Red Cross Line v. Atlantic Fruit Co.

Background

A shipping company (the Red Cross Line) and a charterer (Atlantic Fruit Company) signed a charter for the steamship Runa in New York in 1919. A dispute arose about whether the ship’s master sailed with proper speed and whether charter payments should be returned. The Red Cross Line asked a New York court to force arbitration under the state’s 1920 Arbitration Law after the charterer refused to appoint its arbitrator; the state trial court and Appellate Division ordered arbitration, but the New York Court of Appeals declined to enforce it, treating the matter as exclusively admiralty (maritime) business.

Reasoning

The central question was whether New York’s statute could be applied to maritime contracts and whether that application violated the Federal Constitution. The Court held the arbitration clause is valid under general maritime law and the state may, in personam, compel parties to arbitrate because the statute governs a remedy in state courts rather than changing substantive maritime law. The majority explained the statute does not alter the substance of maritime rules or the admiralty courts’ jurisdiction; it simply provides a procedure for enforcing an agreed arbitration in New York courts. The Court reversed the New York Court of Appeals.

Real world impact

After this decision, parties who sign maritime charter contracts made and to be performed in New York can be ordered by New York courts to follow their agreed arbitration process. Shipping companies and charterers may be required to appoint arbitrators and proceed to arbitration rather than litigate in admiralty, while substantive maritime law remains governed uniformly.

Dissents or concurrances

A separate opinion argued the opposite: that enforcing state arbitration statutes in maritime cases would undermine uniform maritime rules and that state courts should not impose remedies contrary to admiralty policy.