Independence Day and Arbitration – An Update
By George H. Friedman*
Chairman of the Board, Arbitration Resolution Services
I wrote a blog post[1] a year ago on Independence Day and arbitration. For the most part, it still rings true. On the other hand, there have been just a few developments over the past 12 months (President Trump, anyone?). So, without further ado, here’s last year’s blog post, updated.
Our Founders and Arbitration
As we approach Independence Day, I am inspired to compose a blog post on the often-surprising relationships between our nation’s founders and arbitration. OK, the smash Broadway hit Hamilton also played a role. Either way, although America’s founders came from diverse political and socioeconomic backgrounds, some[2] seemed to like arbitration. Below I’ve collected some snippets on a few well-known signers of the Declaration of Independence, and some famous non-signer patriots. For example, who knew that in 1733 a dispute over the construction of what was to become Independence Hall in Philadelphia was submitted to arbitration? Read on.
A Revolutionary Concept
During the period after the Revolutionary War and prior to Washington’s inauguration, Samuel Adams urged that every treaty entered into by the new country contain an international arbitration clause.[3]
Ben Franklin’s biography states “He was also much consulted by private persons about their affairs when any difficulty occurred, and frequently chosen an arbitrator between contending parties.”
I couldn’t find John Hancock’s views on arbitration, but his namesake life insurance company uses an arbitration clause in its policies.
John Jay didn’t sign the Declaration of Independence, but he was our first Secretary of State and first Chief Justice of the Supreme Court. A biography states: “He proposed that America and Britain establish a joint commission to arbitrate disputes that remained after the war – a proposal which, though not adopted, influenced the government’s use of arbitration and diplomacy in settling later international problems.” However, this eventually resulted in the Jay’s Treaty[4] of 1794, which indeed called for arbitration.
Who was the Treaty’s primary architect? Non-signer and first Secretary of the Treasury Alexander Hamilton, who in describing this aspect of the Treaty said: “Is there any good objection to the mode of arbitration? It seems impossible that any one more fair or convenient could have been devised, and it is recommended by its analogy to what is common among individuals.”[5]
Nothing is known about the arbitration views of signer Benjamin Harrison, but his great-grandson and future President of the same name was a big fan of arbitration as a means of resolving international disputes. His September 3, 1890, Message to Congress Transmitting a Report Relating to International Arbitration said: “The ratification of the treaties contemplated by these reports will constitute one of the happiest and most hopeful incidents in the history of the Western Hemisphere.”[6]
Attorney Thomas Jefferson in 1771 represented a litigant in Bolling v. Bolling, a dispute over a Will. Apparently, the case was so complex that the parties submitted it to arbitration.
Similar to Benjamin Harrison, little is known about the arbitration views of signer Robert Treat Paine, but love of arbitration must have been in the bloodline because his namesake great-grandson was a big fan of international arbitration. Robert Treat Paine the younger was President of the American Peace Society, and the Robert Treat Paine Arbitration Conference was named after him.
Readers may recall my 2016 Presidents Day blog post,[7] where I offered a little primer on the little-known relationships between our presidents and arbitration. Let’s conclude by revisiting George Washington, another non-signatory. Our first Commander in Chief’s Last Will and Testament from July 1799 calls for arbitration to resolve disputes among his heirs:
I hope and trust that no disputes will arise concerning [my Will]; but if, contrary to expectation, the case should be otherwise from the want of legal expression, or the unusual technical terms, or because too much or too little has been said on any of the devises to be consonant with the law, my will and direction expressly is, that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; — two to be chosen by the disputants — each having the choice of one — and the third by those two — which three men thus chosen, shall unfettered by Law, or legal constructions, declare their sense of the Testator’s intention … and shall be binding as if issued by the U.S. Supreme Court.
And our New President?
A year ago, I said the ADR views of our next president were hard to predict. That’s no longer the case: President Trump is pro-arbitration! Why do I say that? As I’ve blogged before, President Trump believes in arbitration and used the process often as a businessman. For example, in 2012, he won $5 million in a dispute with a former Miss USA contestant who defamed the pageant, which he owned. President Trump in 2015 filed an arbitration claim against NBC after the network cancelled a contract to televise the Miss USA and Miss Universe pageants. He also won an Internet domain name arbitration, back in 2010. And I read in the Indisputably blog that even Mr. Trump’s agreement with campaign volunteers had a predispute arbitration agreement (“PDAA”) giving the campaign the unilateral right to require arbitration of disputes.
Since becoming President, Mr. Trump has demonstrated unwavering support for arbitration:
- In March, he signed into law a bill nullifying an Obama-era Executive Order and regulation barring companies with federal contracts valued at over $1 million from mandating arbitration of Title VII or sexual harassment or assault claims. Exercising its authority under the Congressional Review Act (“CRA”),[8] the House of Representatives on February 2nd passed House Joint Resolution 37, to invalidate the Fair Pay & Safe Workplaces rule issued on August 25, 2016. It was then passed by the Senate on March 6, and signed by President Trump on March 27th, along with several other nullifications. The rule is now rescinded and a like regulation in “substantially the same form” cannot be promulgated thereafter unless specifically authorized by Congress. Moreover, disapproval under the CRA is retroactive; subsection (d) provides: “Any rule that takes effect and later is made of no force or effect by enactment of a joint resolution … shall be treated as though such rule had never taken effect.”
- On June 2nd, the Centers for Medicare and Medicaid Services eliminated its regulation banning predispute arbitration agreements in nursing home admission agreements, and has dropped its appeal of a District Court preliminary injunction banning implementation of the original rule. The amended regulation was published in the Federal Register on June 5th. A CMS Factsheet leads with news that the prohibition on PDAAs is out, and then states the proposed regulation adds several requirements for PDAA use, all focused on clear notice and fairness.
- The Department of Education published a Notice on June 16 announcing that it was postponing indefinitely the planned July 1 effective date of another Obama-era regulation, that would have banned mandatory predispute arbitration agreements and class action waivers in college enrollment agreements for schools receiving federal financial aid for student borrowers.
- Also, the Trump Administration Department of Justice has been switching sides in some court cases, taking positions against those taken by federal agencies. In PHH Corporation v. Consumer Financial Protection Bureau, 839 F.3d 1 (D.C. Cir. 2016), the DOJ’s Amicus Brief filed last March ahead of the en banc oral argument held May 24th took a position against the anti-arbitration Consumer Financial Protection Bureau (“CFPB”). Also, the Acting Solicitor General on June 15th filed an Amicus Brief siding with the employers and against the National Labor Relations Board (“NLRB”) in Epic Systems Corp. v. Lewis, 137 S. Ct. 809 (2017), three cases pending at the Supreme Court involving whether the Federal Arbitration Act prevails over the National Labor Relations Act when it comes to enforcing class action waivers in employment arbitration agreements. The case is set for oral argument next Term and, like the CFPB, the NLRB will now have to represent itself,[9] reminding me of a scene[10] from “Blazing Saddles.”
- And, last but by no means least, President Trump nominated and the Senate confirmed the pro-arbitration Justice Neil Gorsuch.[11]
Conclusion
A guest analysis[12] I authored earlier this year reported that, undaunted by the rather poor prospects of enactment, Congressional Democrats have introduced or reintroduced ten bills aimed at curtailing mandatory arbitration in a wide range of contracts. These bills all seek to amend the Federal Arbitration Act and/or specific statutes to ban mandatory arbitration in disputes involving: consumer, employment, civil rights, anti-trust, securities, telecommunications, college enrollment applications, fraudulent credit card and banking accounts, servicemembers, whistleblowers, and other statutory claims. Some of the bills would be retroactive (in my view begging to be held violative of the Constitution’s Takings Clause), others would be prospective, and one would require certain arbitration hearings to be open to the public (really??). So, despite a very pro-arbitration President, look for the arbitration fireworks to continue!
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*George H. Friedman, an ADR consultant and Chairman of the Board of Directors of Arbitration Resolution Services, Inc., retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He is an Adjunct Professor of Law at Fordham Law School. Mr. Friedman serves on the Board of Editors and is a Contributing Legal Editor of the Securities Arbitration Commentator. He is also a member of the AAA’s national roster of arbitrators. He holds a B.A. from Queens College, a J.D. from Rutgers Law School, and is a Certified Regulatory and Compliance Professional.
[1] See Friedman, G., Independence Day and Arbitration – No, not the New Movie (July 2016).
[2] I know that every signer didn’t like arbitration. This is by no means a comprehensive analysis!
[3] See Journal of Education, vols. 95-6, p. 241, available here.
[4] Officially known as “Treaty of Amity Commerce and Navigation, between His Britannic Majesty; and The United States of America.” Jay’s Treaty is the better moniker!
[5] See The works of Alexander Hamilton: Containing His Correspondence, vol. 6, p. 82, available here.
[6] Gerhard Peters and John T. Woolley, The American Presidency Project.
[7] See Friedman, G., The Presidents and Arbitration: from Washington to Obama – and Beyond (February 2016).
[9] The NLRB issued a Statement on June 16th stating that the Acting Solicitor General had given the Agency authority to represent itself.
[10] No, not that scene!
[11] See Friedman, G., Supreme Court Nominee Gorsuch Seems to be Pro-Arbitration! (February 2017).
[12] See Friedman, G., They’re Baaack! Democrats Reintroduce a Flurry of Anti-Mandatory Arbitration Bills (March 2017).
