Contractual duress, unconstitutional conditions, and blackmail have long been puzzling. The puzzle is why these doctrines sometimes condemn threatening lawful action to induce agreements but sometimes do not. This Article provides a general solution to this puzzle. Such threats are (and should be) deemed unlawfully coercive only when they are contrived, meaning that the threatened action would not have occurred if no threat could have been made. I show that such contrived threats can be credible because making the threat strongly influences whether the threatened action occurs. When such threats are uncontrived warnings, meaning that the threatened action would have occurred even if no threat could have been made, they are not coercive and can only benefit the agreeing parties. However, sometimes (as with blackmail) agreements produced by uncontrived warnings are also unlawful on the ground that they harm third parties. The contrived-threat test explains why the Medicaid-defunding threat in the Affordable Care Act was unconstitutional. It also explains why the recent King v Burwell conclusion—that the Affordable Care Act does not withhold tax credits from states that do not create insurance exchanges—would have been constitutionally required even if it had not been required by the statutory text.
The Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act1 (ACA) with one notable exception: it struck down the provision that threatened to remove preexisting federal Medicaid funding from states that refused to accept an expansion of Medicaid, on the ground that this threat “crossed the line distinguishing encouragement from coercion.”2 This constitutional standard has been condemned as amorphous and meaningless.3 Because the standard explicitly incorporates contract-law concepts,4 we might hope to find clear guidance in the underlying contract law. But contract law makes the legality of threats that induce contractual agreements turn on whether the threats are “improper” or in “bad faith,” conclusory labels that themselves have been deemed incoherent and meaningless.5 Nor could the Court find useful guidance from the general unconstitutional-conditions doctrine because it has been deemed conclusory, incoherent, and “infamously inadequate.”6 Indeed, the Supreme Court seems to have given up even trying to define a coherent doctrine, openly admitting both in the Medicaid-defunding-threat case and a subsequent unconstitutional-conditions case that it could not articulate the line dividing constitutional conditions from unconstitutional ones, although it was nonetheless—somehow—confident that the conditions it was considering were over the line.7 This Article solves these doctrinal puzzles with a coherent theory that is normatively attractive and descriptively fits current legal results.
For analytical clarity, it is important to exclude some cases that lie outside these puzzles. If a threatened action by a government or private party were independently unconstitutional or illegal, there would be no difficulty condemning the threat. Likewise, sometimes even an uncoerced agreement to a condition or contract would be independently illegal or unconstitutional, usually because it would harm third parties or violate equal protection norms. In these cases, the independent doctrine of illegality or unconstitutionality does all the work.
Other times, whether the agreement was coerced is irrelevant because the threatener has a power to compel without any agreement, such as when the government has a power to order the relevant action because the individual or state has no constitutional right against such compulsion. Whenever direct coercion is permissible, that fact moots the issue of when threats of otherwise-lawful action should be deemed coercive, because they would be permissible either way. But in these cases the work is done by the independent legal doctrines that create a power to coerce.
The cases of interest involve situations in which a threat to engage in otherwise-lawful action (like a termination of funding) induces an agreement that is otherwise lawful, but the threat is nonetheless deemed too coercive to enforce the induced agreement. Those threats are the ones for which we could use some coherent principle to explain why they are sometimes condemned and sometimes allowed.
This Article provides a simple principle for resolving this puzzle. It begins, in Part I, by resolving the underlying confusion in contract law about duress and contract modifications. I submit that this confusion can be resolved with the following simple principle: a threat to engage in otherwise-lawful action that induces contract modification is unlawfully coercive only when the threat is contrived, meaning that the threatened action would not have occurred if no threat could have been made.
The essence of the normative justification can easily be summarized. When a threat is not contrived, any legal prohibition that prevented the party from communicating the threat would, by definition, result in the threatened action. Moreover, because the threat, if made, would have induced the contract modification, both sides must, by definition, have thought that they were better off with the contract modification than with the threatened action. Deterring these threats would harm both parties. In such cases, communicating the planned action is less a threat than an uncontrived warning of what is coming, which gives the parties an opportunity to agree on an alternative that makes them both better off.
In contrast, when the threat is contrived, preventing the threat would not result in the threatened action, and the parties would stick to the initial contract. Preventing such a contrived threat would clearly leave the threat recipient better off because he prefers the preexisting contract. Ex post, preventing the contrived threat would leave the threatener worse off because she prefers the modification that the threat could have induced. But if the modification raises total value for both parties, a threat is unnecessary to achieve that modification because it could be achieved with a bonus that shares the joint gain. If, in contrast, the modification would reduce total value, then the prospect of such welfare-reducing threats would (if they were allowed) be priced into the contract and reduce reliance on the contract in a way that would harm both parties. Moreover, sometimes a contrived threat will not succeed in inducing contract modification and will then be carried out, which will leave both parties worse off than if the preexisting contract had continued. An ability to make such threats might also result in the other side making welfare-reducing threats of its own. Thus, ex ante, both parties would be better off preventing contrived threats.
The distinction between contrived threats and uncontrived warnings turns only on whether, in a no-threat world, the threatened action would have occurred. It does not turn on the wording of the communication. Nor does it require inquiry into the threatener’s purpose. The threatener may have the benign purpose of making the threat recipient better off, but the issue here presumes that the threat recipient begins with a legal autonomy right to make his own choices free of coercion by others, however well-intentioned that coercion may be. A threatening government may not even have a collective purpose, but such a purpose is unnecessary because what matters is what the government would have actually done without the threat. To be sure, the lack of any reason to take the threatened action in a no-threat world provides powerful evidence that the threatened action would not have occurred in that world. In that sense, purpose may sometimes be relevant to determining what would have happened, but the ultimate test is solely what would have happened without the threat, which need not require inquiry into purpose.
The contrived nature of a threat should also be distinguished from the threat’s credibility. A threat is credible if, post-threat, the threatener would carry out the threatened action if the threat recipient did not agree. A threat is uncontrived if, in a no-threat world, the threatener would have taken that action anyway. The two differ because making a threat can strongly influence whether the threatened action occurs. As detailed below, a contrived threat to engage in unprofitable action can be credible when done in stages, as in the usual contracts case in which performance is withheld day by day, because the victim’s refusal to modify at each stage is itself not credible, so that the threat is expected to result in profitable modification. Making a contrived threat can also change the emotional calculus or create reputational effects that make persons carry out the threat, even though they would not have taken the action in a no-threat world. Indeed, a credibility test has circularity problems when such reputational effects exist, because whether a threat is credible can depend on whether the induced agreement is enforceable. Persons or governments may also take steps to make their contrived threats more credible, such as incurring commitments, debts, or costs that make carrying out the threatened action more likely. When those steps would not have been taken absent an ability to communicate the threat, the credible threat remains contrived.
A contrived threat is thus not the same as a bluff, because contrived threats are often credible. Nor are contrived threats harmless when they are bluffs. Bluffs can be very effective in coercing agreements when the victim is mistaken or even just unsure about the credibility of the threat. Indeed, if the bluff induced the victim to accept an adverse modification, it must have appeared credible enough to the victim. Nor is harm avoided when the victim rejects a modification. If a victim does so because he wrongly perceived that the threat was not credible, the threat will be carried out, harming both parties. If a victim does so because he correctly perceived that the threat was not credible, the threat will not be carried out but will still have created unnecessary conflict and negotiation costs. It is thus always better to deter a contrived threat from being made (by eliminating any possible gain from it), regardless of how credible the threat might have been or seemed.
My distinction between contrived threats and uncontrived warnings is related to, but different from, distinctions between threats and warnings that have been drawn by Professor Robert Nozick, Professor Thomas Schelling, and others.8 Whereas my definition turns on a pure but-for prediction, Nozick and other philosophers define threats in a way that combines moral and prediction baselines, which, as I show below, not only muddles the results but also perversely leads to more immoral conduct. Schelling and others use a prediction baseline—but one that is based on a pre-threat baseline rather than my no-threat baseline—and Schelling draws no normative conclusions about threats but rather focuses on analyzing their credibility.
Legally, an important benefit of using a contrived-threat test is not only that it is normatively desirable but also that, as Part I shows, the contrived-threat test descriptively explains many features and conclusions of contract law, whereas scholars who advocate a credibility test acknowledge that their test bears no relationship to existing contract law. Under contract law, a modification without mutual consideration is unenforceable if induced by a contrived threat, and a modification with mutual consideration is unenforceable if induced by a contrived threat to take action that would leave the victim significantly worse off.
I then show, in Part II, that the contrived-threat test also explains the Medicaid-defunding-threat case and provides a general, desirable solution to the problem of unconstitutional conditions. When a threat is contrived, the government benefit would have been provided in the but-for world without that condition, and thus the threat to withhold the benefit penalizes the exercise of a constitutional right. When the threat is uncontrived, the government benefit would not have been provided in that but-for world, and thus withholding the benefit imposes no penalty. Some constitutional law scholarship going back to Professor Seth Kreimer has, following Nozick, included a similar prediction baseline but (like Nozick) combined it with other baselines in a way that I show both confuses and worsens the results.9 My contrived-threat test also shows that even if it had been textually plausible to interpret the ACA to deny federal tax credits to states that declined to create health insurance exchanges, such an interpretation should have been rejected because that would be a contrived threat and thus unconstitutional.
Finally, Part III shows that the contrived-threat test also explains and justifies current legal treatment of threats that induce private parties to enter into new contracts. It also solves the blackmail puzzle, showing that all blackmail contracts are necessarily produced by either (1) contrived threats, which create inefficiencies for the contracting parties without affecting information disclosure, or (2) uncontrived warnings, which suppress the disclosure of information to third parties whose interests often trump the interests of the contracting parties. The combination is what explains and justifies the full scope of blackmail law.
- 1. Pub L No 111-148, 124 Stat 119 (2010).
- 2. National Federation of Independent Business v Sebelius, 132 S Ct 2566, 2603, 2606 (2012) (Roberts, joined by Breyer and Kagan) (plurality) (“NFIB”); id at 2661–62 (Scalia, Kennedy, Thomas, and Alito dissenting).
- 3. See id at 2641 (Ginsburg concurring in part and dissenting in part, joined by Sotomayor); Nicole Huberfeld, Elizabeth Weeks Leonard, and Kevin Outterson, Plunging into Endless Difficulties: Medicaid and Coercion in National Federation of Independent Business v. Sebelius, 93 BU L Rev 1, 88 (2013).
- 4. See NFIB, 132 S Ct at 2602 (Roberts, joined by Breyer and Kagan) (plurality); id at 2659–60 (Scalia, Kennedy, Thomas, and Alito dissenting).
- 5. See Oren Bar-Gill and Omri Ben-Shahar, Credible Coercion, 83 Tex L Rev 717, 752–53, 779 (2005) (finding that contract law has failed to “produc[e] a coherent jurisprudence of coercion”); Robert A. Hillman, Policing Contract Modifications under the UCC: Good Faith and the Doctrine of Economic Duress, 64 Iowa L Rev 849, 862, 875–78 (1979).
- 6. Daryl J. Levinson, Framing Transactions in Constitutional Law, 111 Yale L J 1311, 1350 (2002). See also Kathleen M. Sullivan, Unconstitutional Conditions, 102 Harv L Rev 1413, 1428 (1989) (finding that “the Court’s unconstitutional conditions rulings display serious inconsistencies in their account of coercion”).
- 7. See NFIB, 132 S Ct at 2606 (Roberts, joined by Breyer and Kagan) (plurality); id at 2662 (Scalia, Kennedy, Thomas, and Alito dissenting); Agency for International Development v Alliance for Open Society International, Inc, 133 S Ct 2321, 2330 (2013).
- 8. See Part I.F.1.
- 9. See notes 223–29.