Next to war the greatest source of economic waste in our national life is needless litigation.
Thus spoke Herbert Hoover when he was Secretary of Commerce. Today Mr. Hoover may have other notions as to what constitutes prime peacetime waste but he is still an honorary president of the American Arbitration Association, whose sole purpose is elimination of needless litigation. Mr. Hoover's AAA maintains a quasi-judicial system throughout the and where business disputes may be settled quickly, cheaply, secretly.
Arbitration is always voluntary. No one can force a businessman to take his squabbles to a private tribunal unless he has arbitration clauses in his contracts. And no one can force him to use arbitration clauses. But once the bickering parties submit their controversy to AAA they must proceed according to AAA's uniform, formalized and legally-binding rules. They are sure, however, that their trade secrets will be honored and their defeats discreetly hidden.
The arbitrators are hand-picked panels of public-minded citizens in 1,700 U. S. cities. Special panels of experts are maintained for technical trade disputes. In Manhattan the AAA has nearly 1,500 in its panels including names like Banker Winthrop Aldrich, Lawyer James M. Beck, Cineman Jesse Lasky, Funnyman Eddie Cantor, Mrs. Vincent Astor. The arbitrators serve free, are called two or three times a year, may be excused if busy.
When a case is submitted to the AAA either jointly or by the disaffected party to a contract containing an arbitration clause, some 25 names are suggested as arbitrators. Each side strikes from the list any objectionable names and from the remaining roster the AAA picks the three arbitrators. At least one always knows the business or profession involved. Hearings seldom last more than one day, though each side may present evidence, produce witnesses, hire lawyers.
Last week an AAA decision made news because it not only was one of the rare cases where findings are published but it also affected a goodly number of investors who were not directly party to the dispute. The controversy was between two groups of New York Stock Exchange firms, one of which had sold, the other bought, Alleghany Corp. prior preferred stock "when, as and if issued."
Though the stock was not actually issued until a year later, trading began in 1934 after the Van Sweringen Brothers proposed to escape an interest default by swapping this prior preferred for the coupons on some Alleghany bonds. To put over the plan the Van Sweringens had to resort to the courts where under Section 77B of the Bankruptcy Act a two-thirds majority can coerce a stubborn minority. Meantime the Alleghany "when issued" stock dropped from $30 per share to $14.