Error to Treat An Arbitration Clause As Unenforceable
In National Railroad Passenger Corp. v. Consolidated Rail Corp., 282 U.S. App. D.C. 132, 892 F.2d 1066, 1070 (D.C. Cir. 1990), the Court held it error to treat an arbitration clause as unenforceable "merely because the substantive contract may--if the district court is correct about public policy--be unenforceable."
Citing the FAA's sole exception to arbitration, a "flaw in the formation of the agreement to arbitrate," the Court explained its holding as follows:
For a court to intervene before the arbitrator has determined what the contract means, and what it requires in the particular circumstances of their dispute, because he may determine that it requires the performance of an unlawful act, prematurely disrupts the system of private ordering upon which "public policy"--as declared in the Arbitration Act and in the Supreme Court cases liberally interpreting it--places maximum possible reliance. . . .
In sum, if parties have validly agreed to submit a dispute to arbitration, we see no reason not to enforce that agreement.
If the arbitrator construes the contract so as to require someone to commit an illegal act, a court can then refuse to enforce the arbitrator's decision.
A court cannot, however, bypass the arbitration process simply because a public policy issue might arise. Id. at 1071.