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Search Terms: 388 U.S. 395 (1967)
 Page 1

LEXSEE 388 U.S. 395 (1967)

PRIMA PAINT CORP. v. FLOOD & CONKLIN MFG. CO.

No. 343

SUPREME COURT OF THE UNITED STATES

388 U.S. 395; 87 S. Ct. 1801; 18 L. Ed. 2d 1270; 1967 U.S. LEXIS 2750

March 16, 1967, Argued

June 12, 1967, Decided

PRIOR HISTORY: CERTIORARI TO THE within the coverage of the Act; (2) the arbitration clause
UNITED STATES COURT OF APPEALS FOR THE in the agreement was separable from the rest of the
SECOND CIRCUIT. agreement; and (3) allegations as to the validity of the
agreement in general, as opposed to the arbitration clause
DISPOSITION: 360 F.2d 315, affirmed. in particular, were to be decided by the arbitrator.

CASE SUMMARY: OUTCOME: The Court affirmed the court of appeals'

decision that an arbitrator was to resolve the
corporation's claim of fraud in the inducement in regard
PROCEDURAL POSTURE: On a writ of certiorari to to the agreement the corporation had entered into with
the United States Court of Appeals for the Second the company.
Circuit, petitioner corporation sought review of a
judgment that an arbitrator was to resolve a claim of LexisNexis(R) Headnotes
fraud in the inducement in regard to a consulting
agreement between petitioner and respondent company,
that contained a broad arbitration clause governed by the
United States Arbitration Act of 1925, 9 U.S.C.S. §§ 1- Admiralty Law > Maritime Contracts > General
14. Overview
Civil Procedure > Alternative Dispute Resolution >
OVERVIEW: The parties had entered into the Arbitrations > Arbitrability
agreement after the corporation purchased the assets of Contracts Law > Contract Conditions & Provisions >
the company's paint business. After the corporation failed General Overview
to make the first payment due under the agreement the [HN1] Section 2 of the United States Arbitration Act of
company served notice to arbitrate. The corporation filed 1925 provides that a written provision for arbitration in
suit seeking rescission of the entire agreement on the any maritime transaction or a contract evidencing a
basis of fraud allegedly consisting of the company's transaction involving commerce shall be valid,
misrepresentation that it was solvent and able to perform irrevocable, and enforceable, save upon such grounds as
the agreement while it was completely insolvent. The exist at law or in equity for the revocation of any
company moved to stay the court action pending contract.
arbitration. The company contended that whether there
was fraud in the inducement of the consulting agreement
was a question for the arbitrators. The district court Admiralty Law > Arbitration > Federal Arbitration Act
granted the company's motion with the court of appeals Admiralty Law > Arbitration > Judicial Intervention &
affirming. The Supreme Court affirmed, holding that (1) Review
because the agreement was tied to the interstate transfer Admiralty Law > Maritime Contracts > General
of the assets it affected interstate commerce and was Overview
 Page 2

[HN2] The stay provisions of § 3 of the United States Civil Procedure > Alternative Dispute Resolution >
Arbitration Act of 1925 (Act) apply only to the two kinds Arbitrations > Federal Arbitration Act > General
of contracts specified in §§ 1 and 2 of the Act, namely Overview
those in admiralty or evidencing transactions in [HN6] See § 4 of the United States Arbitration Act of
"commerce." 1925.

Constitutional Law > Congressional Duties & Powers > Civil Procedure > Alternative Dispute Resolution >
Commerce Clause > General Overview Arbitrations > General Overview
[HN3] A consulting agreement inextricably tied to the Contracts Law > Contract Conditions & Provisions >
interstate transfer and to the continuing operations of an Arbitration Clauses
interstate manufacturing and wholesaling business Contracts Law > Defenses > Fraud &
evidences a transaction in interstate commerce. Misrepresentation > General Overview
[HN7] As the "saving clause" in § 2 of the United States
Arbitration Act of 1925 indicates, the purpose of
Admiralty Law > Maritime Contracts > General Congress in 1925 was to make arbitration agreements as
Overview enforceable as other contracts, but not more so. To
Civil Procedure > Alternative Dispute Resolution > immunize an arbitration agreement from judicial
General Overview challenge on the ground of fraud in the inducement
Contracts Law > Contract Conditions & Provisions > would be to elevate it over other forms of contract - a
Arbitration Clauses situation inconsistent with the "saving clause."
[HN4] Under § 4 of the United States Arbitration Act of
1925 (Act) with respect to a matter within the
jurisdiction of the federal courts save for the existence of Admiralty Law > Arbitration > Federal Arbitration Act
an arbitration clause, the federal court is instructed to Admiralty Law > Arbitration > Judicial Intervention &
order arbitration to proceed once it is satisfied that the Review
making of the agreement for arbitration or the failure to Civil Procedure > Alternative Dispute Resolution >
comply with an arbitration agreement is not in issue. Arbitrations > Federal Arbitration Act > General
Accordingly, if the claim is fraud in the inducement of Overview
the arbitration clause itself - an issue which goes to the [HN8] Congress may prescribe how federal courts are to
"making" of the agreement to arbitrate - the federal court conduct themselves with respect to subject matter over
may proceed to adjudicate it. But the statutory language which Congress plainly has power to legislate. And it is
does not permit the federal court to consider claims of clear beyond dispute that the United States Arbitration
fraud in the inducement of the contract generally. In Act of 1925, 9 U.S.C.S. §§ 1-14, is based upon and
passing upon an application of § 3 of the Act, for a stay confined to the incontestable federal foundations of
while the parties arbitrate, a federal court may consider control over interstate commerce and over admiralty.
only issues relating to the making and performance of the
agreement to arbitrate.
Governments > Courts > Authority to Adjudicate
Governments > Federal Government > U.S. Congress
Civil Procedure > Alternative Dispute Resolution > Governments > Legislation > Enactment
Arbitrations > Federal Arbitration Act > General [HN9] Federal courts are bound to apply rules enacted by
Overview Congress with respect to matters over which it has
[HN5] In passing upon an application under § 3 of the legislative power.
United States Arbitration Act of 1925 for a stay while
parties arbitrate, a federal court may consider only issues SUMMARY:
relating to the making and performance of the agreement
The buyer of a paint business which had been
to arbitrate. In so concluding, the plain meaning of the
located in another state and had served customers in a
Act is honored and also the unmistakably clear
number of states instituted a diversity action in the
congressional purpose that the arbitration procedure,
United States District Court for the Southern District of
when selected by the parties to a contract, be speedy and
New York, seeking to rescind a consulting agreement
not subject to delay and obstruction in the courts is
between itself and the seller for fraud in the inducement,
honored.
and to enjoin arbitration proceedings sought by the seller
under a provision in the agreement for arbitration of "any
 Page 3

controversy or claim arising out of or relating to this COURTS §845

agreement, or the breach thereof." The seller sought a
Federal Arbitration Act -- fraudulent inducement of
stay of the court action pursuant to 3 of the Federal
contract -- decision by arbitration --
Arbitration Act, which requires a federal court in which
suit is brought upon any issue referable to arbitration Headnote:[1A][1B]
under the contract to stay the action pending arbitration.
Upon application under 3 of the Federal Arbitration
The District Court granted the seller's motion to stay the
Act (9 USC 3) for a stay of a federal diversity action for
action pending arbitration, and the Court of Appeals for
rescission, because of fraudulent inducement, of a
the Second Circuit dismissed the buyer's appeal. (360
contract within the act as evidencing a transaction in
F2d 315.)
interstate commerce, pending arbitration of such issue
On certiorari, the Supreme Court of the United under a clause of the contract providing for arbitration of
States affirmed. In an opinion by Fortas, J., expressing "any controversy or claim arising out of or relating to
the views of six members of the court, it was held that this agreement, or the breach thereof," the claim of fraud
(1) the consulting agreement constituted a contract in the inducement of the entire contract is to be resolved
evidencing a transaction in commerce within 2 of the by arbitration rather than by the court, regardless of state
Federal Arbitration Act, since it was inextricably tied to law, where (1) there was no evidence that the contracting
the interstate transfer of the seller's business and to the parties intended to withhold such issue from arbitration,
continuing operation of an interstate business, (2) under (2) the arbitration clause was broad enough to include the
the provisions of the Federal Arbitration Act, a federal claim of fraud in the inducement of the contract
court could proceed to adjudicate a claim of fraud in the generally, and (3) there was no claim of fraudulent
inducement of the arbitration clause itself, but, regardless inducement to enter into the arbitration agreement itself.
of state law, could not consider claims of fraud in the
inducement of the contract generally, (3) such rule was [***LEdHN2]
constitutionally permissible, since the statute was based
ARBITRATION §2
on the incontestable federal foundations of control over
interstate commerce and over admiralty, and could not be Federal Arbitration Act -- contract evidencing
successfully attacked on the grounds that federal courts transaction in commerce -- consulting agreement --
were bound in diversity cases to follow state rules of
decision in substantive matters, or that Congress could Headnote:[2]
not fashion federal substantive rules to govern questions A consulting agreement between the buyer and seller
arising in simple diversity cases, and (4) the claim of of a paint business, whereby the seller furnished a list of
fraud in the inducement of the contract in the case at bar its customers and agreed to advise as to the
was to be resolved by arbitration rather than by the court, manufacturing operations, sales, and servicing of
since there was no evidence of intent to withhold such accounts, and to refrain from competition, in return for
issue from arbitration and no claim of fraudulent payment from the buyer for a certain percentage of sales,
inducement of the arbitration agreement itself, and since constitutes a contract evidencing a transaction in
the arbitration clause was broad enough to include the interstate commerce within 2 of the Federal Arbitration
claim. Act, which makes valid, irrevocable, and enforceable
Harlan, J., who joined in the court's opinion, stated provisions for arbitration in "a contract evidencing a
that he would also affirm on the basis of Robert transaction involving commerce" (9 USC 2), where (1)
Lawrence Co. v Devonshire, 271 F2d 402, cert dismissed the buyer had acquired a paint business located in
under Rule 60, 364 US 801, 5 L ed 2d 37, 81 S Ct 27. another state, which business served at least 175
wholesale clients in a number of states, and had secured
Black, J., joined by Douglas and Stewart, JJ., the seller's assistance in arranging the transfer of the
dissented on the grounds that under the Federal manufacturing and selling operations to another state,
Arbitration Act, and in view of its legislative history and and (2) the consulting agreement was inextricably tied to
purpose, the legal issue of a contract's voidness because such interstate transfer and to the continuing operation of
of fraud was properly for determination by a court and an interstate manufacturing and wholesaling business.
not by arbitration.
[***LEdHN3]
LAWYERS' EDITION HEADNOTES:
ARBITRATION §2
[***LEdHN1] Federal Arbitration Act -- contract evidencing
ARBITRATION §11 transaction involving commerce --
 Page 4

Headnote:[3A][3B] [***LEdHN6]
The Federal Arbitration Act, which in 2 makes ARBITRATION §2
provisions for arbitration in "a contract evidencing a
COURTS §845
transaction involving commerce" valid, irrevocable, and
enforceable, except upon such grounds as exist at law or Federal Arbitration Act -- fraud in inducement --
in equity for the revocation of any contract (9 USC 2), is state law --
not to be construed to apply only to contracts between
Headnote:[6]
merchants for the interstate shipment of goods.
The rule that under the Federal Arbitration Act (9
[***LEdHN4] USC 1-14) a federal court may adjudicate a claim of
fraud in the inducement of an arbitration clause in a
ARBITRATION §11
contract in admiralty or evidencing a transaction in
COURTS §845 commerce, but, regardless of state law, may not consider
a claim of fraud in the inducement of such contract
Federal Arbitration Act -- claim of fraudulent
generally, is constitutionally permissible, since the statute
inducement -- decision by court or arbitration --
is based upon and confined to the incontestable federal
Headnote:[4] foundations of control over interstate commerce and over
admiralty; such rule cannot be successfully attacked on
Under 4 of the Federal Arbitration Act, which
the grounds that federal courts are bound in diversity
provides a remedy to a party seeking to compel
cases to follow state rules of decision in matters which
compliance with an arbitration agreement in a federal
are "substantive" rather than "procedural," or where the
court that, except for the arbitration clause, would have
matter is "outcome determinative," and that Congress
jurisdiction, and which instructs the federal court to order
may not fashion federal substantive rules to govern
arbitration to proceed once it is satisfied that "the making
questions arising in simple diversity cases.
of the agreement for arbitration or the failure to comply
therewith is not in issue" (9 USC 4), the court may
[***LEdHN7]
proceed to adjudicate a claim of fraud in the inducement
of the arbitration clause itself, which issue goes to the COURTS §537.5
"making" of the agreement to arbitrate, but the court may
federal courts -- control by Congress --
not consider claims of fraud in the inducement of the
contract generally; although 4 does not expressly relate Headnote:[7]
to proceedings under 3 of the Act, which provides for a
Congress may prescribe how federal courts are to
stay of a federal action on a maritime contract or a
conduct themselves with respect to subject matter over
contract evidencing a transaction in commerce if the suit
which Congress plainly has power to legislate.Point from
is upon any issue referable to arbitration under an
Separate Opinion
arbitration agreement in the contract (9 USC 3), the same
rule is applicable regardless of state law, and a federal
[***LEdHN8]
court, in passing upon a 3 application for a stay while the
parties arbitrate, may consider only issues relating to the CONTRACTS §65
making and performance of the agreement to arbitrate.
construction -- severability of provisions --
[***LEdHN5] Headnote:[8]
ARBITRATION §2 Whether a number of promises constitute one
Federal Arbitration Act -- purpose -- contract [and are nonseparable], or more than one, is to
be determined by inquiring whether the parties assented
Headnote:[5A][5B] to all the promises as a single whole, so that there would
have been no bargain whatever, if any promises or set of
The purpose of the Federal Arbitration Act, which
promises were struck out. [From separate opinion by
relates to the validity and enforceability of arbitration
Black, Douglas, and Stewart, JJ.]
agreements in certain contracts (9 USC 1-14), is to make
arbitration agreements as enforceable as other contracts,
SYLLABUS
but not more so, and to make arbitration procedure, when
selected by the parties to the contract, speedy, and not Respondent (F & C), a New Jersey corporation
subject to delay and obstruction in the courts. which manufactured and sold paint and paint products to
wholesale customers in a number of States, entered into a
 Page 5

contract with petitioner (Prima), a Maryland corporation, 3. The Act prescribes the manner in which federal
whereby F & C agreed to perform consulting and other courts are to treat questions relating to arbitration clauses
services relating to the transfer of operations from F & C in contracts which involve interstate commerce or
to Prima and agreed not to compete with Prima, for admiralty, "subject matter over which Congress plainly
which Prima agreed to pay, over the six-year life of the has power to legislate." Hence, state rules allocating
contract, certain percentages of receipts from sales. The functions between court and arbitrator do not control.
contract, which stated that it "embodies the entire Pp. 404-405.
understanding of the parties," contained a broad
4. Since the claim of fraud here relates to
arbitration clause that "any controversy . . . arising out of
inducement of the consulting agreement generally rather
this agreement, or the breach thereof, shall be settled by
than in the arbitration clause and there is no evidence
arbitration in the City of New York in accordance with
that the parties intended to withhold this issue from
the rules . . . of the American Arbitration Association."
arbitration, there is no basis for granting a stay under § 3.
Almost a year later, after the first payment had become
Pp. 406-407.
due, Prima notified F & C that F & C had broken the
consulting agreement and an earlier agreement involving
COUNSEL: Robert P. Herzog argued the cause and filed
Prima's purchase of F & C's paint business. Prima's chief
briefs for petitioner.
contention was that F & C had fraudulently represented
that it was solvent and able to perform its obligations
Martin A. Coleman argued the cause for respondent.
whereas it was insolvent and planned to file a bankruptcy
With him on the brief was David N. Brainin.
petition shortly after executing the consulting agreement.
F & C responded by serving a notice of intention to
Gerald Aksen argued the cause for the American
arbitrate, whereupon Prima filed this diversity action in
Arbitration Association, as amicus curiae. With him on
federal court for rescission of the consulting agreement
the brief were Whitney North Seymour, Sol N. Corbin,
on the basis of the alleged fraudulent inducement and
Osmond K. Fraenkel, William J. Isaacson and H. H.
contemporaneously sought to enjoin F & C from
Nordlinger.
proceeding with arbitration. The United States
Arbitration Act of 1925 provides, in § 2, that a written
JUDGES: Warren, Black, Douglas, Clark, Harlan,
arbitration provision "in any . . . contract evidencing a
Brennan, Stewart, White, Fortas
transaction involving commerce . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as
OPINION BY: FORTAS
exist at law or in equity for the revocation of any
contract"; in § 3, that a federal court in which suit is
OPINION
brought upon an issue referable to arbitration by an
arbitration agreement must stay the court action pending [*396] [***1273] [**1802] MR. JUSTICE
arbitration once it has decided that the issue is arbitrable FORTAS delivered the opinion of the Court.
under the agreement; and, in § 4, that a federal court
This case presents the question whether the federal
whose assistance is invoked by a party seeking to compel
court or an arbitrator is to resolve a claim of "fraud in
another to arbitrate, if satisfied that an arbitration
[*397] the inducement," under a contract governed by
agreement has not been honored and that "the making of
the United States Arbitration Act of 1925, 1 where there is
the agreement for arbitration or the failure to comply
no evidence that the contracting parties intended to
[with the arbitration agreement] is not in issue," shall
withhold that issue from arbitration.
order arbitration. The District Court granted a motion
filed by F & C to stay the action pending arbitration, and
1 9 U. S. C. §§ 1-14.
the Court of Appeals dismissed Prima's appeal. Held:
The question arises from the following set of facts.
1. The contract clearly evidenced a transaction
On October 7, 1964, respondent, Flood & Conklin
involving interstate commerce and came within the
Manufacturing Company, a New Jersey corporation,
coverage of the Arbitration Act. P. 401.
entered into what was styled a "Consulting Agreement,"
2. In passing upon an application for a stay of with petitioner, Prima Paint Corporation, a Maryland
arbitration under § 3 of the Act, a federal court may not corporation. This agreement followed by less than three
consider a claim of fraud in the inducement of the weeks the execution of a contract pursuant to which
contract generally but "may consider only the issues Prima Paint purchased F & C's paint business. The
relating to the making and performance of the agreement consulting agreement provided that for a six-year period
to arbitrate." Pp. 402-404. F & C was to furnish advice and consultation "in
connection with the formulae, manufacturing operations,
 Page 6

sales and servicing of Prima Trade Sales accounts." purchasing agreements, and the fraudulent
These services were to be performed personally by F & inducement of both, the complaint did not refer to
C's chairman, Jerome K. Jelin, "except in the event of his the earlier purchase agreement, alleging only that
[***1274] death or disability." F & C bound itself for Prima Paint had been "fraudulently induced to
the duration of the contractual period to make no "Trade accelerate the execution and closing date of the
Sales" of paint or paint products in its existing sales [consulting] agreement herein, from October 21,
territory or to current customers. To the [**1803] 1964 to October 7, 1964. . . ."
consulting agreement were appended lists of F & C
[*399] Contemporaneously with the filing of its
customers, whose patronage was to be taken over by
complaint, Prima Paint petitioned the District Court for
Prima Paint. In return for these lists, the covenant not to
an order enjoining F & C from proceeding with the
compete, and the services of Mr. Jelin, Prima Paint
arbitration. F & C cross-moved to stay the court action
agreed to pay F & C certain percentages of its receipts
pending arbitration. F & C contended that the issue
from the listed customers and from all others, such
presented -- whether there was fraud in the inducement
payments not to exceed $ 225,000 over the life of the
of the consulting agreement -- was a question for the
agreement. The agreement took into account the
arbitrators and not for the District Court. Cross-
possibility that Prima Paint might encounter financial
affidavits were filed on the merits. On behalf of Prima
difficulties, including bankruptcy, but no corresponding
Paint, the charges in the complaint were reiterated.
reference was made to possible financial problems which
Affiants for F & C attacked the sufficiency [***1275]
might be encountered by F & C. The agreement stated
of Prima Paint's allegations of fraud, denied that
that it "embodies the entire understanding of the parties
misrepresentations had been made during negotiations,
[*398] on the subject matter." Finally, the parties agreed
and asserted that Prima Paint had relied exclusively upon
to a broad arbitration clause, which read in part:
delivery of the lists, the promise not to compete, and the
"Any controversy or claim arising out of or relating availability of Mr. Jelin. They contended that Prima
to this Agreement, or the breach thereof, shall be settled Paint had availed itself of these considerations for nearly
by arbitration in the City of New York, in accordance a year without claiming "fraud," noting that Prima Paint
with the rules then obtaining of the American Arbitration was in no position to claim ignorance of the bankruptcy
Association . . . ." proceeding since it had participated therein in February
of 1965. They added that F & C was revested with its
The first payment by Prima Paint to F & C under the
assets in March of 1965.
consulting agreement was due on September 1, 1965.
None was made on that date. Seventeen days later, [***LEdHR1A] [1A]The District Court granted F
Prima Paint did pay the appropriate amount, but into & C's motion to stay the action [**1804] pending
escrow. It notified attorneys for F & C that in various arbitration, holding that a charge of fraud in the
enumerated respects their client had broken both the inducement of a contract containing an arbitration clause
consulting agreement and the earlier purchase agreement. as broad as this one was a question for the arbitrators and
Prima Paint's principal contention, so far as presently not for the court. For this proposition it relied on Robert
relevant, was that F & C had fraudulently represented Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402
that it was solvent and able to perform its contractual (C. A. 2d Cir. 1959), cert. granted, 362 U.S. 909,
obligations, whereas it was in fact insolvent and intended dismissed under Rule 60, 364 U.S. 801 (1960). The
to file a petition under Chapter XI of the Bankruptcy Act, Court of Appeals for the Second Circuit dismissed Prima
52 Stat. 905, 11 U. S. C. § 701 et seq., shortly after Paint's appeal. It held that the contract in question
execution of the consulting agreement. Prima Paint noted evidenced a transaction involving interstate commerce;
that such a petition was filed by F & C on October 14, that under the controlling Robert [*400] Lawrence Co.
1964, one week after the contract had been signed. F & decision a claim of fraud in the inducement of the
C's response, on October 25, was to serve a "notice of contract generally -- as opposed to the arbitration clause
intention to arbitrate." On November 12, three days itself -- is for the arbitrators and not for the courts; and
before expiration of its time to answer this "notice," that this rule -- one of "national substantive law" --
Prima Paint filed suit in the United States District Court governs even in the face of a contrary state rule. 3 We
for the Southern District of New York, seeking rescission agree, albeit for somewhat different reasons, and we
of the consulting agreement on the basis of the alleged affirm the decision below.
fraudulent inducement. 2 The complaint asserted that the
federal court had diversity jurisdiction. 3 Whether a party seeking rescission of a
contract on the ground of fraudulent inducement
2 Although the letter to F & C's attorneys had may in New York obtain judicial resolution of his
alleged breaches of both consulting and claim is not entirely clear. Compare Exercycle
 Page 7

Corp. v. Maratta, 9 N. Y. 2d 329, 334, 174 N. E. 6 This conclusion is amply supported by an

2d 463, 465 (1961), and Amerotron Corp. v. affidavit submitted to the District Court by Prima
Maxwell Shapiro Woolen Co., 3 App. Div. 2d 899, Paint's own president, which read in part:
162 N. Y. S. 2d 214 (1957), aff'd, 4 N. Y. 2d 722,
"The agreement entered into between the
148 N. E. 2d 319 (1958), with Fabrex Corp. v.
parties on October 7, 1964, contemplated and
Winard Sales Co., 23 Misc. 2d 26, 200 N. Y. S. 2d
intended an orderly transfer of the assets of the
278 (1960). In light of our disposition of this
defendant to the plaintiff, and further
case, we need not decide the status of the issue
contemplated and intended that the defendant
under New York law.
would consult, advise, assist and help the plaintiff
The key statutory provisions are §§ 2, 3, and 4 of so as to insure a smooth transition of
the United States Arbitration Act of 1925. [HN1] manufacturing operations to Maryland from New
Section 2 provides that a written provision for arbitration Jersey, together with the sales and servicing of
"in any maritime transaction or a contract evidencing a customer accounts and the retention of the said
transaction involving commerce . . . shall be valid, customers."
irrevocable, and enforceable, save upon such grounds as
The affidavit's references to a "transfer of the
exist at law or in equity for the revocation of any
assets" cannot fairly be read to mean only
contract." 4 Section 3 requires a federal court in which
"expertise and know-how . . . and a covenant not
suit has been brought "upon any issue referable to
to compete," as argued by counsel for petitioner.
arbitration under an agreement in writing for such
arbitration" to stay the court action pending arbitration [***LEdHR3B] [3B]
once it is satisfied that the issue is arbitrable under the
agreement. Section 4 provides a federal remedy for a 7 It is suggested in dissent that, despite the
party "aggrieved by the alleged failure, neglect, or absence of any language in the statute so
refusal of another to arbitrate under a written agreement indicating, we should construe it to apply only to
for arbitration," and directs the federal court to order "contracts between merchants for the interstate
arbitration once it is satisfied that an agreement for shipment of goods." Not only have we neither the
arbitration has been made and has not been honored. 5 desire nor the warrant so to amend the statute, but
we find persuasive and authoritative evidence of
4 The meaning of "maritime transaction" and a contrary legislative intent. See, e. g., the House
"commerce" is set forth in § 1 of the Act. Report on this legislation which proclaims that
5 See, infra, at 403-404. "the control over interstate commerce [one of the
bases for the legislation] reaches not only the
actual physical interstate shipment of goods but
[*401] [***LEdHR2] [2] [***LEdHR3A] [3A]In also contracts relating to interstate commerce." H.
Bernhardt v. Polygraphic Co., 350 U.S. 198 (1956), this R. Rep. No. 96, 68th Cong., 1st Sess., 1 (1924).
Court held that [HN2] the stay provisions of § 3, invoked We note, too, that were the dissent's curious
here by respondent F & C, apply only to the two kinds of narrowing of the statute correct, there would have
contracts specified in §§ 1 and 2 of the Act, [***1276] been no necessity for Congress to have amended
namely those in admiralty or evidencing transactions in the statute to exclude certain kinds of
"commerce." Our first question, then, is whether the employment contracts. See § 1. In any event, the
consulting agreement between F & C and Prima Paint is anomaly urged upon us in dissent is manifested
such a contract. We agree with the Court of Appeals that by the present case. It would be remarkable to
it is. Prima Paint acquired a New Jersey paint business say that a contract for the purchase of a single can
serving at least 175 wholesale clients in a number of of paint may evidence a transaction in interstate
States, and secured F & C's assistance in arranging the commerce, but that an agreement relating to the
transfer of manufacturing and selling operations from facilitation of the purchase of an entire interstate
New Jersey to Maryland. 6 [HN3] The consulting paint business and its re-establishment and
agreement [**1805] was inextricably tied to this operation in another State is not.
interstate transfer and to the continuing operations of an
[*402] Having determined that the contract in
interstate manufacturing and wholesaling business.
question is within the coverage of the Arbitration Act, we
There could not be a clearer case of a contract
turn to the central issue in this case: whether a claim of
evidencing a transaction in interstate commerce. 7
fraud in the inducement of the entire contract is to be
resolved by the federal court, or whether the matter is to
be referred to the arbitrators. The courts of appeals have
 Page 8

differed in their approach to this question. The view of satisfied that "the making of the agreement for arbitration
the Court of Appeals for the Second Circuit, as expressed or the failure to comply [with the arbitration agreement]
in this case and in others, 8 is that -- except where the is not in issue." 11 Accordingly, if the claim is fraud in the
parties otherwise intend -- arbitration clauses as a matter inducement of the arbitration clause itself -- an issue
of federal law are "separable" from the contracts in which [*404] goes to the "making" of the agreement to
which they are embedded, and that where no claim is arbitrate -- the federal court may proceed to adjudicate it.
made that fraud was directed to the arbitration clause 12
But the statutory language does not permit the federal
itself, a broad arbitration clause will be held to court to consider claims of fraud in the inducement of the
encompass [***1277] arbitration of the claim that the contract generally. Section 4 does not expressly relate to
contract itself was induced by fraud. 9 The Court of situations like the present in which a stay is sought of a
Appeals for the First [*403] Circuit, on the other hand, federal action in order that arbitration may proceed. But
has taken the view that the question of "severability" is it is inconceivable that Congress intended the rule to
one of state law, and that where a State regards such a differ depending upon which party to the arbitration
clause as inseparable a claim of fraud in the inducement agreement first invokes the assistance of a federal court.
must be decided by the court. Lummus Co. v. We hold, therefore, that [HN5] in passing upon a § 3
Commonwealth Oil Ref. Co., 280 F.2d 915, 923-924 (C. application for a stay while the parties arbitrate, a federal
A. 1st Cir.), cert. denied, 364 U.S. 911 (1960). 10 court may consider only issues relating to the making
and performance of the agreement to arbitrate. In so
8 In addition to Robert Lawrence Co., supra, concluding, we not only honor the plain meaning of the
see In re Kinoshita & Co., 287 F.2d 951 (C. A. statute but also the unmistakably clear congressional
2d Cir. 1961). With respect to claims other than purpose that the arbitration procedure, when selected by
fraud in the inducement, the court has followed a the parties to a contract, be speedy and not subject to
similar process of analysis. See, e. g., Metro delay and obstruction in the courts.
Industrial Painting Corp. v. Terminal Constr.
Co., 287 F.2d 382 (C. A. 2d Cir. 1961) (dispute 11 [HN6] Section 4 reads in part: "The court
over performance); El Hoss Engineer. & shall hear the parties, and upon being satisfied
Transport Co. v. American Ind. Oil Co., 289 F.2d that the making of the agreement for arbitration
346 (C. A. 2d Cir. 1961) (where, however, the or the failure to comply therewith is not in issue,
court found an intent not to submit the issue in the court shall make an order directing the parties
question to arbitration). to proceed to arbitration in accordance with the
9 The Court of Appeals has been careful to terms of the agreement. . . . If the making of the
honor evidence that the parties intended to arbitration agreement or the failure, neglect, or
withhold such issues from the arbitrators and to refusal to perform the same be in issue, the court
reserve them for judicial resolution. See El Hoss shall proceed summarily to the trial thereof."
Engineer. & Transport Co. v. American Ind. Oil
[***LEdHR5B] [5B]
Co., supra. We note that categories of contracts
otherwise within the Arbitration Act but in which
12 This position is consistent both with the
one of the parties characteristically has little
decision in Moseley v. Electronic Facilities, 374
bargaining power are expressly excluded from the
U.S. 167, 171, 172 (1963), and with the statutory
reach of the Act. See § 1.
scheme. [HN7] As the "saving clause" in § 2
10 These cases and others are discussed in a
indicates, the purpose of Congress in 1925 was to
recent Note, Commercial Arbitration in Federal
make arbitration agreements as enforceable as
Courts, 20 Vand. L. Rev. 607, 622-625 (1967).
other contracts, but not more so. To immunize an
[***LEdHR4] [4] [***LEdHR5A] [5A]With arbitration agreement from judicial challenge on
[**1806] respect to cases brought in federal court the ground of fraud in the inducement would be
involving maritime contracts or those evidencing to elevate it over other forms of contract -- a
transactions in "commerce," we think that Congress has situation inconsistent with the "saving clause."
provided an explicit answer. That answer is to be found
[***LEdHR6] [6] [***LEdHR7] [7]There
in § 4 of the Act, which provides a remedy to a party
[***1278] remains the question whether such a rule is
seeking to compel compliance with an arbitration
constitutionally permissible. The point is made that,
agreement. [HN4] Under § 4, with respect to a matter
whatever the nature of the contract involved here, this
within the jurisdiction of the federal courts save for the
case is in federal court solely by reason of diversity of
existence of an arbitration clause, the federal court is
citizenship, and that since the decision in Erie R. Co. v.
instructed to order arbitration to proceed once it is
Tompkins, 304 U.S. 64 (1938), federal courts are bound
 Page 9

in diversity cases to follow state rules of decision in Sess., 2 (1923). In the joint House and Senate
matters which are "substantive" rather than "procedural," hearings, Mr. Bernheimer answered "Yes;
[*405] or where the matter is "outcome determinative." entirely," to the statement of the chairman,
Guaranty Trust Co. v. York, 326 U.S. 99 (1945). The Senator Sterling, that "What you have in mind is
question in this case, however, is not whether Congress that this proposed legislation relates to contracts
may fashion federal substantive rules to govern questions arising in interstate commerce." Joint Hearings
arising in simple diversity cases. See Bernhardt v. on S. 1005 and H. R. 646 before the
Polygraphic Co., supra, at 202, and concurring opinion, Subcommittees of the Committees on the
at 208. Rather, the question is whether [HN8] Congress Judiciary, 68th Cong., 1st Sess., 7 (1924). Mr.
may prescribe how federal courts are to conduct Julius Henry Cohen, draftsman for the American
themselves with respect to subject matter over which Bar Association of the proposed bill, said the
Congress plainly has power to legislate. The answer to sponsor's goals were: "First . . . to get a State
that can only be in the affirmative. And it is clear statute, and then to get a Federal law to cover
beyond dispute that the federal arbitration statute interstate and foreign commerce and admiralty,
[**1807] is based upon and confined to the and, third, to get a treaty with foreign countries."
incontestable federal foundations of "control over Joint Hearings, supra, at 16 (emphasis added).
interstate commerce and over admiralty." H. R. Rep. No. See also Joint Hearings, supra, at 27-28
96, 68th Cong., 1st Sess., 1 (1924); S. Rep. No. 536, 68th (statement of Mr. Alexander Rose). Mr. Cohen
Cong., 1st Sess., 3 (1924). 13 did submit a brief to the Subcommittee urging a
jurisdictional base broader than the commerce
13 It is true that the Arbitration Act was passed and admiralty powers, Joint Hearings, supra, at
13 years before this Court's decision in Erie R. 37-38, but there is no indication in the statute or
Co. v. Tompkins, supra, brought to an end the in the legislative history that this invitation to go
regime of Swift v. Tyson, 16 Pet. 1 (1842), and beyond those powers was accepted, and his own
that at the time of enactment Congress had reason testimony took a much narrower tack.
to believe that it still had power to create federal
rules to govern questions of "general law" arising
in simple diversity cases -- at least, absent any [*406] [***LEdHR1B] [1B]In the present case no
state statute to the contrary. If Congress relied at claim has been advanced by Prima Paint that F & C
all on this "oft-challenged" power, see Erie R. fraudulently induced it [***1279] to enter into the
Co., 304 U.S., at 69, it was only supplementary to agreement to arbitrate "any controversy or claim arising
the admiralty and commerce powers, which out of or relating to this Agreement, or the breach
formed the principal bases of the legislation. thereof." This contractual language is easily broad
Indeed, Congressman Graham, the bill's sponsor enough to encompass Prima Paint's claim that both
in the House, told his colleagues that it "only execution and acceleration of the consulting agreement
affects contracts relating to interstate subjects and itself were procured by fraud. Indeed, no claim is made
contracts in admiralty." 65 Cong. Rec. 1931 that Prima Paint ever intended that "legal" issues relating
(1924). The Senate Report on this legislation to the contract be excluded from arbitration, or that it
similarly indicated that the bill "[relates] to was not entirely free so to contract. [HN9] Federal
maritime transactions and to contracts in courts are bound to apply rules enacted by Congress with
interstate and foreign commerce." S. Rep. No. respect to matters -- here, a contract involving commerce
536, 68th Cong., 1st Sess., 3 (1924). -- over which it has legislative power. The question
which Prima Paint requested the District Court to
Non-congressional sponsors of the
adjudicate preliminarily to allowing arbitration to
legislation agreed. As Mr. Charles L.
proceed is one [*407] not intended by Congress to
Bernheimer, chairman of the Arbitration
delay the granting of a § 3 stay. Accordingly, the
Committee of the New York Chamber of
decision below dismissing Prima Paint's appeal is
Commerce, told the Senate subcommittee, the
proposed legislation "follows the lines of the Affirmed.
New York arbitration law, applying it to the fields
MR. JUSTICE HARLAN: In joining the Court's
wherein there is Federal jurisdiction. These fields
opinion I desire to note that I would also affirm the
are in admiralty and in foreign and interstate
judgment below on the basis of Robert Lawrence Co. v.
commerce." Hearing on S. 4213 and S. 4214,
Devonshire Fabrics, Inc., 271 F.2d 402 (C. A. 2d Cir.
before the Subcommittee of the Senate
1959), cert. granted, 362 U.S. 909, [**1808] dismissed
Committee on the Judiciary, 67th Cong., 4th
under Rule 60, 364 U.S. 801 (1960).
 Page 10

contract was made, that it was solvent and able to

DISSENT BY: BLACK perform the agreement, while in fact it was completely
insolvent. Prima alleged that it would not have made any
DISSENT contract at all with F & C but for this misrepresentation.
Prima simply contended that there was never a meeting
MR. JUSTICE BLACK, with whom MR. JUSTICE
of minds between the parties. F & C moved to stay
DOUGLAS and MR. JUSTICE STEWART join,
Prima's lawsuit for rescission pending arbitration of the
dissenting.
fraud issue raised by Prima. The lower courts, relying on
The Court here holds that the United States the [*409] Second Circuit's decision in Robert
Arbitration Act, 9 U. S. C. §§ 1-14, as a matter of federal Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402,
substantive law, compels a party to a contract containing cert. granted, 362 U.S. 909, dismissed, 364 U.S. 801,
a written arbitration provision to carry out his held that, as a matter of "national substantive law," the
"arbitration agreement" even though a court might, after arbitration clause in the contract is "separable" from the
a fair trial, hold the entire contract -- including the rest of the contract and that allegations that go to the
arbitration agreement -- void because of fraud in the validity of the contract in general, as opposed to the
inducement. The Court holds, what is to me fantastic, arbitration clause in particular, are to be decided by the
that the legal issue of a contract's voidness because of arbitrator, not the court.
fraud is to be decided by persons designated to arbitrate
factual controversies arising out of a valid contract 1 N. Y. Civ. Prac. § 7503 (1963) provides that
between the parties. And the arbitrators who the Court once a party is served with a notice of intention to
holds are to adjudicate the legal validity of the contract arbitrate, "unless the party served applies to stay
need not even be lawyers, and in all probability will be the arbitration within ten days after such service
nonlawyers, wholly unqualified to decide legal issues, he shall thereafter be precluded from objecting
and even if qualified to apply the law, not bound to do that a valid agreement was not made . . . ."
so. I am by no means sure that thus forcing a person to
The Court today affirms this holding for three
forgo his opportunity to try his legal issues in the courts
reasons, none of which is supported [**1809] by the
where, unlike the situation in arbitration, he may have a
language or history of the Arbitration Act. First, the
jury trial and right to appeal, is not a denial of due
Court holds that because the consulting agreement was
process of law. I am satisfied, however, that Congress
intended to supplement a separate contract for the
did not impose any such procedures in the Arbitration
interstate transfer of assets, it is itself a "contract
Act. And I am fully satisfied that a [*408] reasonable
evidencing a transaction involving commerce," the
and fair reading of that Act's language and history shows
language used by Congress to describe contracts the Act
that both Congress and the framers of the Act were at
was designed to cover. But in light of the legislative
great pains to emphasize that nonlawyers designated to
history which indicates that the Act was to have a limited
adjust and arbitrate factual controversies arising out of
application to contracts between merchants for the
valid contracts would not trespass upon the courts'
interstate shipment of goods, 2 and in light of the express
prerogative to decide the legal question of whether any
failure of Congress to use language [*410] making the
legal contract exists upon which to base an arbitration.
Act applicable to all contracts which "affect commerce,"
the statutory language Congress [***1281] normally
I.
uses when it wishes to exercise its full powers over
The agreement involved here is a consulting commerce, 3 I am not at all certain that the Act was
agreement in which [***1280] Flood & Conklin agreed intended to apply to this consulting agreement. Second,
to perform certain services for and not to compete with the Court holds that the language of § 4 of the Act
Prima Paint. The agreement contained an arbitration provides an "explicit answer" to the question of whether
clause providing that "any controversy or claim arising the arbitration clause is "separable" from the rest of the
out of or relating to this Agreement . . . shall be settled contract in which it is contained. Section 4 merely
by arbitration in the City of New York." F & C, provides that the court must order arbitration if it is
contending that Prima had failed to make a payment "satisfied that the making of the agreement for arbitration
under the contract, sent Prima a "Notice of Intention to . . . is not in issue." That language, considered alone, far
Arbitrate" pursuant to the New York Arbitration Act. 1 from providing an "explicit answer," merely poses the
Invoking diversity jurisdiction, Prima brought this action further question of what kind of allegations put the
in federal district court to rescind the entire consulting making of the arbitration agreement in issue. Since both
agreement on the ground of fraud. The fraud allegedly the lower courts assumed that but for the federal Act,
consisted of F & C's misrepresentation at the time the New York law might apply and that under New York law
 Page 11

a general allegation of fraud in the inducement puts into "affects" commerce. Federal Employers' Liability
issue the making of the agreement to arbitrate Act, 35 Stat. 65, § 1, as amended, 45 U. S. C. §
(considered inseparable [*411] under New York law 51; National Labor Relations Act, 49 Stat. 450, §
from the rest of the contract), 4 the [**1810] Court 2, as amended, 29 U. S. C. § 152 (7). In other
necessarily holds that federal law determines whether instances Congress has chosen more restrictive
certain allegations put the making of the arbitration language. Fair Labor Standards Act of 1938, 52
agreement in issue. And the Court approves the Second Stat. 1062, § 6, as amended, 29 U. S. C. § 206.
Circuit's fashioning of a federal separability rule which Prior to this case, this Court has always made
overrides state law to the contrary. The Court thus holds careful inquiry to assure itself that it is applying a
that the Arbitration Act, designed to provide merely a statute with the coverage that Congress intended,
procedural remedy which would not interfere with state so that the meaning in that statute of "commerce"
substantive law, authorizes federal courts to fashion a will be neither expanded nor contracted. The
federal rule to make arbitration clauses "separable" and Arbitration Act is an example of carefully limited
valid. And the Court approves a rule which is not only language. It covers only those contracts
contrary to state law, but contrary to the intention of the "involving commerce," and nowhere is there a
parties and to accepted principles of contract law -- a rule suggestion that it is meant to extend to contracts
which indeed elevates arbitration provisions above all "affecting commerce." The Act not only uses
other contractual provisions. As the Court recognizes, narrow language, but also is completely without
that result was clearly not intended by Congress. Finally, any declaration of some national interest to be
the Court summarily disposes of the problem raised by served or some nationwide comprehensive
Erie R. Co. v. Tompkins, 304 U.S. 64, recognized as a scheme of regulation to be created, and this
serious constitutional problem in Bernhardt v. absence suggests that Congress did not intend to
Polygraphic [***1282] Co., 350 U.S. 198, by exert its full power over commerce.
insufficiently supported assertions that it is "clear beyond 4 Although F & C requested arbitration pursuant
dispute" that Congress based the Arbitration Act on its to New York law, n. 1, supra, it is not entirely
power to regulate commerce and that "if Congress relied clear that New York law would apply in absence
at all on" its power to create federal law for diversity of the federal Act. And, as the Court points out, it
cases, such reliance "was only supplementary." is not entirely clear whether New York courts
would consider Prima's promise to arbitrate
2 The principal support for the Act came from inseparable from the rest of the contract. But,
trade associations dealing in groceries and other since Robert Lawrence held and the lower courts
perishables and from commercial and mercantile here assumed that application of New York law
groups in the major trading centers. 50 A. B. A. would produce a different result, and since the
Rep. 357 (1925). Practically all who testified in Court deems the status of state law immaterial to
support of the bill before the Senate this case, I have assumed throughout this opinion
subcommittee in 1923 explained that the bill was that, in the absence of the Arbitration Act, Prima
designed to cover contracts between people in would have been able to obtain judicial resolution
different States who produced, shipped, bought, of its fraud allegations under New York law.
or sold commodities. Hearing on S. 4213 and S.
[*412] II.
4214 before the Subcommittee of the Senate
Committee on the Judiciary, 67th Cong., 4th Let us look briefly at the language of the Arbitration
Sess., 3, 7, 9, 10 (1923). The same views were Act itself as Congress passed it. Section 2, the key
expressed in the 1924 hearings. When Senator provision of the Act, provides that "[a] written provision
Sterling suggested, "What you have in mind is in . . . a contract . . . involving commerce to settle by
that this proposed legislation relates to contracts arbitration a controversy thereafter arising out of such
arising in interstate commerce," Mr. Bernheimer, contract . . . shall be valid, irrevocable, and enforceable,
a chief exponent of the bill, replied: "Yes; save upon such grounds as exist at law or in equity for
entirely. The farmer who will sell his carload of the revocation of any contract." (Emphasis added.)
potatoes, from Wyoming, to a dealer in the State Section 3 provides that "if any suit . . . be brought . . .
of New Jersey, for instance." Joint Hearings on S. upon any issue referable to arbitration under an
1005 and H. R. 646 before the Subcommittees of agreement in writing for such arbitration, the court . . .
the Committees on the Judiciary, 68th Cong., 1st upon being satisfied that the issue involved in such
Sess., 7. See also id., at 27. suit . . . is referable to arbitration under such an
3 In some Acts Congress uses broad language agreement, shall . . . stay the trial of the action until such
and defines commerce to include even that which arbitration has been had . . . ." 5 (Emphasis added.) The
 Page 12

language of these sections could not, I think, raise doubts "are really not voluntarily [sic] things at all" because
about their meaning except to someone anxious to find "there is nothing for the man to do except to sign it; and
doubts. They simply mean this: an arbitration agreement then he surrenders his right to have his case tried by the
is to be enforced by a federal court unless the court, not court . . . ." 12 He was emphatically assured by the
the arbitrator, finds grounds "at law or in equity for the supporters of the bill that it was not their intention to
revocation of any contract." Fraud, of course, is one of cover such cases. The significant thing is that Senator
the most common grounds for revoking a contract. If the Walsh was not thinking in terms of the arbitration
contract was procured by fraud, then, unless the provisions being "separable" parts of such contracts,
defrauded party elects to affirm it, there is absolutely no parts which should be enforced without regard to why
contract, nothing to be arbitrated. Sections 2 and 3 of the the entire contracts in which they were contained were
Act assume the existence of a valid contract. They agreed to. The issue for him was not whether an
merely provide for enforcement where such a valid arbitration provision in a contract was made, but why, in
contract [*413] exists. These provisions were plainly the context of the entire contract and the circumstances
designed to protect a person against whom arbitration is [*415] of the parties, the entire contract was made. That
sought to be enforced from having to submit his legal is precisely the issue that a general allegation of fraud in
issues as to validity of the contract to the arbitrator. The the inducement raises: Prima contended that it would not
legislative history of the Act makes this clear. Senator have executed any contract, including the arbitration
Walsh of Montana, in hearings on the bill in 1923, clause, if it were not for the fraudulent representations of
observed, "The court has got to hear and determine F & C. Prima's agreement to an arbitration clause in a
[**1811] whether there is an agreement of arbitration, contract obtained by fraud was no more "voluntary" than
undoubtedly, and it is open to all defenses, equitable and an [**1812] insured's or employee's agreement to an
legal, that would have existed at law . . . ." 6 Mr. Piatt, arbitration clause in a contract obtained by superior
who represented the American Bar Association which bargaining power.
drafted and supported the Act, was even more explicit: "I
think this will operate something like an injunction 5 This section, unlike § 4, is expressly
process, except where he would attack it on the ground applicable to situations like the present one where
of fraud." 7 And then Senator Walsh replied: "If he should a defendant in a case already pending in federal
attack it on the ground of fraud, to rescind the whole court moves for a stay of the lawsuit. In finding
thing. . . . I presume that it merely [is] a question of an "explicit answer" in a provision "not
whether he did make the arbitration agreement or not, . . . expressly" applicable, the Court almost
and then he would possibly set up that he was misled completely ignores the language of § 3 and the
about the contract and entered [***1283] into it by proviso to § 2, a section which Bernhardt held to
mistake . . . ." 8 It is evident that Senator Walsh was "define the field in which Congress was
referring to situations in which the validity of the entire legislating." 350 U.S., at 201.
contract is called into question. And Mr. Bernheimer, 6 Senate Hearing, supra, at 5.
who represented one of the chambers of commerce in 7 Ibid.
favor of the bill, assured the Senate subcommittee that 8 Ibid.
"the constitutional right to jury trial is adequately 9 Senate Hearing, supra, at 2.
safeguarded" by the Act. 9 Mr. Cohen, the American Bar 10 "The one constitutional provision we have
Association's draftsman of the bill, assured the members got is that you have a right of trial by jury. But
of Congress that the Act would not impair the right to a you can waive that. And you can do that in
jury trial, because it deprives a person of that right only advance. Ah, but the question whether you waive
when he has voluntarily and validly waived it by it or not depends on whether that is your
agreeing to submit certain [*414] disputes to signature to the paper, or whether you authorized
arbitration. 10 The court and a jury are to determine both that signature, or whether the paper is a valid
the legal existence and scope of such an agreement. The paper or not, whether it was delivered properly.
members of Congress revealed an acute awareness of So there is a question there which you have not
this problem. On several occasions they expressed waived the right of trial by jury on." Joint
opposition to a law which would enforce even a valid Hearings, supra, at 17.
arbitration provision contained in a contract between
It seems quite clear to me that Mr. Cohen
parties of unequal bargaining power. Senator Walsh
was referring to a jury trial of allegations
cited insurance, employment, construction, and shipping
challenging the validity of the entire contract.
contracts as routinely containing arbitration clauses and
11 Senate Hearing, supra, at 9-11. See also
being offered on a take-it-or-leave-it basis to captive
Joint Hearings, supra, at 15.
customers or employees. 11 He noted that such contracts
 Page 13

12 Senate Hearing, supra, at 9. background of legal experience and established

systems of law." Cohen & Dayton, supra, at 281.
Finally, it is clear to me from the bill's sponsors'
understanding of the function of arbitration that they
III.
never intended that the issue of fraud in the inducement
be resolved by arbitration. They recognized two special With such statutory language and legislative history,
values of arbitration: (1) the expertise of an [***1284] one can well wonder what is the basis for the Court's
arbitrator to decide factual questions in regard to the day- surprising departure from the Act's clear statement which
to-day performance of contractual obligations, 13 and (2) expressly excepts from arbitration "such grounds as exist
the speed with which arbitration, as contrasted to at law or in equity for the revocation of any contract."
litigation, could resolve disputes over performance of Credit for the creation of a rationalization to justify this
contracts and thus mitigate the damages and allow the statutory mutilation apparently must go to the Second
parties to continue performance under the contracts. 14 Circuit's opinion in Robert Lawrence Co. v. Devonshire
Arbitration serves neither of these functions where a Fabrics, Inc., supra. In that decision Judge Medina
contract is sought to be rescinded on the ground of fraud. undertook to resolve the serious constitutional problem
On the one hand, courts have far more expertise in which this Court had avoided in Bernhardt by holding
resolving legal issues which go to the validity of a the Act inapplicable to a diversity case involving an
contract than [*416] do arbitrators. 15 On the other hand, intrastate contract. That problem was whether the
where a party seeks to rescind a contract and his Arbitration [*417] Act, passed 13 years prior to Erie R.
allegation of fraud in the inducement is true, an Co. v. Tompkins, 304 U.S. 64, could be constitutionally
arbitrator's speedy remedy of this wrong should never applied in a diversity case even though its application
result in resumption of performance under the contract. would require the federal court to enforce an agreement
And if the contract were not procured by fraud, the court, to arbitrate which the state court across the street would
under the summary trial procedures provided by the Act, not enforce. Bernhardt's holding that arbitration
may determine with little delay that arbitration must [***1285] is "outcome determinative," 350 U.S., at
proceed. The only advantage of submitting the issue of 203, [**1813] and its recognition that there would be
fraud to arbitration is for the arbitrators. Their unconstitutional discrimination if an arbitration
compensation corresponds to the volume of arbitration agreement were enforceable in federal court but not in
they perform. If they determine that a contract is void the state court, id., at 204, posed a choice of two
because of fraud, there is nothing further for them to alternatives for Judge Medina. If he held that the
arbitrate. I think it raises serious questions of due process Arbitration Act rested solely on Congress' power, widely
to submit to an arbitrator an issue which will determine recognized in 1925 but negated in Erie, to prescribe
his compensation. Tumey v. Ohio, 273 U.S. 510. general federal law applicable in diversity cases, he
would be compelled to hold the Act unconstitutional as
13 "Not all questions arising out of contracts applied to diversity cases under Erie and Bernhardt. 16 If
ought to be arbitrated. It is a remedy peculiarly he held that the Act rested on Congress' power to enact
suited to the disposition of the ordinary disputes substantive law governing interstate commerce, then the
between merchants as to questions of fact -- Erie-Bernhardt problem would be avoided and the
quantity, quality, time of delivery, compliance application of the Act to diversity cases involving
with terms of payment, excuses for non- commerce could be saved.
performance, and the like. It has a place also in
the determination of the simpler questions of law 16 Mr. Justice Frankfurter chose this alternative
-- the questions of law which arise out of these in his concurring opinion in Bernhardt, 350 U.S.,
daily relations between merchants as to the at 208, and even the Court there suggested that its
passage of title, the existence of warranties, or the pre-Erie decision in Shanferoke Coal & Supply
questions of law which are complementary to the Corp. v. Westchester Service Corp., 293 U.S.
questions of fact which we have just mentioned." 449, which applied the Act to an interstate
Cohen & Dayton, The New Federal Arbitration contract in a diversity case, might be decided
Law, 12 Va. L. Rev. 265, 281 (1926). differently under the Bernhardt holding that
14 See, e. g., Senate Hearing, supra, at 3. arbitration is outcome-determinative, 350 U.S.,
15 "It [arbitration] is not a proper remedy for . . . at 202.
questions with which the arbitrators have no
The difficulty in choosing between these two
particular experience and which are better left to
alternatives was that neither, quite contrary to the Court's
the determination of skilled judges with a
position, was "clear beyond dispute" upon reference to
the Act's legislative history. 17 As to the first, it is clear
 Page 14

that Congress intended the Act to be applicable in subject of litigation in the Federal courts." H. R.
diversity cases involving interstate commerce and Rep. No. 96, 68th Cong., 1st sess., 1 (1924)
maritime [*418] contracts, 18 and to hold the Act (emphasis added). Mr. Cohen and a colleague,
inapplicable in diversity cases would be severely to limit commenting on the Act after its passage,
its impact. As to the second alternative, it is clear that explained: "The Federal courts are given
Congress in passing the Act relied primarily on its power jurisdiction to enforce such agreements whenever
to create general federal rules to govern federal courts. under the Judicial Code they would have had
Over and over again the drafters of the Act assured jurisdiction . . . . Where the basis of jurisdiction
Congress: "The statute establishes a procedure in the is diversity of citizenship, the dispute must
Federal courts . . . . It rests upon the constitutional involve $ 3000 as in suits at law." Cohen &
provision by which Congress is authorized to establish Dayton, supra, at 267. See, e. g., Committee on
and control inferior Federal courts. So far as Commerce, Trade & Commercial Law, The
congressional acts relate to the procedure in the Federal United States Arbitration Law and Its
courts, they are clearly within the congressional power." Application, 11 A. B. A. J. 153, 156; Note, 20
19
And again: "The primary purpose of the statute Ill. L. Rev. 111 (1925). The bill, as originally
[***1286] is to make enforcible in the Federal courts drafted by the American Bar Association, 49 A.
such agreements for arbitration, and for this purpose B. A. Rep. 51-52 (1924), and introduced in the
Congress rests solely upon its power to prescribe [*419] House, H. R. No. 646, 68th Cong., 1st Sess.
the jurisdiction and [**1814] duties of the Federal (1924), 65 Cong. Rec. 11081-11082 (1924),
courts." 20 One cannot read the legislative history without expressly provided in § 8 "that if the basis of
concluding that this power, and not Congress' power to jurisdiction be diversity of citizenship . . . the
legislate in the area of commerce, was the "principal district court . . . shall have jurisdiction . . .
basis" of the Act. 21 Also opposed to the view that hereunder notwithstanding the amount in
Congress intended to create substantive law to govern controversy is unascertained . . . ." Though that
commerce and maritime transactions are the frequent provision was deleted by the Senate, the omission
statements in the legislative history that the Act was not was not intended substantially to alter the law. 66
intended to be "the source of . . . substantive law." 22 As Cong. Rec. 3004 (1925).
Congressman Graham explained the Act to the House: 19 Committee on Commerce, Trade &
Commercial Law, supra, 11 A. B. A. J., at 154.
"It does not involve any new principle of law except
20 Joint Hearings, supra, at 38.
to provide a simple method . . . in order to give
21 Although Mr. Cohen, in a brief filed with
enforcement . . . . It creates no new legislation, grants
Congress, suggested that Congress might rely on
no new rights, except a remedy to enforce an agreement
its power over commerce, he added that there
in commercial contracts and in [*420] admiralty
were "questions which apparently can be raised
contracts." 65 Cong. Rec. 1931 (1924). (Emphasis
in this connection," id., at 38, and expressly
added.)
denied that "the proposed law depends for its
Finally, there are clear indications in the legislative validity upon the exercise of the interstate-
history that the Act was not intended to make arbitration commerce and admiralty powers of Congress,"
agreements enforceable in state courts 23 or to provide an id., at 37. And when he testified, he made the
independent federal-question basis for jurisdiction in point clearer:
federal courts apart from diversity jurisdiction. 24 The
"So what we have done . . . [in New York] is
absence of both of these effects -- which normally follow
that we have . . . made it a part of our judicial
from legislation of federal substantive law -- seems to
machinery. That is what we have done. But it
militate against the view that Congress was creating a
can not be done under our constitutional form of
body of federal substantive law.
government and cover the great fields of
commerce until you gentlemen do it, in the
17 For an analysis of these alternatives, see
exercise of your power to confer jurisdiction on
generally, Symposium, Arbitration and the
the Federal courts. The theory on which you do
Courts, 58 Nw. U. L. Rev. 466 (1963); Note, 69
this is that you have the right to tell the Federal
Yale L. J. 847 (1960).
courts how to proceed." Id., at 17.
18 The House Report accompanying the Act
expressly stated: "The purpose of this bill is to The legislative history which the Court
make valid and enforcible agreements for recites to support its assertion that Congress
arbitration contained in contracts involving relied principally on its power over commerce
interstate commerce . . . or which may be the consists mainly of statements that the Act was
 Page 15

designed to cover only contracts in commerce, arbitration clause. So to avoid this application of state
and that is certainly true. But merely because the law, Judge Medina went further than holding that the
Act was designed to enforce arbitration federal Act makes agreements to arbitrate enforceable: he
agreements only in contracts in commerce, does held that the Act creates a "body of law" that
not mean that Congress was primarily relying on "encompasses questions of interpretation and
its power over commerce in supplying that construction as well as questions of validity, revocability
remedy of enforceability. and enforceability of arbitration agreements affecting
22 Cohen & Dayton, supra, at 276. interstate commerce or maritime affairs." 271 F.2d, at
23 See, e. g., Cohen & Dayton, supra, at 277; 409.
Committee on Commerce, Trade & Commercial
Thus, 35 years after the passage of the Arbitration
Law, supra, at 155, 156. Mr. Rose, representing
Act, the Second Circuit completely rewrote it. Under its
the Arbitration Society of America, suggested that
new formulation, § 2 now makes arbitration agreements
the Act might have the beneficial effect of
enforceable "save upon such grounds as exist at federal
encouraging States to enact similar laws, Joint
law for the revocation of any contract." And under § 4,
Hearings, supra, at 28, but Mr. Cohen assured
before enforcing an arbitration agreement, the district
Congress:
court must be satisfied that "the making of the agreement
"Nor can it be said that the Congress of the for arbitration, as a matter of federal law, is not in issue."
United States, directing its own courts . . . , would And then when Judge Medina turned to the task of "the
infringe upon the provinces or prerogatives of the formulation of the principles of federal substantive law
States. . . . The question of the enforcement necessary for this purpose," 271 F.2d, at 409, he
relates to the law of remedies and not to formulated the separability rule which the Court today
substantive law. The rule must be changed for the adopts -- not because § 4 provided this rule as an
jurisdiction in which the agreement is sought to "explicit answer," not because he looked to the intention
be enforced . . . . There is no disposition of the parties, but because of his notion that the
therefore by means of the Federal bludgeon to separability rule would further a "liberal policy of
force an individual State into an unwilling promoting arbitration." 271 F.2d, at 410. 25
submission to arbitration enforcement." Id., at 39-
40. 25 It should be noted that the New York courts
24 This seems implicit in § 3's provision for a apparently do not find any inconsistency between
stay by a "court in which such suit is pending" application of a nonseparability rule and that
and § 4's provision that enforcement may be State's policy of enforcing arbitration agreements,
ordered by "any United States district court a policy embodied in a statute from which the
which, save for such agreement, would have federal Act was copied.
jurisdiction under Title 28, in a civil action or in
[*422] Today, without expressly saying so, the
admiralty of the subject matter of a suit arising
Court does precisely what Judge Medina did in Robert
out of the controversy between the parties."
Lawrence. It is not content to hold that the Act does all it
Suffice [***1287] it to say that Judge Medina was intended to do: make arbitration agreements
chose the alternative of construing the Act to create enforceable in federal courts if they are valid and legally
federal substantive law in order to avoid its emasculation existent under state law. The Court holds that the Act
under Erie and Bernhardt. But Judge Medina was not gives federal courts the right to fashion federal law,
content to stop there with a [**1815] holding that the inconsistent with state law, to determine whether an
Act makes arbitration agreements in a contract involving arbitration agreement was made and what it means.
commerce enforceable in federal court even though the Even if Congress intended to create substantive rights by
basis of jurisdiction is diversity and state law does not passage of the Act, I am wholly convinced that it did not
enforce such [*421] agreements. The problem in intend to create such a sweeping body of federal
Robert Lawrence, as here, was not whether an arbitration substantive law completely to take away from the States
agreement is enforceable, for the New York Arbitration their power to interpret contracts made by their own
Act, upon which the federal Act was based, enforces an citizens in their own territory.
arbitration clause in the same terms as the federal Act.
First. The legislative history is [***1288] clear that
The problem in Robert Lawrence, and here, was rather
Congress intended no such thing. Congress assumed that
whether the arbitration clause in a contract induced by
arbitration agreements were recognized as valid by state
fraud is "separable." Under New York law, it was not:
and federal law. 26 Courts would give damages for their
general allegations of fraud in the inducement would, as
breach, but would simply refuse to specifically enforce
a matter of state law, put in issue the making of the
 Page 16

them. Congress thus had one limited purpose in mind: to of being solvent? The simple fact is that Prima would
provide a party to such an agreement "a remedy formerly not have agreed to the covenant not to compete or to the
denied him." 27 "Arbitration under the Federal . . . arbitration clause but for F & C's fraudulent promise that
[statute] is simply a new procedural remedy." 28 The Act it would be financially able to perform consulting
"creates no new legislation, grants no new rights, except services. As this Court held in United States v.
a remedy to enforce . . . ." 29 [**1816] The drafters of Bethlehem Steel Corp., 315 U.S. 289, 298:
the Act were very explicit:
"Whether a number of promises constitute one
"A Federal statute providing for the enforcement of contract [and are non-separable] or more than one is to
arbitration agreements does relate solely to procedure be determined by inquiring 'whether the parties assented
[*423] of the Federal courts. It is no infringement upon to all the promises as a single whole, so [***1289] that
the right of each State to decide for itself what contracts there would have been no bargain whatever, if any
shall or shall not exist under its laws. To be sure promise or set of promises were struck out.'"
whether or not a contract exists is a question of the
Under this test, all of Prima's promises were part of
substantive law of the jurisdiction wherein the contract
one, inseparable contract.
was made." Committee on Commerce, Trade &
Commercial Law, The United States Arbitration Law and
30 H. R. Rep. No. 96, 68th Cong., 1st Sess.
Its Application, 11 A. B. A. J. 153, 154. (Emphasis
(1924).
added.)
Third. It is clear that had this identical contract
"Neither is it true that such a statute, declaring
dispute been litigated in New York courts under its
arbitration agreements to be valid, is the source of their
arbitration act, Prima would not be required to present its
existence as a matter of substantive law. . . .
claims of fraud to the arbitrator if the state rule of non-
"So far as the present law declares simply the policy separability applies. The Court here does not hold today,
of recognizing and enforcing arbitration agreements in as did Judge Medina, 31 that the body of federal
the Federal courts it does not encroach upon the province substantive law created by federal judges under the
of the individual States." Cohen & Dayton, The New Arbitration Act is required to be applied by state courts.
Federal Arbitration Law, 12 Va. L. Rev. 265, 276-277. A holding to that effect -- which the Court seems to leave
up in the air -- would flout the intention of the framers of
All this indicates that the § 4 inquiry of whether the
the Act. 32 Yet under this Court's opinion today -- that the
making of the arbitration agreement is in issue is to be
Act supplies not only the remedy of enforcement but a
determined by reference to state law, not federal law
body of federal doctrines to determine the validity
formulated by judges for the purpose of promoting
[**1817] of an arbitration agreement -- failure to make
arbitration.
the Act [*425] applicable in state courts would give rise
to "forum shopping" and an unconstitutional
26 S. Rep. No. 536, 68th Cong., 1st Sess., 2
discrimination that both Erie and Bernhardt were
(1924); Joint Hearings, supra, at 38.
designed to eliminate. These problems are greatly
27 Cohen & Dayton, supra, at 271.
reduced if the Act is limited, as it should be, to its proper
28 Id., at 279.
scope: the mere enforcement in federal courts of valid
29 65 Cong. Rec. 1931 (1924).
arbitration agreements.
[***LEdHR8] [8]Second. The avowed purpose of
the Act was to place arbitration agreements "upon the 31 "This is a declaration of national law equally
same footing as other contracts." 30 The separability rule applicable in state or federal courts." 271 F.2d, at
which the Court applies to an arbitration clause does not 407.
result in equality between it and other clauses in the 32 See n. 23, supra.
contract. I had always thought that a person who attacks
a contract on the ground of fraud and seeks to rescind it IV.
has to seek rescission of the whole, not tidbits, and is not
The Court's summary treatment of these issues has
given the option of denying the existence of some
made it necessary for me to express my views at length.
clauses and affirming the existence of others. Here F &
The plain purpose of the Act as written by Congress was
C agreed both to perform consulting services for Prima
this and no more: Congress wanted federal courts to
and not to [*424] compete with Prima. Would any
enforce contracts to arbitrate and plainly said so in the
court hold that those two agreements were separable,
Act. But Congress also plainly said that whether a
even though Prima in agreeing to pay F & C not to
contract containing an arbitration clause can be rescinded
compete did not directly rely on F & C's representations
on the ground of fraud is to be decided by the courts and
 Page 17

not by the arbitrators. Prima here challenged in the courts

the validity of its alleged contract with F & C as a whole, 2 Am Jur Pl & Pr Forms, Arbitration and Award, Forms
not in fragments. If there has never been any valid 1-5, 17
contract, then there is not now and never has been
anything to arbitrate. If Prima's allegations are true, the US Digest Anno, Arbitration 2, 11
sum total of what the Court does here is to force Prima to
arbitrate a contract which is void and unenforceable ALR Digests, Arbitration 2, 7
before arbitrators who are given the power to make final
legal determinations of their own jurisdiction, not even L ed Index to Anno, Arbitration and Award
subject to effective review by the highest court in the
land. That is not what Congress said Prima must do. It ALR Quick Index, Arbitration and Award
seems to be what the Court thinks would promote the
policy of arbitration. I am completely unable to agree to Annotation References:
this new version of the Arbitration Act, a version which
its own creator in Robert Lawrence practically admitted Contract containing arbitration agreement as subject to
was judicial legislation. Congress might possibly have the stay and enforcement provisions of the United States
enacted such a version into law had it been able to Arbitration Act. 100 L ed 211.
foresee subsequent legal events, but I do not think this
Court should do so. Claim of fraud in inducement of contract as subject to
compulsory arbitration clause contained in contract. 91
I would reverse this case.
ALR2d 936.
REFERENCES
Violation or repudiation of contract as affecting right to
Contract containing arbitration agreement as subject to
enforce arbitration clause therein. 3 ALR2d 383.
the stay and enforcement provisions of the United States
Arbitration Act
Construction of arbitration provisions of sales contracts
as regards questions to be submitted to arbitrators. 136
5 Am Jur 2d, Arbitration and Award 6-9, 15
ALR 364.
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