SCOTUS Sustains Assault on Contractual Freedom
posted by Lawrence Cunningham
The Supreme Court continues to reject freedom of contract and the power of contracting and state contract law in favor of its national policy favoring arbitration. Most recently, in a per curium opinion in Nitro-Lift v. Howard, it said Oklahoma is not allowed to apply its own contract law to evaluate the validity of classic contract terms (here covenants not to compete). Instead, due to SCOTUS takes on a federal law and the presence of an arbitration clause in the contract, arbitrators make that decision.
The Court’s opinion stresses its conception of a national policy favoring arbitration, which it has found in recent decades in a century-old statute, the Federal Arbitration Act. That emphasis on this “national policy” marks a retreat from the false pretenses that infect the Court’s precedents on the subject, which pretend to be engaged in the application of contract law.
Despite that improvement in the Court’s honesty, it remains the case that the Court’s approach to this subject diminishes traditional principles of contract laws and the value of contracts. People are held to bargains they did not make or that are recognized by contract law as illegal. But the Court insists that no court is allowed to consider these questions, thanks to its statement of national policy.
In numerous past SCOTUS cases, dissenting opinions were routinely filed exposing the flaws in the Court’s jurisprudence. The recent per curium opinion may signal capitulation, indicating that there are no longer any Justices prepared to object to these mistakes. That defeat means it is clearly time for Congress to rein the Court in. It should make it clear that state courts are responsible for developing and applying state contract law, not SCOTUS, federal courts or private arbitrators.
* For a complete analysis, and a possible explanation for the Court’s more honest approach in the Oklahoma case, see Lawrence A. Cunningham, Rhetoric versus Reality in Arbitration Jurisprudence: How the Supreme Court Flaunts and Flunks Contracts, Law & Contemporary Problems (2011) (available here), whose abstract states:
Supreme Court rhetoric about the role of contracts and contract law in arbitration jurisprudence differs sharply from the reality of its applications. In the name of contracts, the Court administers a self-declared national policy favoring arbitration, a policy directly benefiting the judicial branch of government. This often puts the Court’s preferences ahead of those of contracting parties while declaring its mission as solely to enforce contracts in accordance with contract law. The Court thus cloaks in the rhetoric of volition a policy in tension with constitutionally-pedigreed access to justice and venerable principles of federalism.
This Article documents the rhetoric-reality gap and explores why it exists and why it matters. The rhetoric-reality gap is attributable in part to a dilemma the Court created for itself: its national policy favoring arbitration is constitutionally-suspect unless people assent, yet letting people make what contracts they wish would prevent implementing the national policy. The jurisprudence diminishes the Court’s legitimacy, tempts defiance, creates doctrinal incoherence, and poses other costs. This Article calls for reconciling these conflicting positions rather than sustaining the status quo: the Court should either give up its national policy favoring arbitration and truly respect freedom of contract or come clean about its national policy’s real implications and acknowledge its narrow conception of contract and contract law.