A Murder Contract’s Arbitration Clause
A client, Mary, recently told a lawyer she breached a written promise to kill the enemy of her boyfriend, Paul, an interstate narcotics dealer. Paul said the value of getting rid of the enemy was at least $200,000 and that he’d pay Mary $100,000 to do the hit. Paul and Mary’s contract was unusually formal, spelling out details and containing an arbitration clause—saying the two couldn’t fight any dispute in court but only by using an arbitrator.
Mary got cold feet and can’t do the killing; Paul started arbitration, seeking $200,000 in damages. Which of the following seems most likely? (a) Mary’s lawyer can go to court to get the agreement declared unenforceable as a matter of law and halt the arbitration proceedings; (b) Paul can get the court to stay any lawsuit Mary files and an order that she proceed to the arbitration Paul began; (c) the arbitrator can grant Paul the damages he claims, $200,000; (d) a court would enforce such an award (or vacate it).
Following the exuberantly expansive wave of US Supreme Court opinions of the past couple of decades making arbitration agreements hallowed ground above all else, it seems disturbingly more likely that Mary’s lawsuit would be stayed, a court would order her to go to arbitration, the arbitrator could order that Mary pay Paul $200,000 for breach, and a court would enforce the award.
Under Supreme Court precedents, the obvious public policy objections to these outcomes work surprisingly weakly concerning the questions of stay and specific performance and boundaries of what arbitrators can do; they are only a bit stronger in possibly allowing a court to vacate the award as against public policy. The best prediction is that a court would simply defy all the Supreme Court’s precedents and prevent the whole charade from beginning in the first place.
But that doesn’t seem like a good legal system and the Supreme Court’s precedents in this area need revamping. Details on the current state of case law supporting the predicted absurd results follow. I’m beginning to think how to contribute some ideas to the vast literature on this unruly body of law. One tentative suggestion: the Court and the literature insist that the entire body of law is all about contract law; the more this statement is repeated, the less it seems to be true.
The Court reads the Federal Arbitration Act to require all courts in the country, federal or state, to stay proceedings when a contract involving interstate commerce (broadly conceived) contains a written clause calling for disputes to be resolved by arbitration (with an exception for certain lines of employment, narrowly conceived). Paul and Mary’s written contract involves interstate commerce and not employment, within that interpretative framework.
The Court sees the FAA to require courts to order specific performance of arbitration clauses when a party breaches by resisting or to stay judicial proceedings brought by someone subject to such a clause. Mary can’t proceed with her lawsuit and a judge is supposed to order her to participate in the arbitration as Paul requests.
The Court says the FAA renders invalid by preemption any state law purporting to interfere selectively with arbitration clauses–only valid to police such clauses are state laws that apply to all contracts. That preempts as invalid state laws that police arbitration clauses by type of claim (like for medical malpractice), transaction type (like involving franchises), or feature (like for conspicuousness). Any law that might render invalid arbitration clauses like this one, just because contained in a contract for murder, are preempted.
The Court also says that the arbitration clause itself must be separated from the rest of the contract for purposes of analyzing its validity and effect. It doesn’t matter whether the contract as a whole is invalid because it violates a state’s public policies or laws, whether against usury, discrimination, or, presumably, murder. So long as there’s nothing invalid or illegal about the arbitration clause, courts must stay lawsuits and order arbitration. There’s nothing objectionable about the Mary-Paul arbitration clause.
The Court’s opinions mean that the only other way to empower a court to evaluate the enforceability of an arbitration clause is to assert that no contract was formed between the parties. Mary has no grounds to suggest that she and Paul didn’t form a contract—they mutually assented to a bargained for exchange with consideration.
The Court has said that all questions about the validity of a contract—whether it is the product of fraud, mistake, duress, undue influence, incapacity, illegality and so on—are questions an arbitration clause makes an exclusive subject for an arbitrator to decide. Mary’s objection that her contract with Paul is invalid as an illegal bargain, involving murder-for-hire, would thus go to arbitration, not court.
The Court defers to arbitrators to determine what damages to award, in accordance with the party’s contract, not with state law. A state might prohibit arbitrators from awarding punitive damages for breach of contract, for example; but if parties say or imply they want punitive damages to be a potential remedy, the Court says the party’s wishes control. An arbitrator awarding Paul $200,000 for Mary’s breach of the contract for murder would merely be awarding compensatory damages anyway.
The Court recognizes that judges are empowered to vacate arbitration awards, when enforcing them would be against public policy. But even here the Court is circumspect, deferring to one arbitrator’s decision to ignore criminal drug use in an employment dispute. To recognize such a public policy ground to vacate an award also confounds the many cases where the Court has denounced public policy (whether concerning usury, discrimination, protecting franchisees and so on) as a basis to deny effect to an arbitration clause or contract in the first place.
The way around these absurd results is what many states have done since and despite the Supreme Court taking expansive stances making arbitration clauses sacrosanct: defying the Court. Despite what the Court says, many state statutes contain laws, that are enforced, applying special standards to arbitration agreements in many settings. That tension doesn’t bode well for orderly administration of justice. Something must give.