FEINBERG, Circuit Judge:
These two appeals by American Safety Equipment Corp. (ASE) are from orders of the United States District Court for the Southern District of New York, Constance B. Motley, J., which stayed, pending arbitration, two declaratory judgment actions by ASE, one against Hickok Manufacturing Co., Inc., and the other against J. P. Maguire & Co., Inc. The merits of these actions are not now directly in question, but the propriety of directing arbitration is. We conclude that the court should have decided itself at least some of the issues it referred to the arbitrators. Accordingly, we remand for further proceedings.
In August 1963, ASE and Hickok entered into a License Agreement under which Hickok granted to ASE an exclusive license to use the "Hickok" trademarks in connection with "safety protective devices" and "accessories."
The 1963 License and Manufacturing Agreements
The two sets of motions growing out of this procedural morass were heard in February 1967. Thereafter, Judge Motley denied ASE's motions to enjoin arbitration and granted the motions of Maguire and Hickok. The judge held that the arbitration clause was broad enough to encompass the claims of antitrust violations and found no public policy against referring them to arbitration; the validity of the assignment would also be resolved in that forum. Accordingly, the judge stayed ASE's two declaratory judgment actions pending arbitration, and directed arbitration with respect to "all claims, disputes and controversies between the parties relating to the License
The basic question we must resolve is whether the district court erred in staying ASE's actions and ordering arbitration of ASE's antitrust allegations.
The second requirement has clearly been met here; setting up the arbitration agreement is itself an equitable defense. Id.; see Shanferoke Coal & Supply Corp. of Delaware v. Westchester Service Corp., 293 U.S. 449, 452, 55 S.Ct. 313, 79 L.Ed. 583 (1935).
Whether the first requirement has been fulfilled is more complicated. A declaratory judgment action is a statutory creation, and by its nature is neither fish nor fowl, neither legal nor equitable. Where, as here, such an action has required classification, the courts have looked to the basic nature of the suit in which the issues involved would have arisen if Congress had not created the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. E. g., Simler v. Conner, 372 U.S. 221, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963); Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 504, 515, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959); see Wright, Federal Courts § 100, at 392-93 (1963). Were it not for the availability of declaratory relief, the dispute between ASE and Hickok would normally arise in one of two ways. ASE could bring an action for treble damages based upon the alleged antitrust violations. On the other hand, ASE could wait until Hickok attempted to collect outstanding royalties, and then assert the illegality of the agreement as a defense. In either instance, the action would be legal, not equitable. See Beacon Theatres, Inc. v. Westover, supra; Ring v. Spina, 166 F.2d 546 (2d Cir.), cert. denied, 335 U.S. 813, 69 S.Ct. 30, 93 L.Ed. 368 (1948). Since the basic nature of ASE's declaratory judgment action against Hickok is thus legal, the conditions set forth in Standard Chlorine are met, and the appeal will lie.
As to Maguire, it asserts that ASE's demand for an injunction in its declaratory judgment complaint shows that the basic nature of the proceeding is equitable. This argument might be persuasive if the action against Maguire were analyzed in isolation; a suit to enjoin pending arbitration proceedings, coupled with a claim for declaratory relief, has a pronounced equitable cast. See Greenstein v. National Skirt & Sportswear Ass'n, 274 F.2d 430 (2d Cir. 1960); Wilson Bros. v. Textile Workers Union, 224 F.2d 176 (2d Cir.), cert. denied, 350 U.S. 834, 76 S.Ct. 70, 100 L.Ed. 745 (1955). However, the action against Maguire is not in a vacuum; it is, instead, an integral
We now come to the merits of the district court orders, which stayed the declaratory judgment actions and required ASE to proceed to arbitration on all disputes with Hickok and Maguire, including the validity of the License Agreement. The basic issue was aptly phrased by this court fifteen years ago in Wilko v. Swan, 201 F.2d 439, 444 (2d Cir. 1953):
The question before us is whether the statutory right ASE seeks to enforce is "of a character inappropriate for enforcement by arbitration." This is a difficult issue, not often litigated. Wilko v. Swan, supra, was reversed by the Supreme Court in the leading decision on this subject. 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). In that case, a purchaser of securities brought an action under the Securities Act of 1933; he had signed a margin agreement which provided for arbitration of any controversy between the customer and the brokerage firm. The question was whether plaintiff was required to submit his claim to arbitration. This court held (2-1) that he was. The Supreme Court reversed (7-2), construing the non-waiver provision in the Securities Act
We have recently considered a similar problem in Fallick v. Kehr, 369 F.2d 899 (2d Cir. 1966). In that case, one partner, invoking the arbitration clause in a partnership agreement, charged another partner with misappropriation of partnership funds. A key issue was whether the latter's discharge in bankruptcy barred this claim. The district court, in the exercise of its discretion, allowed this issue, along with the others in the dispute, to be submitted to arbitration. We held (2-1) that this was not an abuse of discretion. But see I. O. Koven & Brother, Inc. v. Local Union No. 5767, United Steelworkers of America, 381 F.2d 196, 200-205 (3d Cir. 1967).
None of these decisions involved the arbitrability of an antitrust claim; a few cases, however, do consider the question. In Silvercup Bakers, Inc. v. Fink Baking Corp., 273 F.Supp. 159, 162-163 (S.D.N. Y.1967), the court in dictum characterized as "persuasive" the view that courts should not be displaced by labor arbitrators in deciding antitrust suits. A similar view was expressed in the context of a commercial dispute in Fanchon & Marco, Inc. v. Paramount Pictures, Inc., 107 F.Supp. 532, 548 (S.D.N.Y.1952) (dictum), rev'd on other grounds, 202 F.2d 731, 36 A.L.R.2d 1336 (2d Cir. 1953). See also Standardbred Owners Ass'n v. Yonkers Raceway, Inc., 31 Misc.2d 474, 220 N.Y.S.2d 649 (1961); cf. American President Lines, Ltd. v. S. Woolman, Inc., 239 F.Supp. 833, 836 (S.D.N.Y.1964). However, in Greenstein v. National Skirt & Sportswear Ass'n, 178 F.Supp. 681 (S. D.N.Y.1959), appeal dismissed, 274 F.2d 430 (2d Cir. 1960), the court refused to stay an arbitration under a collective bargaining agreement even though plaintiff manufacturers, among other things, claimed that the agreement violated the
Although these cases are relevant, they are not determinative. Nor are the two decisions relied on by the court below: Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, dismissed under Rule 60, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960). It is true that in Prima Paint the Court said (388 U.S. at 404, 87 S.Ct. at 1806):
But we do not read that as foreclosing the inquiry in which we are engaged any more than it did the Supreme Court in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). The claim in both Prima Paint and Robert Lawrence was that a contract containing an arbitration clause was void because the contract as a whole was induced by fraud. In each case it was held that fraud in the inception was a question which could be decided by arbitrators, unless the claim of fraud went specifically to the arbitration clause. On the other hand, the claim here is that the contract is void because of a federal statue. In other words, there was not present in Prima Paint and Robert Lawrence that clash of competing fundamental policies which we find in this case and in most of those referred to above: the conflict between federal statutory protection of a large segment of the public, frequently in an inferior bargaining position, and encouragement of arbitration as a "prompt, economical and adequate solution of controversies." See Wilko v. Swan, 346 U.S. at 438, 74 S.Ct. 182. In that case, the Supreme Court frankly recognized a similar collision of public policies and faced up to it; we must do no less here.
A claim under the antitrust laws is not merely a private matter. The Sherman Act is designed to promote the national interest in a competitive economy; thus, the plaintiff asserting his rights under the Act has been likened to a private attorney-general who protects the public's interest. See Waldron v. Cities Service Co., 361 F.2d 671, 673 (2d Cir. 1966), cert. granted, 385 U.S. 1024, 87 S.Ct. 743, 17 L.Ed.2d 672 (1967). Antitrust violations can affect hundreds of thousands — perhaps millions — of people and inflict staggering economic damage. Thus, in the recent "electrical equipment" cases, there were over 1,900 actions, including over 25,000 separate damage claims, commenced by purchasers of equipment allegedly illegally overpriced.
On the other hand, the claim here is that the agreement itself was an instrument of illegality; in addition, the issues in antitrust cases are prone to be complicated, and the evidence extensive and diverse, far better suited to judicial than to arbitration procedures. Moreover, it is the business community generally that is regulated by the antitrust laws. Since commercial arbitrators are frequently men drawn for their business expertise, it hardly seems proper for them to determine these issues of great public interest. As Judge Clark said concerning the analogous situation in Wilko v. Swan, 201 F. 2d at 445 (dissenting opinion):
Appellee Hickok seems to argue that all these considerations are irrelevant because ASE does not seek damages, apparently conceding that a treble damage claim would not be arbitrable. We do not regard this distinction as significant if it is meant to persuade us that arbitrators rather than courts should declare whether contract provisions violate the Sherman Act. On the other hand, if Hickok is merely emphasizing that ASE's antitrust claims are actually being asserted as a defense to an action for royalties, we agree that questions of separability are present here, and we refer to them below. However, the problem of which forum should determine those questions remains; we believe it is governed by the same considerations discussed above.
We express no general distrust of arbitrators or arbitration; our decisions reflect exactly the contrary point of view. See, e. g., South East Atl. Shipping Ltd. v. Garnac Grain Co., 356 F.2d 189, 192-193 (2d Cir. 1966) (appellant penalized for making frivolous attempt to overturn arbitration award); Kulukundis Shipping Co., S/A v. Amtorg Trading Corp., 126 F.2d 978, 985 (2d Cir. 1942) ("it is our obligation to shake off the old judicial hostility to arbitration"). Moreover, we do not deal here with an agreement to arbitrate made after a controversy has already arisen. Cf. Wilko v. Swan, 346 U.S. at 438, 74 S.Ct. 182. We conclude only that the pervasive public
This does not mean that we rule out arbitration of all aspects of this dispute. It does mean that the district court erred in submitting to the arbitrators "the issue as to the validity" of the License Agreement insofar as that empowered the arbitrators to decide issues of antitrust law. A plethora of those were raised by the able briefs and argument. Appellant contends that each of three separate sections of the License Agreement violates the Sherman Act. Appellees deny this, and make the following additional arguments, among others: Even if invalid, two of the sections are severable and therefore do not vitiate the rest of the agreement; at least one of the alleged claims of illegality is moot because Hickok has irrevocably disclaimed any intention of enforcing the section; and, finally, appellant is estopped from challenging the validity of the agreement, having retained certain patents and other benefits from it. We do not, of course, express any view on the merits of these arguments. But we do note that ASE's claims are not frivolous, and that some of the opposing contentions raise difficult and fundamental questions; e. g., can the antitrust violations be a defense to a claim for royalties already due on goods sold by ASE under the Hickok trademark? Cf. Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959); American Mfrs. Mut. Ins. Co. v. American Broadcasting-Paramount Theatres, Inc., 87 S.Ct. 1, 17 L.Ed.2d 37 (1966) (granting stay); Comment, 27 U.Chi.L.Rev. 758 (1960).
The district court also left for arbitration the question whether Maguire had the right to invoke the arbitration clause against ASE. ASE asserts that it made no agreement to arbitrate with Maguire and therefore cannot be compelled to do so. It argues that the License Agreement itself invalidates the purported assignment from Hickok to Maguire,
This case is quite different from those involving fraud in the inducement, e. g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, dismissed under Rule 60, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960). In those cases, an agreement to arbitrate was reached by the parties; the fraud alleged went not to the agreement to arbitrate but to the substance of the contract. The arbitration clauses were held separable, and the issue of fraud in the inducement was sent to arbitration. That approach is not available here; it accomplishes nothing to treat the arbitration clause separately if Maguire is not a party to it. Therefore, before ordering ASE to arbitration, the district court should have first determined whether there was an agreement to arbitrate between ASE and Maguire. We express no opinion on the merits of that issue.
Finally, we note that nothing said in the course of this opinion is meant to preclude the district court, after deciding the questions now before it, from exercising its discretion in overseeing further development of these proceedings. See the three decisions of this court in Nederlandse Erts-Tankersmaatschappij, N. V. v. Isbrandtsen Co., 339 F.2d 440 (2d Cir. 1964), 362 F.2d 205 (2d Cir. 1966), and 387 F.2d 954 (2d Cir. 1968).
Remanded for further proceedings consistent with this opinion.