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not only in every contract made by the contractor with the Government, but in every subcontract between the contractor and his subcontractors, and so on down the line, there should be inserted a stipulation such as is provided here, whereby the subcontractors would agree to leave the determination of the matter to the Court of Claims or some Government official, and in that way seek to protect the contractor from the subcontractor, so that, in litigation between those parties, the State courts would be ousted of their jurisdiction and the subcontractor would be deprived of making a claim there that he had not violated it, although the Government official had found that he had, or that the party with whom he had contracted had waived the conditions of the subcontract. You will observe this. The subcontractor of the subcontractor might claim that that subcontractor had waived the conditions of his subcontract. That would not at all avail the original contractor with the Government in regard to the matter, because the absolute provisions of this bill are such that a waiver made by the original contractor to that subcontractor, either with or without the permission of the subcontractor who was his original contractor, would not operate to relieve the contractor of the responsibilty in his dealings with the Government under his contract with it.
I want to call your attention to certain propositions of law that seem to be very well established as bearing on the invalidity and impotence of such stipulations imposed either by direction of the Federal Government or by agreement between the parties as between the contractor and the subcontractor, and so on down the line. Now, it comes to this, that a proposition is made to make a valid stipulation in the contract between the original contractor and the subcontractor in a matter which is confessedly, or which must be conceded to be, utterly beyond the scope of the power of the Congress of the United States by direct legislation to reach; and I want to call the attention of the committee to the principles that are involved in it.
As I said the other day, it is a fundamental principle of constitutional law in our country that a State can forbid a corporation organized by another State from doing business within its limits. It can provide also that if a corporation organized by another State does business within a State the latter can revoke the license. It has also been recently held by the Supreme Court that the State may insert a provision in the permit to that foreign corporation to do business in the State that the corporation shall stipulate that if it shall remove a case into the United States court the license may be revoked. Now, we have those undoubted powers of the State; yet it is established overwhelmingly by the decisions of the Supreme Court of the United States that a party can not directly stipulate, and the State can not require a direct stipulation, that the party shall not resort to the Federal court by removal, and on this proposition I want to call your attention to the case of Insurance Company y. Morse (20 Wallace).
Mr. Payson. That is to say, if I understand you, for I am following you with interest, if it is beyond the power of Congress to require the condition, it is not binding upon the party who assents to it?
Mr. DAVENPORT. No; that such a law does not give it any validity, and the agreement is void.
Mr. Payson. That is what I understood you to say.
Mr. DAVENPORT. For quite other reasons.
The CHAIRMAN. You have just cited a case of which I admit I know nothing. Has the Supreme Court decided that the license may be revoked because the company refuses to be bound by the admittedly illegal stipulation?
Mr. DAVENPORT. Yes; they may annex a stipulation. Of course there is a divided court on the subject. I am calling attention to this for the purpose of showing that attempts to get at this thing by agreements are of no consequence,
because of the inability of the party to stipulate and the inability of Congress to require the stipulation. I want to direct your attention more particularly again to the case of the Insurance Company v. Morse, in 20 Wallace, beginning at page 445. The syllabus is as follows:
1. The Constitution of the United States secures to citizens of another State than that in which suit is brought an absolute right to remove their causes into the Federal court, upon compliance with the terms of the twelfth section of the judiciary act.
Now, follow it closely. This will show you the vast importance of the distinction between agreeing not to do this and getting at it in another way
. 2. The obstruction to this right imposed by a statute of a State, which enacts “that any fire insurance company, association, or partnership, incorporated by or organized under the laws of any other States of the United States, desiring to transact any such business as aforesaid by any agent or agents in this State, shall first appoint an attorney in this State, on whom process of law can be served, containing an agreement that such company will not remove the suit for trial into the United States circuit court or Federal courts, and file in the office of the secretary of state a written instrument, duly signed and sealed, certifying such appointment, which shall continue until another attorney is substituted," is repugnant to the Constitution of the United States and the laws in pursuance thereof, and is illegal and void.
3. The agreement of the insurance company, filed in pursuance of the act, derives no support from a statute thus unconstitutional and is as void as it would be had no such statute been passed.
Mr. HASKINS. What State did that come up from?
Mr. DAVENPORT. Wisconsin. Now, there are two propositions involved in this. One is that an agreement of a party not to go into court-of the subcontractor not to go into court-and fight the contractor in his State tribunal, or in a Federal tribunal if they are citizens of different States, is a thing which would be void. Of course as I go along you will make the application.
About every argument that is urged in support of the proposition that a man can bind himself by any sort of contract, that a man can take it or leave it, was urged by the attorneys in that case, and I want to call the attention of the committee to what the court says upon both propositions. The opinion was delivered by Mr. Justice Hunt and was dissented from by the Chief Justice, with whom concurred Mr. Justice Davis dissenting, who construed the act to be of another character and such as has since been held to be valid in the Kentucky case (202 U. S.). Mr. Justice Hunt said in this opinion:
The refusal of the State court of Wisconsin to allow the removal of the case into the United Statog circuit court of Wisconsin and its justification under the agreement of the company and the statute of Wisconsin form the subject of consideration in the present suit.
You understand that this company had done business for some time in Wisconsin, had filed its agreements and appointed its attorney,
and came under the provisions of the law, and had insured people under the law and the agreement it had made with the State, in which they stipulated that they would not remove their cases into the Federal court. That was the situation.
Mr. Payson. Then they were sued and attempted to remove.
The State courts of Wisconsin held that this statute and their agreement under it justified a denial of the petition to remove the case into the United States court. The insurance company deny this proposition, and this is the point presented for consideration.
Is the agreement thus made by the insurance company one that, without reference to the statute, would bind the party making it?
Should a citizen of the State of New York enter into an agreement with the State of Wisconsin that in no event would he resort to the courts of that State or to the Federal tribunals within it to protect his rights of property, it could not be successfully contended that such an agreement would be valid.
Should a citizen of New York enter into an agreement with the State of Wisconsin, upon whatever consideration, that he would in no case, when called into the courts of that State or the Federal tribunals within it, demand a jury to determine any rights of property that might be called in question, but that such rights should in all such cases be submitted to arbitration or to the decision of a single judge, the authorities are clear that he would not thereby be debarred from resorting to the ordinary legal tribunals of the State. There is no sound principle upon which such agreements can be specifically enforced. We see no difference in principle between the cases supposed and the case before us.
It would be well, perhaps, to inject here that the Court of Claims is not a constitutional court; it is not a court to which parties are required to resort and can be required to resort in derogation of their rights to resort to the regularly constituted tribunals of the State or nation. It is only because that is the only place that they are permitted to sue the United States Government, which by reason of its sovereignty has the right to refuse to be sued anywhere, that they are compelled now to it in claims against the Government itself.
We see no difference in principle between the cases supposed and the case before us. Every citizen is entitled to resort to all the courts of the country, and to invoke the protection which all the laws or all those courts may afford him. A man may not barter away his life or his freedom, or his substantial rights. In a criminal case he can not, as was held in Cancemi's case,a be tried in any other manner than by a jury of twelve men, although he consent in open court to be tried by a jury of eleven men. In a civil case he may submit his particular suit by his own consent to an arbitration, or to the decision of a single judge. So he may omit to exercise his right to remove his suit to a Federal tribunal, as often as he thinks fit, in each recurring case. In these aspects any citizen may no doubt waive the rights to which he may be entitled. He can not, however, bind himself in advance by any agreement, which may be specifically enforced, thus to forfeit his rights at all times and on all occasions, whenever the case may be presented.
That the agreement of the insurance company is invalid upon the principles mentioned, numerous cases may be cited to prove. They show that agreements in advance to oust the courts of the jurisdiction conferred by law are illegal and void.
a 18 New York, 128.
o Nute v. Hamilton Insurance Co. (6 Gray, 174); Cobb v. New England Marine Insurance Co., ib., 192; Hobbs v. Manhattan Insurance Co., 56 Maine, 421; Stephenson v. P. F. and M. Insurance Co., 54 id., 70; Scott v. Avery, 5 House of Lords Cases, 811.
Then follow a couple of pages of citations, which are directly to the point and well known. It is said:
Many cases are cited in support of the rule thus laid down. Upon its own merits, this agreement can not be sustained.
Does the agreement in question gain validity from the statute of Wisconsin which has been quoted? Is the statute of the State of Wisconsin which enacts that a corporation organized in another State shall not transact business within its limits unless it stipulates in advance that it will not remove into the Federal courts any suit that may be commenced against it by a citizen of Wisconsin a valid statute in respect to such requisition, under the Constitution of the United States?
Then the court proceeds to declare that a corporation is a citizen of the State of its creation, and that every citizen has the right under the Constitution to remove his suit into the Federal court, any legislation by the State to the contrary notwithstanding, and that the requirement of the statute that they should agree to this is void. That case has often been followed, and it was applied in various cases until we come down to the case of the Security Mutual Life Insurance Company v. Pruitt (202 U. S., 246), where that case just cited and the other cases following along the same line are commented upon and the principles applicable to the subject are discussed and affirmed, with this result. They say, in the first place, that an agreement exacted by a statute that the parties shall not remove a case into the United States court is a nullity; that, as a condition of the company doing business in such State, and preliminary to it, it is a nullity. But the majority of the court in the Pruitt case said that it was still within the power of the State to say, not as a preliminary to doing business in it, but as a condition of forfeiture, "We will let you do business, but if you do it, and you remove the case into the United States court, your right to continue to do business here is forfeited."
Now, that is the distinction, and this is what the courts say, pointing out the difference between trying to get at these things by agreement, it being confessedly within the power of the State at all times to deny the foreign corporation the right to do business there. It is within the power of the State to declare that they shall not remove the case, and if they do remove it, to deny them the right to do business further; but the provision in the contract that the case shall not be removed is an utter nullity, so that the power of the State to rescind that license for doing the thing which the party has stipulated not to do, though it can not be exacted as a preliminary, can be exercised by the State while the stipulation itself is void. Mr. Justice Peckham, delivering the opinion of the court, having called attention to the decisions before, said:
In these two cases this court decided that any agreement made by a foreign insurance company not to remove a cause to the Federal court was void, whether made pursuant to a statute of the State providing for such agreement, or in the absence of such statute; but that the State, having power to exclude altogether a foreign insurance company from doing business within the State, had power to enact a statute which, in addition to providing for the agreement mentioned, also provided that if the company did remove a case from the State to a Federal court, its right to do business within the State should cease, and its permit should be revoked. It was held there was a distinction between the two propositions, and one might be held void and the other not.
And they say that there is no doubt about the fact that any agreement of a party not to remove a case into the Federal court was a nullity that the State could not exact such an agreement from a party, but that after having gotten that permission and having entered the State, if they did remove a case the State could withdraw the license.
Mr. HASKINS. That is, they could declare the license forfeited ?
Mr. DAVENPORT. Yes, sir. The effect of what the court said in that case in considering the question in the particular relation in which I am now considering it is this: That because Congress has no power to invade the States or infringe upon the relation between
a by exacting a stipulation to do it. In other words, the Congress by an act of its sovereign authority can not say to those individuals "You must regulate your arrangements under certain conditions by stipulation," it being conceded that the matter is beyond the direct power of Congress. Now, the cases in principle are exactly parallel. An act of Congress which provided in express terms that the contracts between the contractor and the subcontractor should contain a stipulation of this kind or, rather, provided that the party should waive his right to go into the State court for the protection of his rights which he claimed to exist under that contract and resort to some Federal authority or some Federal tribunal would be void, because the subject is beyond the control of Congress. In other words, to sum it all up, the statute adds no validity whatever to the relations existing between the parties, and is further an indirect attempt to deprive that party of constitutional rights which are secured to him by the State and by the nation, both.
Now, that is a very practical matter; it is a matter that will “raise hob,” if this law should happen to be passed. Suppose the Cramps had the
opportunity to secure a contract from the Government for the building of a battle ship, and they resorted to Judge Payson or Mr. Hayden, whoever might be their legal adviser, to know whether they could protect themselves, or how they could protect themselves, from the consequences of the violations that are possible, and more than probable, indeed, by the various subcontractors. Well, he would have to advise them; and how would he do it? Ile must say to them “Why, you are going to get in a mess here; you are going to get into a hopeless tangle. Your situation is bad enough now, but it would be infinitely worse if you resorted to this method, if you were to come under this stipulation. I advise you that you can not protect yourself from all these consequences.
That is what he would probably say. But if he attempted to do it, if he said “The job is a good one and the pay is ample; you had better take your chances, and I will see if I can not get up some sort of arrangement on which you can fall back and feel absolutely sure that if the money is withheld from you by the United States Government on account of the acts of the subcontractors, you can come back on the subcontractor and his subcontractor perhap3, or at any rate upon the subcontractor, being the immediate contracting party,” he would be at once confronted with this difficulty, that every question of fact growing out of that matter would have to be settled and tried by a jury in some State court, with all the chances of loss by the contractor in view of the claims of the subcontractor that he did not violate the provisions of it, or if he did, that it had been waived; and a waiver, you know, may be inferred from a great variety of circumstances, some very slight. Anything