 665, 667; Airedale Worsted Mills, Inc. v. Bonnie Classics,

198 Misc. 259, 260, 98 N.Y.S. 353.

12 And see Matter of Metro Plan, Inc. v. Miscione, 257 App.

Div. 652, 15 N.Y.S. 2d 35, where it was held that whether a

contract containing an arbitration clause was usurious and

hence unenforceable, was for the court. Cf. Application of

Roselle Fabrics, Inc., 108 N.Y.S. 2d 921, affirmed, 279 App. Div.

1044, 113 N.Y.S. 2d 280; Matter of Robinson v. Robinson,

61 N.Y.S. 2d 859, affirmed, 296 N.Y. 778, 71 N.E. 2d 214.

18 Our position is sustained by the clear text of the applicable

New York limitations statutes. Section 48 of the N. Y. Civil

Practice Act provides that an action upon a contract obligation

“musi be commenced within six years after the cause of action

has accrued.” By Section 10 of the Civil Practice Act, the term

“action,” as employed in Section 48, is to be construed as in-

cluding a “special proceeding”; and Section 1459 of the Civil

Practice Act provides that the arbitration of a controversy

“shall be deemed a special proceeding.” Thus, New York im-

—

2. Harrisons & Crosfield’s asserted right to ar- + - ¢

bitrate should have been barred not only by the

statute of limitations, as we have shown above, but

also by the doctrine of laches.

(a). Section 2 of the Federal Arbitration Act

(9 U.S.C. 2, infra, p. 22) provides that a written’

provision to settle by arbitration a controversy aris-

ing out of a contract ‘“‘shall be valid, irrevocable,

and enforceable, save upon such grounds as exist

t law ori ity for the revocation of any con-

tract.’” Where a party to an arbitration agree-

ment is ‘‘aggrieved by the alleged failure, neglect,

or refusal of another to arbitrate’ in accordance

with their agreement, he may petition any federal

court which, ‘‘save for such agreement,’’ would

poses a six-year limitation period (under Section’48) on arbi-

tration. And that this period must be computed from the date

when the right to invoke the remedy accrued, is underscored by

Section 11 of the Civil Practice Act, which provides:

The periods of limitation prescribed by this article,

except as otherwise specially provided therein, must be

com om the time of the accruing.of the right to

relief by action, special proceeding, defense or otherwise,

as the case requires, to the time when the claim to that

relief is actually interposed by the party as a plaintiff or

a defendant in the particular action or special proceeding.

[Emphasis supplied. ]

Further, Section 15 of the New York Civil Practice Act

provides:

Where a right exists, but a demand is necessary to entitle

& person to maintain an action, the time within which the

action must be commenced must be ed

ine when thy to make the demand complete * * *

Even if it be assumed that a demand for arbitration was neces-

sary to start the running of the limitation period, the New York

statute equates the right to demand with the demand, thus

preventing a claimant from tolling the limitation period by a

refusal to act.

otherwise have jurisdiction of the subject matter,

for an order directing that the arbitration proceed

in the manner provided for in the agreement. 9

U.S.C. 4, infra, pp. 22-24.

An agreement to arbitrate is thus ‘‘placed upon

the same footing as other contracts’’ “* and the fed-

eral courts are made available for their enforce-

ment. The remedy provided by Section 4 is the

equitable remedy of specific performance of the

contract ‘to arbitrate and one who seeks specific

performance of a contract appeals to the equity

jurisdiction of the federal courts and ‘‘to the sound

diseretion which guides the determination of courts

of equity.’’ Meredith v. Winter Haven, 320 U.S.

228, 235; The Anaconda v. Amer. Sugar Co., 322

U.S. 42, 44; Hecht Co. v. Bowles, 321 U.S. 321, 329;

Kulukundis Shipping Co. v. Amtorg Trading Corp.,

126 F. 2d 978 (C.A. 2) ; ef. Matter of Feuer Trans-

portation, 295 N. Y. 87, 65 N.E. 2d 178.

Disregarding the traditional concepts which

govern the grant or denial of equitable relief, the

district court held that, in a proceeding under Sec-

tion 4, only two issues were open to the court (R.

52): (1) the making of the agreement, and (2) the

failure, neglect or refusal to perform the agree-

, ment. The court below correctly rejected this

limitation of the district court’s function, stating

that ‘‘as a court, when asked to enter an order, un-

erd the federal Arbitration Act, requiring a party

to arbitrate as he promised, sits ‘in equity,’ passing

.on a prayer for specific performance, it must take

14H. Rep. No. 96, 68th Cong., Ist Sess., p. 1.

into account equity considerations, and notably

laches.’’ 204 F. 2d at 369, R. 65. Cf. The Anaconda

v. Amer. Sugar Co., 322 U.S, 42, 44. However, the

court below, recognizing that laches might serve

to bar respondent’s right to arbitration, went on to

hold that R.F.C. had not discharged its burden

of showing laches. 204 F. 2d at 370, R. 66.

Coupled with the affirmance of the district court

judgment, this holding, we submit, was clear error

__since it presupposes, contrary to the fact, that the

<district judge afforded a hearing in the exercise-of-~

Shis equitable-pewers.. If such a hearing were to be

afforded, R.F.C. would then have an opportunity

to ‘‘discharge its burden’’** by showing that Har-

risons & Crosfields improperly obtained payment,

without the presentation of required documents,

for the shipment of rubber involved and retained

it for approximately eight years, asserting no

breach of contract or right to arbitrate until non-

delivery of the shipment became known after

World War II; that after refund was required the

breach of the insurance provisions (yielding a

claim for damages in the same amount as the re-

funded purchase price) was alleged for the first

time; that Rubber Reserve and R.F.C. are in no

way responsible for respondent’s failure to assert

its claim sooner nor did they do anything to pre-

ing its claim, the burden would more properly rest upon re-

spondent “to aver and prove circumstances making it in-

equitable to apply laches to his case.” (Shell v. Strong, 151 F.

2d 909, 911 (C.A. 10)). However, we assume above, for the

purpose of argument, that the burden can properly be placed

upon R.F.C.

vent respondent from demanding arbitration of

its claim within a reasonable time after January,

1942; that there is but a slender chance of testing

[Y the merits of respondent’s claim, turning as it does

on factual details at the time of shipment, since

such testing would depend on practically unknown

events and circumstances which took place in In-

donesia at a time when chaos and confusion reigned

because of the imminent fall of the Netherland East

Indies to the Japanese armed forces; and that it

would be difficult, if not impossible, to locate the

witnesses and marshal the evidence necessary to

rebut the claim.

These are all factors that a court of equity should

| weigh before exercising its power to compel spe-

cific performance. None of these factors have been

properly shown to or considered by either court

below. On the contrary, the court below, by af-

firming the district court order and at the same

time concluding that R.F.C. had not discharged its

burden of showing laches, has deprived R.F R.F.C, of

_all opportunity for hearing on the question.

~~(b). Moreover, the erroneous conclusion that re-

spondent’s cause of action did not accrue until de-

mand to arbitrate gave rise to further error in the

court’s determination that respondent’s right to

arbitrate was not barred by laches. It is well es-

tablished that the propriety of the application of

the doctrine of laches to one seeking equitable re-

lief may be measured by reference to statutes of

limitations in comparable actions at law. Gard-

ner v. Panama R. Co., 342 U.S. 29, 30-31; ef. Holm-

berg v. Armbrecht, 327 U.S. 392, 396. Such “‘stat-

utes have been drawn upon by equity solely for

the light they may shed in determining that which

is decisive for the chancellor’s intervention,

namely, whether the plaintiff has inexcusably slept

on his rights so as to make a decree against the de-

fendant unfair.”” Holmberg v. Armbrecht, 327

U.S. 392, 396. See also Cope v. Anderson, 331 U.S.

461; Benedict v. City of New York, 250 U.S. 321,

327; Guaranty Trust Co. v. York, 326 U.S. 99, 111;

Alsop v. Riker, 155 U.S. 448; Godden v. Kimmell,

99 U.S. 201.

The court below apparently accepted this prin-

ciple but misapplied it by looking solely to the

lapse of time between the demand and refusal to

arbitrate in September 1951 and the commence-

ment of proceedings to compel arbitration in Janu-

ary 1952—a lapse of approximately three months.

Having concluded that the action under Section

4 was timely, the court held that a “‘heavy burden

rests on Reconstruction Finance Corporation,

as the party setting up laches as a defense, to es-

tablish facts which constitute laches in the par-

ticular circumstances of this particular case.’’ 204

F. 2d at 370, R. 66.

Assuming the propriety of the measuring period

of limitations selected by the court below, the

burden placed upon R.F.C. would be more than

‘‘heavy.’’ It would be virtually insurmountable

since it would be impossible for R.F.C. to show

prejudice or disadvantage by reason of the three-

month interval. But the measuring limitation pe-

riod thus chosen was completely unrealistic. The

matter would be far different if the proper measur-

ing period were employed to determine the appli-

eability of laches, namely, the period commencing

when the right to demand arbitration arose in 1942.

Use of this measuring period would bring before

the court consideration of all the factors which

we have enumerated above, pp. 17-18. And there

ean be no doubt that the proper statute of limita-

tions period is that which commenced in January

1942. Judge Clark, in his dissent, succinctly stated

what we believe to be the only reasonable conclu-

sion der :cible from the circumstances of this case:

“«* * * a delay of over nine years where the fair

analogy of the limitation statute—so usual a gen-

eral yardstick of laches—is only six, surely shows

laches.’’ 204 F. 2d at 371, R. 67.

3. The questions here presented are of signifi-

cance not only under the Federal Arbitration Act

(9 U.S.C. 1 et seq.) but under related state statutes

as well. The instant controversy originates in the

most important commercial circuit and the deci-

sion below establishes the dominant federal law

for that central area. Moreover, since virtually

all of the 48 states have arbitration statutes akin

to the federal act, ** an authoritative determination

by this Court will have an illuminating effect upon

the enforcement of private arbitration agreements

and thus will be of nationwide reach. Arbitration

is a growing instrument of trade and commerce.

16 Sturges, Commercial Arbitration and Awards, p. ix.

17 Cf. Wilko v. Swan, No. 39, this Term, pending on writ of

certiorari to the Court of Appeals for the Second Circuit.

The decision below will have especially signifi-

cant impact upon outstanding Government con-

tracts containing arbitration clauses. We are in-

formed by R.F.C. that the contracts involved in

these proceedings are representative of thousands

of similar contracts negotiated by subsidiary cor-

porations during the emergency and war years, and

that an examination of available records by R.F.C.

has revealed that 35 claims aggregating more than

$490,000 have been asserted for rubber allegedly

shipped to the United States from foreign shores

but which, for one reason or another, was never

actually placed on board an ocean carrying vessel

or, at any rate, never arrived. These could now be

revived by the claimants by the utilization, per-

mitted by the decision below, of the arbitration

clauses contained in the contracts. In view of all

these considerations, we believe that review by this

Court is fully warranted.

CONCLUSION

For the foregoing reasons, it is respectfully sub-

mitted that the petition for a writ of certiorari

should be granted.

Oscar H. Davis,

Acting Solicitor General.

Jury, 1953.

APPENDIX

Title 9 U.S.C. provides in part as follows:

§ 2. Validity, irrevocability, and enforce-

ment of agreements to arbitrate

A written provision in any maritime trans-

action or a contract evidencing a transaction

involving commerce to settle by arbitration a

controversy thereafter arising out of such con-

tract or transaction, or the refusal to perform

the whole or any part thereof, or an agreement

in writing to submit to arbitration an existing

controversy arising out of such a contract,

transaction, or refusal, shall be valid, irrevo-

cable, and eats a upon such grounds

as exist at law J in equity for the revocation

of any contract.

§ 4. Failure to arbitrate under agreement;

petition to United States court having juris-

diction for order to compel arbitration ; notice

and service thereof; hearing and determina-

tion

A party aggrieved by the alleged failure,

neglect, or refusal of another to arbitrate under

a written agreement for arbitration may peti-

tion any court of the United States which, save

for such agreement, would have jurisdiction

under the judicial code at law, in equity, or in

admiralty of the subject matter of a suit aris-

ing out of the controversy between the parties,

for an order directing that such arbitration

proceed in the manner provided for in such

agreement. Five days’ notice in writing of

such application shall be served upon the party

in default. Service thereof shall be made in

the manner provided by law for the service of

summons in the jurisdiction in which the pro-

ceeding is brought. The court shall hear the

parties, and upon being satisfied that the mak-_

_ing_of the agreement forarbitration—or—the

failure to comply therewith is not in issue, the |

court shall make an order directing the parties

to proceed to arbitration in accordance with

the terms of the agreement. The hearing and

proceedings, under such agreement, shall be

within the district in which the petition for an

order directing such arbitration is filed. If

the making of the arbitration agreement or

the failure, neglect, or refusal to perform the

same be in issue, the court shall proceed sum-

marily to the trial thereof. If no jury trial be

demanded by the party alleged to be in default,

or if the matter in dispute is within admiralty

jurisdiction, the court shall hear and deter-

mine such issue. Where such an issue is raised,

the party alleged to be in default may, except

in cases of admiralty, on or before the return

day of the notice of application, demand a jury

trial of such issue, and upon such demand the

court shall make an order referring the issue

or issues to a jury in the manner provided by

law for referring to a jury issues in an equity

action, or may specially call a jury for that

purpose. If the jury find that no agreement

in writing for arbitration was made or that

there is no default in proceeding thereunder,

the proceeding shall be dismissed. If the jury

find that an agreement for arbitration was

made in writing and that there is a default in

proceeding thereunder, the court shall make

an order summarily directing the parties to

proceed with the arbitration in accordance

with the terms thereof.

§ 10. Same; vacation; grounds; rehearing

In either of the following cases the United

States court in and for the district wherein the

award was made may make an order vacating

the award upon the application of any party

to the arbitration—

(a) Where the award was procured by cor-

ruption, fraud, or undue means.

(b) Where there was evident partiality or

corruption in the arbitrators, or either of them.

misconduct in refusing to postpone the hear-

ing, upon sufficient cause shown, or in refusing

to hear evidence pertinent and material to the

controversy; or of any other misbehavior by

which the rights of any party have been prej-

udiced.

(d) Where the arbitrators exceeded their

powers, or so imperfectly executed them that

a mutual, final, and definite award upon the

subject matter submitted was not made.

(e) Where an award is vacated and the time

within which the agreement required the award

to be made has not expired the court may, in its

discretion, direct a rehearing by the arbitra-

tors.

§ 11. Same; modification or correction;

grounds; order

In either of the following cases the United

States court in and for the district wherein

the award was made may make an order modi-

__ Skee A CLAS

fying or correcting the award upon the appli-

cation of any party to the arbitration—

(a) Where there was an evident material

miscalculation of figures or an evident mate-

rial mistake in the description of any person,

thing, or property referred to in the award.

(b) Where the arbitrators have awarded

upon a matter not submitted to them, unless it

is a matter not affecting the merits of the de-

cision upon the matter submitted.

of form not affecting the merits of the con-

troversy.

The order may modify and correct the

award, so as to effect the intent thereof and

promote justice between the parties.

W vo. 5. COvERNMENT PRINTING OFFICE: 1953 268510 196

}

¢ No. 226.

IN THE

Supreme Court of the United States

Octoser Term, 1953.

RECONSTRUCTION FINANCE CORPORATION,

Petitioner,

Vv.

HARRISONS & CROSFIELD, LTD., by FRED PUSINELLI

& COMPANY, INCORPORATED, Agent,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT.

RESPONDENT’S BRIEF IN OPPOSITION.

Francis A. Brick, Jr.,

Attorney for Respondent.

Donovan LeisurE Newton & Irving,

Burr F. CoLeman,

of Counsel.

——————————

Pandick Press, Inc., 22 Thames St., New York 6, N. Y., U. S. A.

TABLE OF CONTENTS.

Orryions Brtow 1

JURISDICTION

QUESTION PRESENTED

Statutes Invo.vev

ARGUMENT

1. There is no reason to grant the writ

2. The decision below is clearly correct...................

StaTemMent 2

3. Petitioner’s contentions lack merit. y

Concuusion 11

AprENDIXx 12

CrraTIons.

Cases:

~ Kulukundis Shipping Co. v. Amtorg Trading Corp.,

126 F. 2d 978, 985-986 (1942, O. C. A. 2d) eerccecconee

Lipman (Haeuser Shellac Co.), Matter of, 263

App. Div. 880 (1942, 2d Dept.), aff’d 289 N. Y.

76 (1942)

Murray Oil Products Co. v. Mitsui & Co., 146 F. 2d

381, 383 (1944, C. C. A. 2d)

Pahlberg Petition, In re, 131 F. 2d 968, 971 (1942,

C. C. A. 2d)

Schoenamsgruber v. Hamburg Line, 294 U. 8S. 454

(1935)

Shanferoke Coal & Supply Corp. v. Westchester

S. Corp., 70 F. 2d 297, 298 (1934, C. C. A. 2d),

aff’d 293 U. S. 449 (1935)

Stathatos v. Arnold Bernstein 8. 8. Corp., 202 F.

2d 525, 526 (1953, C. A. 2d)

Utility Oil Corporation, In re, 10 F. Supp. 678, 680

(1934, S. D. N. Y.)

Worcester Silk Mills Corporation, In re, 50 F. 2d

966 (1927, S. D. N. Y.)

Statutes:

Federal Arbitration Act, 9 U. 8. C

Section 4 2, 3, 6, 7

Federal Rules of Civil Procedure:

Rule 7(a) 3

Rule 8(d) 3

New York Civil Practice Act, Section 1450.............

Supreme Court of the Anited States

Ootosger Term, 1953

No. 226.

Reconstruction Finance Corporation,

Petitioner,

Hazgisons & Crosrietp, Lip., by Frep Pusingn1z

& Company, Inconporatsp, Agent,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.

RESPONDENT’S BRIEF IN OPPOSITION.

Opinions Below.

The opinion of the United States District Court for the

Southern District of New York (R. 46-53) is reported at

106 F. Supp. 358. The opinion of the Court of Appeals

(R. 61-68) is reported at 204 F, 2d 366.

Jurisdiction.

The jurisdiction of this Court is invoked under 28

U.S. C. 1254(1).2

1 Although the objection was not raised below, an order com-

arbitration is not appealable. Schoenamsgruber v. Ham-

urg Line, 294 U. 8. 454 (1935); In re Pahlberg Petition, 131 F.

2d 968, 971 (1942, C. C. A. 2d).

Question Presented.

Only the third of petitioner’s ‘‘Questions Presented’’

arises on the record. Even in its broadest terms, it remains

purely a procedural question:

Are the arbitrators the sole judges of an alleged

but controverted defense asserted against the very

claim sought to be arbitrated, or must such a defense .

be tried in the first instance by the District Court upon

an application to stay, or to compel, arbitration?

Aside from assuming the very fact in dispute,” peti-

tioner’s other two ‘‘loaded’’ questions do not arise on the

record, as will be shown in the Statement, infra.

Statutes Involved.

9U. 8. C. 2, 4, 10 and 11 are set forth in the Appendix

to the Petition. New York Civil Practice Act, Section 1450

—the state statute equivalent to 9 U. 8. C. 4—is set forth

in the Appendix to this brief, infra, pp.

Statement.

Petitioner’s pleadings in the District Court explicitly

admitted both the making of the agreement for arbitra-

tion (Reply, par. 2, R. 41-42; Exh. F, R. 25-27) and peti-

tioner’s refusal to arbitrate (Reply, par. 7, R. 43). Upon

the face of the statute (9 U. S. C. 4) these two are the

determinative, and the only triable, issues upon an appli-

cation to compel arbitration. The Federal Arbitration Act

(9 U. 8. C.) contains no provision for a stay of arbitration.

2 The District Court specifi found that ‘‘There is a dispute

as to whether the statute has, i ee run’’ (R. 51),

| geemuas

The sole question of limitations arising on this reeord

is restricted to the alleged, but controverted, bar of the

elaim sought to be arbitrated. Thus, in the pleadings

before the District Court—there were no affidavits pre-

sented by either side—petitioner’s only references to the

statute of limitations, laches or ‘‘time bar’’ were as follows:

I. In the petition it was alleged that (R. 10):

««* * * Since the crude rubber was lost in 1942

and any possible claim against petitioner on

account of said loss arose at that time, the claim

asserted by respondent, even if respondent were

the proper person to assert the same, is barred by

the Statute of Limitations. (New York Civil Prac-

tice Act, Sections 13, 27, 28 and 28a.)’’ (Italics

supplied. )

This allegation was denied by paragraph 8 of

respondent’s answer (R. 32-33).*

2. In petitioner’s reply it was alleged that (R. 43) :

“*9. The right of action imvolved in this con-

troversy did not accrue within sia years next before

the commencement of this proceeding.’’ (Italics

supplied. )

This allegation was denied by operation of law.

Fed. Rules Civ. Proc., Rules 7(a), 8(d). The District

Court duly recognized the controverted status of both

these allegations, stating that ‘There is a dispute as to

whether the statute has, in fact, run’’ (R. 51).

*It should here be noted that, under the plain language of

9 U.S. C, 4, statutory limitation of the claim to be arbitrated is not

one of the specified issues triable by the District Court, and accord-

ingly respondent was fully justified in relying upon its

denials without affirmatively showing the facts to support those

denials; even.if this view were mistaken, 9 U. 8. C. 4 still specifically

provides for the full trial of disputed issues by the District Court,

pleaded —

Se ee

The very wording of the above-quoted allegations in

petitioner’s pleadings demonstrates that the defense of the

statute of limitations was directed solely to the claim sought

to be arbitrated. This is further borne out by petitioner’s

own ‘‘Statement’’ in the Petition before this Court wherein,

immediately after referring to respondent’s cross petition

for an order ‘‘to direct R. F. C. to arbitrate the claim alleg-

edly arising under the insurance provisions of the contract’’

(italics supplied), petitioner recites that

‘‘R. F. C. opposed the cross petition on the ground

among others, that the claim was barred, having

accrued more than six years prior to the commence-

ment of the proceeding (R. 43).’’ (Petition, pp. 5-6,

italics supplied.)

There was, therefore, in the record papers before the

District Court no allegation or contention whatever by

petitioner that respondent’s cross-application to compel

arbitration was itself barred either by laches or by the

statute of limitations. Even beyond this absence of con-

tention, the record facts affirmatively establish the timeli-

ness of respondent’s cross-application:

(a) Respondent’s demand for arbitration was made

on September 14, 1951 (Exh. A, R. 12-13);

(b) Petitioner’s order to show cause and petition

for a permanent stay were made on December 6, 1951

(R. 3, 11);

tration was made on January 3, 1952 (R. 39-40)—less

than one month after petitioner’s refusal to arbitrate.

Finally, the record does not sustain the predicated

premise of petitioner’s first ‘‘Question Presented,’’ to wit,

that the demand for arbitration was made ‘‘more than nine

years after the contractual right to arbitrate arose’’ (Peti-

tion, p. 2, see also pp. 9, 20). Specifically, the arbitration

agreement provided (Exh. F, R. 26):

‘Failing amicable settlement, all claims * * *

shall be determined by arbitration * * *.’’ (Italics

supplied. )

Accordingly, respondent had no contractual right to demand

arbitration until its claim had first been refused by peti-

tioner; since the timeliness of the arbitration demand was

not questioned in the District Court, the record is under-

standably silent as to the precise date when ‘‘amicable set-

tlement’’ failed (cf. R. 13), but actually it was only a short

while before the demand for arbitration was made.

ARGUMENT.

1. There is no reason to grant the writ.

Petitioner shows no special and important reason why

the sound judicial discretion of this Court should be exer-

cised to grant the writ prayed for. There is here involved

neither a conflict of decision between the circuits nor a con-

flict with applicable decisions of this Court. Indeed, the

very possibility of any conflict at all is negatived by the

complete absence of other decisions on the point here in

question.*

Although the case may be a novel one, it presents no

important question of Federal law that should be settled

* Petitioner is in accord with both courts below in this respect.

The Court of Appeals declared (R. 63): ‘‘Plaintiff cites no deci-

sion, anywhere, relative to this question.’’ The District Court

declared (R. 52): ‘‘* * * there are no precedents based on the

defense of the statute of limitations * * * .’’ Petitioner itself

now declares (Petition, p. 18): ‘‘* * * there is no judicial

decision directly in point on the question of remitting the statute of

limitations issue to arbitrators.’’

by this Court. Entirely apart from the specifie defense of

limitations, the Federal courts (unlike the New York state

courts) have seldom, if ever, been called upon in the past

to decide the question whether a defense to the arbitrable

claim itself is triable by the court rather than by the arbi-

trators. Cf., e. g., Kulukundis Shipping Co. v. Amtorg

Trading Corp., 126 F. 2d 978, 985-986 (1942, C. C. A. 2d);

Inu re Worcester Silk Mills Corporation, 50 F. 2d 966 (1927,

S. D. N. Y.). Since there is thus no pressing urgency about

the question, it scarcely merits immediate consideration

and review by this Court.

_ Moreover, in view of the wide divergence and differ-

ences between the arbitration statutes of the various states,

a construction of the particular provisions of the Federal

statute by this Court would have no widespread bearing

or effect and would be of little assistance to the state courts

in construing the precise wording of their local statutes.

Finally, the question itself is of little practical signifi-

cance. On this score, petitioner merely suggests that out

of a total of 35 supposedly stale claims involving an aggre-

gate of perhaps a half million dollars, some may now be

revived and pressed to arbitration (Petition, p. 21). Aside

from the relative unimportance of this suggested threat,

it is perfectly obvious that the defense of limitations—if

justified—can be urged with as great force and effect before

the arbitrators as before a court.

2. The decision below is clearly correct.

Both courts below explicitly ruled that it was for the

arbitrators—not the court—to determine whether the stat-

ute of limitations is a bar to the claim sought to be arbi-

trated, These rulings are in accord not only with the

specific language of the Federal statute (9 U.S. C. 4), but

also with a host of state court decisions construing the

equivalent New York statute (Civil Practice Act, Section

1450).

Section 4 of Title 9, U. S. C., expressly provides that

upon a petition to compel arbitration,

being satisfied that the making of the agreement for

arbitration or the failure to comply therewith is not

im issue, the court shall make an order directing the

parties to proceed to arbitration in aecordance with

the terms of the agreement. * * *’’ (Italics sup-

plied.)

The statute further provides that if either the making of

the arbitration agreement or the non-performance thereof

be im issue, “‘the court shall proceed summarily to the trial

thereof,” and if it be found “that an agreement for arbi-

tration was made in writing and that there is a default in

proceeding thereunder,”’ the court shall summarily order

the parties to proceed with the arbitration.

Thus, apart from purely jurisdictional requirements,

the plain language of the Federal statute clearly proposes

only two issues to be decided by the court in the first

instance—namely, the making of the arbitration agreement

and the non-compliance therewith—and if they are decided

in favor of the party seeking arbitration, then arbitration

must be directed as a matter of course.

Since the Federal statute closely follows—indeed, was

im general copied from—the New York arbitration statute,®

judicial construction of the virtually identical language of

Section 1450 of the New York Civil Practice Act (Appen-

® Shanferoke Coal & Supply Corp. v. Westchester 8. Corp., 70

F. 2d 297, 298 (1984, C. C. A. 2d), aff’d 293 U. §. 449 (1935) ;

ery Onl Corporation, 10 F. Supp. 678, 680. (1934 S. D.

1438

dix, infra, pp. 44-42), affords persuasive and effective

guidance. Although a score of decisions of identical import

were cited to the courts below, reference to one mentioned

by the Court of Appeals (R. 63) will here suffice.

Matter of Lipman (Haeuser Shellac Co.), 263

App. Div. 880 (1942, 2d Dept.), aff’d 289 N. Y.

76 (1942).

In that case the Appellate Division declared (263 App.

Div. 880, at pp. 880-881) :

‘Under section 1450 of the Civil Practice Act, only

two issues may be tried in a proceeding of this kind,

(a) whether an agreement to arbitrate was made, and

(b) whether there was a failure or refusal to arbi-

trate. Appellant admits that it made the contract

containing the agreement to arbitrate and that it has

failed and refused to proceed to arbitration. Those

issues, therefore, are not open. Every other issue in

the proceeding, whether of fact or of law, and

whether raised by denial or by defense, is for the

arbitrators exclusively.’’ (Italics supplied.)

The Appellate Division’s summary direction of arbitration

was affirmed by the New York Court of Appeals, which

likewise declared (289 N. Y. 76, at p. 80):

«¢* * * when once an agreement to arbitrate has been

made, such an agreement must be considered in the

light of the broad language used in the above arbi-

tration statute. (Civ. Prac. Act, 41450.) This lan-

guage seems to imply that all acts of the parties

subsequent to the making of the contract which raise

issues of fact or law, lie exclusively within the juris-

diction of the arbitrators.* * * The language of the

agreement to arbitrate of course, must be sufficiently

broad so as to permit of the application of the gen-

eral principle that all issues subsequent to the making

of the contract are not for the court but for the arbi-

trators.’’ (Italics supplied.)

Accordingly, in the case at bar, although the courts

below were guided by no direct precedent upon the precise

question of the statute of limitations, their common ruling

was in full accord both with the plain language of the Fed-

eral arbitration statute and with the compelling weight of

the numerous and uniform decisions by New York courts

upon closely related questions under a comparable statute.

3. Petitioner’s contentions lack merit.

Petitioner’s entire argument (Petition, pp. 7-20) is

predicated upon a basic, if not deliberate, confusion and

identification of ‘‘the right to arbitrate’’ with ‘‘the claim to

be arbitrated.’’ This confusion is the essential element

needed in order to impart even a semblance of logic to peti-

tioner’s contention that whatever bars ‘‘the claim to be

arbitrated’’ should ipso facto bar ‘‘the right to arbitrate.’’

Here the particular bar asserted is the alleged but disputed

defense of the statute of limitations, but it might just as

easily be release, or fraud, or unclean hands, or any other

defense to the arbitrable claim.

Although arbitration is merely a form of trial, to be

adopted in place of the trial at common law’, petitioner’s

argument seeks to change it into some form of substantive

matter, so that the right to trial before arbitrators shall

somehow be made dependent upon the non-existence of any

valid defense to the very claim sought to be arbitrated.

Petitioner’s purpose is transparent: it simply seeks to have

6 Stathatos v. Arnold Bernstein 8S. 8. Corp., 202 F. 2d 525, 526

(1958, C. A. 2d) ; Murray Oil Products Co. v. Mitsui & Co., 146 F.

2d 381, 383 (1944, C. C. A. 2d).

its alleged defense to respondent’s claim tried before the

District Court in the first instanee, and not before the

arbitrators.

To accede to petitioner’s purpose is, of course, to vitiate

the very aim and function of the arbitral process—namely,

the immediate and speedy trial of disputed claims, without

either the impediment of legal manoeuvre and delay, or

the costliness of litigation. A further effect of petitioner’s

proposal would be to preclude the arbitrators from ever

passing upon asserted defenses to the claim in arbitration;

since such defenses would necessarily be tried by the court

in the first instance, there would be no justification for a

farther retrial by the arbitrators. Cf. Kulukundis Ship-

ping Co. v. Amtorg Trading Corp., supra, 126 F. 2d 978,

985-986. Significantly, petitioner suggests no reason why

such defenses should be singled out for exclusion from the

arbitrators’ consideration. |

Petitioner’s anxiety to avoid a trial before the arbitra-

tors cannot readily be fathomed. The arbitration agree-

ment was a basic part of the printed contract form prepared

by petitioner’s predecessor (Exh. F, R. 25-27). That con-

tract form as well as the arbitration procedure therein

incorporated were likewise specifically approved by the

board of directors of petitioner’s predecessor long before

the contracts herein question were executed (Exh. HE, R. 19).

Surely petitioner cannot now be heard to question the com-

petence and integrity of the arbitration panel which its

predecessor had thus selected after mature deliberation

(but see Petition, p. 13, footnote 10). 2

Conclusion.

For the foregoing reasons, it is respectfully submitted

that the petition for a writ of certiorari should be denied.

Franors A. Briox, JR,

Attorney for Respondent.

Donovan Letsure Newton & Irving,

Burr F. Cotzman,

Of Counsel.

APPENDIX.

Omitting matter not here relevant, Section 1450 of the

New York Civil Practice Act provides:

‘81450. Remedy in case of default. * * * A party

aggrieved by the failure, neglect or refusal of another

to perform under a contract or submission providing

for arbitration, described in such section may peti-

tion the supreme court, or a judge thereof, for an order

directing that such arbitration proceed in the manner

provided for in such contract or submission. * * * The

court, or a judge thereof, shall hear the parties and

upon being satisfied that there is no substantial issue

as to the making-of the contract or submission or the

failure to comply therewith, the court, or the judge

—thereof, hearing such application, shall make an order

directing the parties to proceed to arbitration in

accordance with the terms of the contract or sub-

mission.

‘‘If evidentiary facts be set forth raising a sub-

stantial issue as to the making of the contract or sub-

mission or the failure to comply therewith, the court,

or the judge thereof, shall proceed immediately to the

trial thereof. If no jury trial be demanded by either

party, the court, or the judge thereof, shall hear and

determine such issue. Where such an issue is raised,

any party may, not later than five days after the ser-

vice of the order directing a trial of such issue, demand

a jury trial of such issue, and if such demand be made,

the court, or the judge thereof, shall make an order

referring the issue or issues to a jury in the manner

provided by law for referring to a jury issues in an

equity action. Whenever an immediate trial is

ordered, the order therefor shall provide that if the

court, or where a jury has been demanded, the jury,

find that a written contract providing for arbitration

—

was made or a submission was entered into, as the case

may be, and that there was a failure to comply there-

with, the parties shall proceed with the arbitration

in accordance with the terms of the contract or sub-

mission, and said order shall provide that if the court

or jury, as the case may be, find that there was no such

contract or submission or failure to comply therewith

then the proceeding shall be dismissed.

‘‘The procedure herein provided shall be appli-

cable to any motion made under this article in which

an issue is raised as to the making of the contract or

submission or the failure to comply therewith.’ .

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.