RESPONDENT: John Cardegna et al.
LOCATION: U.S. Court of Appeals for the Ninth Circuit
DOCKET NO.: 04-1264
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: Florida Supreme Court
CITATION: 546 US 440 (2006)
GRANTED: Jun 20, 2005
ARGUED: Nov 29, 2005
DECIDED: Feb 21, 2006
Christopher Landau - argued the cause for Petitioner
F. Paul Bland, Jr. - argued the cause for Respondents
Facts of the case
John Cardegna signed a contract for a loan from Buckeye Check Cashing. The contract contained a clause in which Cardegna agreed to resolve any controversies over the loan through arbitration. Cardegna later sued Buckeye, claiming that the conditions for the loan stipulated by the contract were illegal. Buckeye filed a motion in Florida district court to have the case resolved by arbitration, as required by the contract. Cardegna countered that the contract as a whole was illegal and that the arbitration clause was therefore not enforceable. The court agreed and ruled for Cardegna.
On appeal, the state appeals court reversed, holding that the Federal Arbirtration Act, as interpreted by the U.S. Supreme Court, allows arbitration clauses to be enforced even if they are part of otherwise invalid contracts. The appeals court relied on the U.S. Supreme Court's decision in Prima Paint Corporation v. Flood & Conklin Manufacturing Company. The Florida Supreme Court disagreed with the appeals court's use of Prima Paint, however, because the contract in that case had been merely voidable, while the contract in Cardegna's case was actually illegal. The Florida Supreme Court therefore reversed, ruling in favor of Cardegna.
Under the Federal Arbitration Act, may a party avoid arbitration by arguing that the contract in which the arbitration clause is contained is illegal?
Media for Buckeye Check Cashing, Inc. v. CardegnaAudio Transcription for Oral Argument - November 29, 2005 in Buckeye Check Cashing, Inc. v. Cardegna
Audio Transcription for Opinion Announcement - February 21, 2006 in Buckeye Check Cashing, Inc. v. Cardegna
John G. Roberts, Jr.:
Justice Scalia has the opinion in number 04-1264, Buckeye Check Cashing Inc. v. Cardegna.
This case is here on writ of certiorari to the Supreme Court of Florida.
The respondents John Cardegna and Donna Reuter entered into various deferred payment transactions with the petitioner Buckeye Check Cashing, in which they received cash in exchange for a personal check in the amount of the cash plus a finance charge.
For each separate transaction, they signed an agreement that included provisions for the arbitration of disputes arising out of the contracts.
The respondents brought a putative class action in Florida State Court alleging that Buckeye charged usurious interest rates and that the agreement violated various Florida Lending and Consumer Protection laws, rendering it criminal on its face.
Buckeye moved to compel arbitration.
The trial court denied the motion, holding that a court rather than an arbitrator should resolve the claim that a contract is illegal and void ab initio.
The District Court of Appeal of Florida for the 4th circuit reversed holding it because respondents did not challenge the arbitration provision itself, but instead claimed that the entire contract was void, the agreement to arbitrate was enforceable, and the question of the contract’s legality should go to the arbitrator.
The respondents appealed, and the Florida Supreme Court in its turn reversed, reasoning that to enforce an agreement to arbitrate in a contract challenged as unlawful, “could breathe life into a contract that not only violates State Law, but is also criminal in nature”.
In an opinion filed with the clerk today, we reversed the judgment of the Florida Supreme Court and affirm that regardless of whether the challenge is brought in Federal or State Court, a challenge to the validity of the contract as a whole and not specifically to the arbitration clause must go to the arbitrator.
To overcome judicial resistance to arbitration, Congress enacted the Federal Arbitration Act, Section 2 of which embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts by providing that they “shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”.
Our prior contracts dealing with Section 2, notably Prima Paint and Southland Corporation, establish three propositions: first, as a matter of substantive federal arbitration law and arbitration provision is severable from the remainder of the contract; second, unless the challenge is to the arbitration provision itself, the issue of the contract’s validity is considered by the arbitrator in the first instance; and third, this arbitration law applies in State as well as Federal Courts.
The parties have not requested, and we do not undertake reconsideration of these holdings.
Applying them to this case, we conclude that because respondents challenged the agreement but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract, and challenge to their validity should be considered by an Arbitrator, not a Court.
In declining to apply Prima Paint’s rule of severability, the Florida Supreme Court relied on the state distinction between void and voidable contracts.
Prima Paint makes this distinction irrelevant.
That case rejected application of state severability rules to the arbitration agreement without discussing whether the challenge at issue would have rendered the contract void or voidable.
Likewise, in Southland, which arose in State Court, we did not ask whether the several challenges made there would render the contract void or voidable.
We simply rejected the proposition that the enforceability of the arbitration agreement turned on the State Legislature’s judgment concerning the forum for enforcement of the State Law cause of action.
So also here, we cannot accept the Florida Supreme Court’s conclusion that enforceability of the arbitration agreement should turn on “Florida public policy and contract law”.
Accordingly, the judgment of the Florida Supreme Court is reversed and the case is remanded for further proceedings not inconsistent with this opinion.
Justice Thomas has filed a dissenting opinion.
Justice Alito took no part in the consideration or decision of this case.