Contract specifies Federal law takes priority when against State law

The way I’ve always understood the relationship between federal and state laws is that the stricter law took effect. I have also understood that you can not enforce a contract that has a provision that is against the law…
I have recently heard of a contact that has:

Is it legal to specify federal jurisdiction and not state in a contract (even if the action is not allowed under state laws?) If the clause is not legal, does that invalidate the whole contract or just that provision? Does it make a difference because it references Medicare which is mostly a federal program (though, this has to do with Part D [prescriptions])?

[FYI, I haven’t seen the actual contract, the quote was posted on a blog I read and it made me think about the law, and there is no better place to ask that the SDMB]

Disclaimer: While this is a real life issue, it doesn’t actually effect me personally, and not asking for legal advise, so figured GQ was the best place to put it. If the Mods disagree, then please move to IMHO, but would still like a factual answer… Oh, and you’re not my lawyer, I don’t even know if you are a lawyer, and even if you are, you’re probably not licensed in my state (and even though the question is about federal/state relations, as far as I know lawyers are only licensed by state)

Parties can generally express their choice of law in a contact, with a number of exceptions (one of which, as you’ve already pointed out, is when the choice involves illegality). I’m not aware of any rule providing that the stricter law takes effect during conflicts between federal and state laws. In any event, such a rule makes no sense when a contracts includes a choice of law clause, as the main reasons for including such clauses into contracts is to … avoid conflicts over choice of law.

More context would be helpful here.

But the main question is, what happens if the action which is legal by federal law, is illegal by the state law where the action takes place? In most of the contracts I’ve read that specify a juristiction, it is a particular state (for example, you look at any contract with Disney World, they specify all lawsuits have to be made in Florida). Can you specify that something legal federally be allowed in a state that it is illegal (the best example I can think of is minimum wage, can a state say the minimum wage is $10 an hour, but if you sign a contact with a company that says you accept federal law over state law only pay you $8.25 an hour?), or will the state law take prefrence? And if it does, will it void the whole contract or just that section?

In this case, it is does a pharmacy accept your particular insurance company? In the industry in question, [filling prescriptions], the insurance company has most of the power, so they set their terms, accept it or leave it [so do what they say, or you can’t fill their members rx’s… an example that caused Walgreen’s to not take Express Scripts as of Dec 31st of last year])

The penalty of not conforming to the contract is that the insurance company would deny reimbursement, i.e. not pay their portion of the the RX cost. The drug that cost the pharmacy $300 to give you, which you paid a $10 copay, the extra $290 should be paid by the insurance company, which they don’t pay if they think they can get away with it (hence this stipulation in the contracts)…

To answer your questions.
Firstly, choice of law and forums are a staple of most commercial contracts and outside of highly exceptional circumstances, will be enforced. So if a contract states that it is to be governed by Federal Law, then federal law will apply. Secondly, please keep in mind the differences between civil and criminal law. Criminal infractions are offences against the state. Contracts govern relationships between individuals. A criminal court does not for the most part care that what you are doing in your contractual matters or what the choice of law is. All a choice of law clause does us state which law will govern the relationship between those parties in that specific instance. It does not make them immune from any other potentially applicable law.

Let’s say that Shell and Phillips, two Dutch Companies enter into a contract in let’s say Alabama and they choose Dutch Law as being applicable. Now prostitution is illegal in the Netherlands and for present purposes, I will assume that it is illegal in Alabama. Now, the contract specifies that the Philips must provide a fully functional brothel for use by Shell personnel on site. If the operators of said brothel get arrested, do you really think that the contract would be a defence? or stating that Dutch law allows brothels and as the contract is governed by Dutch law, Alabama law does not apply? Of course not. The contract is limited to relationships between the two companies in tat instance.

But to repeat a question. If Walmart hires me and the contract says employment is covered by Zimbabwe law, and I agree to it, can they then pay me below minimum wage? This is a relationship between the two parties, me and the company. Somehow I strongly suspect they can’t or it would have been tried.

Old Guy, I suspect that, as in the Shell/Phillips example, the law of the foreign country will be found not to be controlling in the US. And I think the reason for that may be, in the case of two US corps claiming Zimbabwean law, and IANAL, the commerce clause of the US Constitution or clauses in the various state constitutions. Happy to learn something from any lawyer; being wrong ain’t so unusual.

By the way, the question you ask poses another interesting question. I would guess that you or I would not have any qualms with most laws enacted by other countries–especially commercial law. It’s easy for governments to pass hugely equitable looking legislation. The old Soviet Union certainly did. Enforcement is more generally the issue. The Mugabe government is certainly intentionally absent in enforcing anti-corruption laws by members of the governing party, for instance. But their enacted commercial law, enforced in US courts, might be perfectly acceptable.

Walmart would be in violation of federal and state minimum wage laws.