Would Enforcing the Arbitration Provision of Allegedly Illegal Contract Contravene State Law
In Lawrence v. Comprehensive Business Services Co., 833 F.2d 1159 (5th Cir. 1987), the Fifth Circuit rejected a similar argument.
The plaintiffs claimed that their franchise agreement, which contained an arbitration clause, was illegal under Texas state law and that if the court ordered arbitration it would "'in essence . . . effectuate an illegal agreement.'" Id. at 1162.
The Court noted that the "argument presumes that the contract is illegal and that presenting the dispute to the arbitrator somehow effectuates an illegal contract.
The flaw in the argument is that the legality of the contract has not yet been decided." Id.
The court also rejected the plaintiffs' claim that the issue was one of law to be decided by a court because they "d[id] not contend that the agreement did not allow the arbitrator to decide purely legal questions." Id. Because there was no attack on the arbitration clause itself, the court held that "Prima Paint requires that their claim of illegality be arbitrated pursuant to the contract." 833 F.2d at 1162.
Finally, the court rejected the claim that enforcing the arbitration provision of the allegedly illegal contract would contravene state law, saying that the "argument forgets that the arbitrability of an issue under the Federal Arbitration Act is a matter of federal law." Id.