Buckeye Check Cashing v. Cardegna
546 U.S. ___ (2006) (2006)
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Rule of Law:
Under the Federal Arbitration Act (FAA), an arbitration provision is severable from the remainder of the contract. Therefore, a challenge to the validity of a contract as a whole, and not specifically to the arbitration clause within it, must be considered by an arbitrator, not a court.
Facts:
- Respondents John Cardegna and Donna Reuter entered into deferred-payment loan transactions with petitioner Buckeye Check Cashing (Buckeye).
- In these transactions, Cardegna and Reuter received cash in exchange for a personal check for the amount of the cash plus a finance charge.
- For each transaction, they signed a 'Deferred Deposit and Disclosure Agreement' which contained a broad arbitration clause.
- The arbitration clause stipulated that any 'claim, dispute, or controversy' arising from the Agreement, including its 'validity, enforceability, or scope,' would be resolved by binding arbitration.
- The clause specified it was governed by the Federal Arbitration Act (FAA).
- Cardegna and Reuter alleged that the finance charges were usurious under Florida law, rendering the entire Agreement illegal and criminally void.
Procedural Posture:
- Respondents Cardegna and Reuter filed a putative class action against Buckeye Check Cashing in a Florida state trial court.
- Buckeye filed a motion to compel arbitration, which the trial court denied.
- Buckeye, as appellant, appealed to the Florida District Court of Appeal, which reversed the trial court, holding the issue should be decided by an arbitrator.
- Respondents, as appellants, then appealed to the Florida Supreme Court, which reversed the appellate court, ruling that a court must first determine if the contract is legal before enforcing its arbitration clause.
- The U.S. Supreme Court granted certiorari to review the decision of the Florida Supreme Court.
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Issue:
Does a court, rather than an arbitrator, have the authority to decide a claim that a contract containing an arbitration clause is void for illegality?
Opinions:
Majority - Justice Scalia
No. A challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator. As a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. This rule, established in Prima Paint Corp. v. Flood & Conklin Mfg. Co., holds that unless a party's challenge is to the arbitration clause itself, the issue of the contract's overall validity is for the arbitrator to decide. The Court rejected the Florida Supreme Court's distinction between void and voidable contracts as irrelevant to this federal severability doctrine. This doctrine arises from Section 2 of the FAA and, as established in Southland Corp. v. Keating, applies in state courts as well as federal courts, preempting any conflicting state law.
Dissenting - Justice Thomas
Yes. Justice Thomas maintains his consistent view that the Federal Arbitration Act does not apply to proceedings in state courts. Therefore, the FAA cannot be used to displace a state law that prohibits the enforcement of an arbitration clause contained within a contract that is unenforceable under that state's law. Accordingly, the judgment of the Florida Supreme Court should have been left undisturbed.
Analysis:
This decision significantly strengthens the 'severability doctrine' established in Prima Paint by extending it to challenges of a contract's illegality, not just fraudulent inducement. By holding that the FAA's severability rule is a substantive federal law applicable in state courts, the Court reinforces federal supremacy in arbitration matters and narrows the 'gateway' role of courts. The ruling ensures that most challenges to the validity of a 'container contract' will be heard by an arbitrator, thereby making it more difficult for parties to avoid arbitration by claiming the entire agreement is void.
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