Bernhardt v. Polygraphic Company of America/Concurrence Frankfurter

by Felix Frankfurter

United States Supreme Court

350 U.S. 198

Bernhardt  v.  Polygraphic Company of America

 Argued: Dec. 5, 1955. --- Decided: Jan 16, 1956

Mr. Justice FRANKFURTER, concurring.

It is my view that the judgment of the Court of Appeals should be reversed and the case remanded to that court and not to the District Court.

This action was brought in the Bennington County Court of the State of Vermont by petitioner, a citizen of Vermont, against respondent, a corporation of the State of New York. Respondent removed the case to the United States District Court for the District of Vermont. The subject matter of the litigation is a contract made between the parties in New York, and the sole basis of the jurisdiction of the District Court is diversity of citizenship. Not only was the contract made in New York, but the parties agreed to the following provision in it:

'Fourteenth: The parties hereto do hereby stipulate and agree that it is their intention and covenant that this agreement and performance hereunder and all suits and special proceedings hereunder be construed in accordance with and under and pursuant to the laws of the State of New York and that in any action special proceeding or other proceeding that may be brought arising out of, in connection with or by reason of this agreement, the laws of the State of New York shall be applicable and shall govern to the exclusion of the law of any other forum, without regard to the jurisdiction in which any action or special proceeding may be instituted.'

Respondent invoked another provision of the contract whereby disputes under the agreement were to be submitted to arbitration subject to the regulations of the American Arbitration Association and the pertinent provisions of the New York Arbitration Act, Civil Practice Act, § 1468 et seq. It did so by a motion to stay the proceeding in the District Court pending arbitration.

The District Court denied the stay because, on its reading of the Vermont cases, Vermont law, while recognizing the binding force of such an agreement by way of a suit for damages, does not allow specific performance or a stay pending arbitration. It rested on a decision rendered by the Supreme Court of Vermont in a bill for an accounting evidently between two Vermonters and relating wholly to a Vermont transaction, i.e., a controversy about personal property on a Vermont farm. Mead's Adm'x v. Owen, 83 Vt. 132, 74 A. 1058. ^[1] This case was decided in 1910 and, in turn, relied on Aspinwall v. Tousey, 2 Tyler, Vt., 328, decided in 1803, authorizing revocation of a submission to arbitration at any time before the publication of an award.

The Court of Appeals found it unnecessary to consider what the Vermont law was today, for it held that the arbitration provision did not concern a matter of 'substantive' law, for which, in this diversity case, Vermont law would be controlling on the United States District Court sitting in Vermont. It held that the arbitration provision fell within the law of 'procedure' governing an action in the federal court, whatever the source of the jurisdiction. So holding, the Court of Appeals found § 3 of the United States Arbitration Act, 9 U.S.C. § 3, 9 U.S.C.A. § 3, applicable and, accordingly, directed the District Court to heed that Act and allow the matter to go to arbitration. 2 Cir., 218 F.2d 948.

This Court explained in Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079, why the categories of 'substance' and 'procedure' are, in relation to the application of the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, less than self-defining. They are delusive. The intrinsic content of what is thought to be conveyed by those terms in the particular context of a particular litigation becomes the essential inquiry. This mode of approaching the problem has had several applications since the York decision. I agree with the Court's opinion that the differences between arbitral and judicial determination of a controversy under a contract sufficiently go to the merits of the outcome, and not merely because of the contingencies of different individuals passing on the same question, to make the matter one of 'substance' in the sense relevant for Erie R. Co. v. Tompkins. In view of the ground that was taken in that case for its decision, it would raise a serious question of constitutional law whether Congress could subject to arbitration litigation in the federal courts which is there solely because it is 'between Citizens of different States', U.S.Const. Art. III, § 2, in disregard of the law of the State in which a federal court is sitting. Since the United States Arbitration Act of 1925 does not obviously apply to diversity cases, in the light of its terms and the relevant interpretive materials, avoidance of the constitutional question is for me sufficiently compelling to lead to a construction of the Act as not applicable to diversity cases. ^[2] Of course this implies no opinion on the constitutional question that would be presented were Congress specifically to make the Arbitration Act applicable in such cases. Furthermore, because the Act is not here applicable, I abstain from any consideration of the scope of its provisions in cases which are in federal courts on a jurisdictional basis other than diversity of citizenship.

Vermont law regarding such an arbitration agreement as the one before us, therefore, becomes decisive of the litigation. But what is Vermont law? One of the difficulties, of course, resulting from Erie R. Co. v. Tompkins, is that it is not always easy and sometimes difficult to ascertain what the governing state law is. The essence of the doctrine of that case is that the difficulties of ascertaining state law are fraught with less mischief than disregard of the basic nature of diversity jurisdiction, namely, the enforcement of state-created rights and state policies going to the heart of those rights. If Judge Gibson's statement of what is the contemporary Vermont law relevant to the arbitration provision now before him were determinative, that would be that. But the defendant is entitled to have the view of the Court of Appeals on Vermont law and cannot, under the Act of Congress, be foreclosed by the District Court's interpretation.

As long as there is diversity jurisdiction, 'estimates' are necessarily often all that federal courts can make in ascertaining what the state court would rule to be its law. ^[3] See Pomerantz v. Clark, 101 F.Supp. 341. This Court ought not to by-pass the Court of Appeals on an issue which, if the Court of Appeals had made a different estimate from the District Court's, of contemporaneous Vermont law regarding such a contract as the one before us, this Court, one can confidently say, would not have set its view of Vermont law against that of the Court of Appeals. For the mere fact that Vermont in 1910 restated its old law against denying equitable relief for breach of a promise to arbitrate a contract made under such Vermont law, is hardly a conclusive ground for attributing to the Vermont Supreme Court application of this equitable doctrine in 1956 to a contract made in New York with explicit agreement by the parties that the law of New York which allows such a stay as was here sought, New York Civil Practice Act, § 1451, should govern. Cf. Brown v. Perry, 104 Vt. 66, 156 A. 910, 77 A.L.R. 1294. Law does change with times and circumstances, and not merely through legislative reforms. ^[4] It is also to be noted that law is not restricted to what is found in Law Reports, or otherwise written. See Nashville, C. & St. L.R. Co. v. Browning, 310 U.S. 362, 369, 60 S.Ct. 968, 84 L.Ed. 1254. The Supreme Court of Vermont last spoke on this matter in 1910. The doctrine that it referred to was not a peculiar indigenous Vermont rule. The attitude reflected by that decision nearly half a century ago was the current traditional judicial hostility against ousting courts, as the phrase ran, of their jurisdiction. See the adverse comments of Judge Hough in United States Asphalt Refining Co. v. Trinidad Lake Petroleum Co., D.C., 222 F. 1006, against what he assumed to be the law in the federal courts, and compare with the shift in judicial attitude reflected by the reservation of this question in Mr. Justice Brandeis' opinion for the Court in Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109, 44 S.Ct. 274, 68 L.Ed. 582. ^[5] To be sure, a vigorous legislative movement got under way in the 1920's expressive of a broadened outlook of view on this subject. But courts do not always wait for legislation to find a judicial doctrine outmoded. Only last Term, although we had no statute governing an adjudication, we found significance in a relevant body of enactments elsewhere: 'A steady legislative trend, presumably manifesting a strong social policy, properly makes demands on the judicial process.' National City Bank of New York v. Republic of China, 348 U.S. 356, 360, 75 S.Ct. 423, 427.

Surely in the light of all that has happened since 1910 in the general field of the law of arbitration, it is not for us to assume that the Court of Appeals, if it had that question for consideration, could not have found that the law of Vermont today does not require disregard of a provision of a contract made in New York, with a purposeful desire to have the law of New York govern, to accomplish a result that today may be deemed to be a general doctrine of the law. Of course, if the Court of Appeals, versed in the general jurisprudence of Vermont and having among its members a Vermont lawyer, should find that the Vermont court would, despite the New York incidents of the contract, apply Vermont law and that it is the habit of the Vermont court to adhere to its precedents and to leave changes to the legislature, it would not be for the federal court to gainsay that policy. I am not suggesting what the Court of Appeals' answer to these questions would be, still less what it should be. I do maintain that the defendant does have the right to have the judgment of the Court of Appeals on that question and that it is not for us to deny him that right.

I would remand the case to the Court of Appeals for its determination of Vermont law on matters which the basis of its decision heretofore rendered it needless to consider.

Notes

1. The court also cited Sartwell v. Sowles, 72 Vt. 270, 48 A. 11.
2. Shanferoke Coal & Supply Corp. of Delaware v. Westchester Service Corp., 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 583, was a diversity case wherein § 3 of the Arbitration Act was applied. But the case was pre-Erie, and the Court's attention was not directed toward the question.
3. It is peculiarly true of the problem before us, that law is a prophecy 'of what the courts will do in fact.' Holmes, The Path of the Law, in Collected Legal Papers, p. 173.
4. That the Vermont Supreme Court does not obstinately adhere to its past decisions, that for it too law is living, is illustrated by the following instances: Capello's Administrator v. Aero Mayflower Transit Co., 116 Vt. 64, 68 A.2d 913, overruling Ronan v. J. G. Turnbull
5. Judge Hough, in 1915, stated:

'It has never been denied that the hostility of English-speaking courts to arbitration contracts probably originated (as Lord Campbell said in Scott v. Avery, 4 H.L.Cas. 811)-'in the contests of the courts of ancient times for extension of jurisdiction-all of them being opposed to anything that would altogether deprive every one of them of jurisdiction.'

'A more unworthy genesis cannot be imagined. Since (at the latest) the time of Lord Kenyon, it has been customary to stand rather upon the antiquity of the rule than upon its excellence or reason * * *.' 222 F. at page 1007.

'I think the decisions cited show beyond question that the Supreme Court has laid down the rule that such a complete ouster of jurisdiction as is shown by the clause quoted (the arbitration clause) * * * is void in a federal forum.' 222 F. at page 1012.

On the other hand, in 1924 this Court observed in Red Cross Line: 'we have no occasion to consider whether the unwillingness of the federal courts to give full effect to executory agreements for arbitration can be justified.' 264 U.S. at page 125, 44 S.Ct. at page 278.