The Presidents and Arbitration: From Washington to Biden: An Update

Feb 2021

This article first appeared on Securities Arbitration Alert (SAA) blog, here.

I’m again updating my 2016 blog post on the Presidents and arbitration. The material that follows about the past presidents is mostly repeated from my original blog post; the last two sections are updated.

There’s a wonderful book, The Presidents Clubcovering the unique and sometimes surprising relationships among the fraternity (sorry, Carly and Hillary, no sorority yet) of current and former presidents. For example, who knew that Bill Clinton and the Bushes are very close, with “W” often referring to Bill as his “brother of another mother”? Or that Richard Nixon sought advice from Herbert Hoover over whether to contest his razor-thin loss to JFK in 1960? Or that Jimmy Carter elicits a common reaction – not entirely flattering – from the former presidents? These rarely told stories are of course fascinating, but this blog post covers a different kind of relationship: that of the presidents and arbitration. As we celebrate Presidents Day, I offer this primer on the little-known and often surprising relationships between our presidents and this form of alternative dispute resolution.

George Washington: think arbitration is new?  

People have for years referred to arbitration as a bold new way of resolving disputes. I demonstrated in an early 2016 blog post that arbitration goes way back. For now, let’s prove the point by looking at our first[1] president’s Last Will and Testament. That’s right, George Washington’s Will 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 devices 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 were 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.

Ulysses S. Grant, the Civil War, and arbitration

Ever hear of the Treaty of Washington of 1871? Neither had I. It seems that after the Civil War the U.S. asserted claims against the British, whose shipbuilders had supplied warships to the Confederacy. Things got serious. According to History Central, “at one point, a claim was made that Britain was responsible for half the cost of the war and that the U.S. would consider Canada proper payment. This shocked the British and they realized they had better come to some agreement soon.” At the urging of President Grant, the Treaty included an arbitration clause to resolve the claims. The matter was submitted to arbitration in Geneva before a five-person arbitration tribunal. Arbitrators were designated by the heads of state of Britain, the United States, Brazil, Italy, and Switzerland. How did it turn out?  Although in the end, they got to keep Canada, Britain had to pay the U.S. $15,500,000 – well over $300 million today – and say they were sorry.

Grover Cleveland and the Venezuelan Crisis of 1895

Bet you never heard of the Venezuelan Crisis of 1895, which was a border dispute between the United Kingdom and Venezuela.[2] The real fight was about gold. The dispute escalated into a major crisis with the possibility of armed conflict, and President Cleveland, citing the Monroe Doctrine, intervened to compel the parties to arbitrate the dispute. The parties ultimately agreed to a five-member arbitration panel, consisting of two arbitrators chosen by the U.K., two representing Venezuelan interests – but named by the U.S. – and the neutral chair to be selected by these four arbitrators. The two arbitrators selected by the U.S. were the sitting Chief Justice and an Associate Justice of the Supreme Court, and the chair was a Russian judge and diplomat. The tribunal ultimately held hearings in Paris in 1898, and a year later ruled largely in favor of the Brits. Not to be left out, former President Benjamin Harrison represented Venezuela in the arbitration.

Teddy Roosevelt: Tippecanoe and ADR, too

A believer not only in arbitration, but mediation, too, the first President Roosevelt seemingly coined the phrase “alternative dispute resolution.” While the Hero of San Juan Hill has a reputation for rarely shying away from a fight, TR was actually a firm believer in peaceful conflict resolution. For example, in 1902 he settled via arbitration a financial dispute with Mexico over the Pious Fund of the Californias (don’t ask, but here’s the award). Also, he received the Nobel Peace Prize for successfully mediating the Treaty of Portsmouth, ending the 1904-5 Russo-Japanese war.[3] In fact, the official Nobel Prize Website refers to TR by a nickname you’ve probably never before heard: “Imperialist and Peace Arbitrator.”

“Silent Cal,” the Father of modern arbitration?

How’s that? Before 1925, enforcing pre-dispute arbitration agreements and arbitration awards was very difficult.[4] Parties could walk away from their promise to arbitrate, and arbitration awards were virtually unenforceable. Then the Federal Arbitration Act (“FAA”)[5] was enacted in 1925 and went into effect a year later. The FAA abrogated the existing law, which was based on Common Law hostility to arbitration, made written promises to arbitrate matters involving interstate commerce specifically enforceable,[6] and established very limited judicial review of arbitration awards.[7] The FAA was passed by both houses of Congress, without a dissenting vote, and with the urging of then-Secretary of Commerce, Herbert Hoover.[8] And who do we have to thank in part for the FAA? President Calvin Coolidge, who signed it into law on February 12, 1925.

FDR: another President Roosevelt, another arbitration advocate

During World War II, it was essential that labor peace be maintained to ensure the production of war-related material. What did FDR do? He reinstated the National War Labor Board to serve as final arbiter of labor disputes. In exchange for giving up their right to strike, the unions gained an impartial arbitration process to resolve their disputes with management. The Board had the Presidents Club written all over it. The original Board was a World War I creation of President Woodrow Wilson. Its first director was none other than former President William Howard Taft.

Barack Obama: I first thought he might be fond of arbitration – but he wasn’t

When he was first elected, I thought President Obama might have a fondness for arbitration. Why? As a young attorney with Davis, Miner, Barnhill & Galland, in Chicago, President Obama in 1994 argued successfully to enforce an NASD arbitration award in the Seventh Circuit in Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704 (7th Cir. 1994). Alas, the former President did not support arbitration. This is perhaps because the Democrats largely oppose mandatory arbitration, introducing anti-arbitration bills every session of Congress. This lack of support from the former president was demonstrated every so often. For example, Mr. Obama signed the Fair Pay and Safe Workplaces Executive Order 13673 in July 2014 barring companies with federal contracts valued at over $1 million from mandating arbitration of Title VII or sexual harassment or assault claims.[9]

Donald Trump – A President who liked and used arbitration

As I’ve blogged before, President Trump believed in arbitration and used the process. In 2012, he won $5 million in a dispute with a former Miss USA contestant who defamed the pageant, which he owned at the time. President Trump in 2015 filed an arbitration claim against NBC after the network canceled a contract to televise the Miss USA and Miss Universe pageants. He also won an Internet domain name arbitration, back in 2011. And even Mr. Trump’s agreement with campaign volunteers had a pre-dispute arbitration agreement (“PDAA”) giving the campaign the unilateral right to require arbitration of disputes.  Without a doubt, President Trump during his term demonstrated that he remained pro-arbitration. Here are just a few examples:

  • The Trump Administration Department of Justice switched sides in some court cases, taking pro-arbitration positions against those taken by federal agencies. For example, the Acting Solicitor General filed an Amicus Brief siding with the employers and against the National Labor Relations Board (“NLRB”) in Epic Systems Corp. v. Lewis137 S. Ct. 809 (2018), three cases that were 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 NLRB had to represent itself,[10] which reminded me of a scene[11] from “Blazing Saddles.”
  • President Trump named three Supreme Court Justices. Newer Justices Neil Gorsuch and Brett Kavanaugh have already authored pro-arbitration opinions,[12] and, as I blogged last fall, based on a very limited sampling, Justice Coney Barrett seems to lean pro-arbitration.[13]
  • And, last but by no means least, the Trump-Stormy Daniels settlement agreement[14] contained an arbitration clause!

Trust me, folks. President Trump was all-in on arbitration, and I expect he will remain so as a former President.

And President Biden?

While it’s obviously very early, events already presage a return to the Obama-era views against mandatory arbitration. The Democrats’ agenda is clearly anti-mandatory predispute arbitration in the consumer and employment areas,[15] so I expect this to carry over to the Biden Administration. The Democrats in the last Congress introduced several anti-arbitration bills that predictably went nowhere, just as they did in past years going back to President Obama and with Barney Frank as Chair of the House Financial Services Committee.[16] As I had confidently predicted,[17] the Democrats have already reintroduced several bills to curb the use of mandatory pre-dispute arbitration agreements. Bill texts for the most part have not yet been published, so we’ll save for another day an exhaustive analysis. For now, I offer these brief descriptions:

  • R. 963 – Forced Arbitration Injustice Repeal (FAIR) Act: I assume this bill introduced on February 11 will be similar to the FAIR Act introduced in the last Congress, that passed the House but died in the Senate. That prior iteration would have amended the Federal Arbitration Act to eliminate mandatory PDAAs for disputes involving consumer, investor, civil rights, employment, and antitrust. It also would have: covered brokers and investment advisers; barred class action/collective action waivers in or out of a PDAA; applied to “digital technology” disputes; reserved for court determination any arbitrability or delegation issues “irrespective of whether the agreement purported to delegate such determinations to an arbitrator;” and extended to sexual harassment claims. The FAIR Act would have been retroactive, applying to claims made after the effective date. The new bill already has 156 co-sponsors, all Democrats.
  • Not Yet Numbered – Protecting the Right to Organize (PRO) Act: Introduced February 4 in both houses of Congress, this omnibus bill has a small provision aimed at legislatively overruling Epic Systems, where SCOTUS held that the FAA permits employers to use arbitration clauses containing class action waivers, notwithstanding the National Labor Relations Act’s (“NLRA”) protections of workers’ rights to act collectively. Specifically, the PRO Act would amend the NLRA to make it an unfair labor practice for any employer (not just those dealing with unions) to use class action waivers, “notwithstanding” the
  • R. 1023: While not yet named, the purpose is to: “amend title 9 of the United States Code [the FAA] to prohibit pre-dispute arbitration agreements that force arbitration of disputes arising from private education loans, and for other purposes.” It was introduced February 11 and there are already 12 co-sponsors, all Democrat.

I’m sure there are more bills to come; there were over 100 arbitration-related bills introduced in the last Congress. And with the Democrats in control of Congress and the White House, expect at least some bills to pass and President Biden to sign them. And I would expect federal agencies like the Department of Labor and the Consumer Financial Protection Bureau not to be nearly as arbitration-friendly as they were under President Trump.

Conclusion

I cannot tell a lie. The presidents for the most part have enthusiastically supported arbitration from the beginning. Just ask George Washington.

——————————–

*George H. Friedman, Publisher and Editor-in-Chief of the online Securities Arbitration Alert and an ADR consultant, retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. He also serves as non-executive Chairman of the Board of Directors of Arbitration Resolution Services. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President.He isan Adjunct Professor of Law at Fordham Law School, and 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. He is admitted to practice in New Jersey and New York, several U.S. District Courts, and the United States Supreme Court.

ENDNOTES:

[1] To be absolutely accurate, George Washington was elected in 1789 as the first President of the Constitutional Republic known as the United States of America. In 1781, John Hanson was the first person elected president under the Articles of Confederation, the precursor to the Constitution. He evidently didn’t have a very good press agent because no one remembers that fact.

[2] About what? According to Wikipedia, it had something to do with “Britain’s refusal to include in the proposed international arbitration the territory east of the ‘Schomburgk Line’, which a surveyor had drawn half a century earlier as a boundary between Venezuela and the former Dutch territory of British Guiana.” Hey, you asked.

[3] See http://www.nobelprize.org/nobel_prizes/peace/laureates/1906/roosevelt-facts.html

[4] See A Brief History of Commercial Arbitration, available at https://dynalex.wordpress.com/2012/12/28/a-brief-history-of-commercial-arbitration/.

[5] See 9 U.S.C. §§ 1 et seq., available at http://codes.lp.findlaw.com/uscode/9.

[6] See 9 U.S.C. §§ 1 and 2. Note, too, that almost every state has enacted arbitration laws covering intra-state commerce.

[7] See 9 U.S.C. § 10.

[8]  See Christopher, Leslie, The Arbitration Bootstrap94 Tex. L. Rev. 265 at 303, 305 (2015).

[9] A slightly revised Order was issued in August 2016.

[10] The NLRB issued a Statement reporting that the Acting Solicitor General had given the Agency authority to represent itself.

[11] No, not the flatulence scene!

[12] Justice Gorsuch authored Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which held that the FAA permits employers to use arbitration clauses containing class action waivers, notwithstanding the National Labor Relations Act’s protections of workers’ rights to act collectivelyIn the first Opinion authored by Justice Kavanaugh, the Court in Henry Schein, Inc. v. Archer & White Sales, Inc.No. 17-1272 (2019), held unanimously that there is no delegation carveout for “wholly groundless” assertions of arbitrability under the FAA.

[13] And the two cases involving FINRA’s arbitration forum resulted in wins for the Authority.

[14] See B. Farkas, Donald Trump and Stormy Daniels: An Arbitration Case Study, ABA DR Magazine p. 12 (Summer 2018).

[15] See, e.g., 2020 Democratic Party Platform, p. 24: “Consumers, workers, students, retirees, and investors who have been mistreated by businesses should never be denied their right to fight for fair treatment under the law. Democrats will support efforts to eliminate the use of forced arbitration clauses in employment and service contracts, which unfairly strip consumers, workers, students, retirees, and investors of their right to their day in court.”

[16] For a comprehensive look at the last group of bills introduced in the 116th Congress, see G. Friedman, Surprise! Some of the Anti-Arbitration Bills Introduced in Congress This Year May Actually Become Law (One Already Has), 2019:5 SAC 1 (Sep. 2019).

[17] See G. Friedman, The Elections are (Finally!) Over: What’s in Store for the Arbitration and the Financial Services Worlds?2021:3 SAA 1 (Feb. 9, 2021).

author

George Friedman

George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA…

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