546 U.S. 440, 163 L. Ed. 2d 1038, 126 S. Ct. 1204 (2006)
John Cardegna and Donna Reuter entered into several deferred-payment transactions with Buckeye Check Cashing, Inc.1 In these transactions, they received cash in exchange for a personal check in the amount of the cash plus a finance charge.2 For each transaction, they signed a Deferred Deposit and Disclosure Agreement containing arbitration provisions that referenced the Federal Arbitration Act and provided for binding arbitration of disputes arising from the agreement.3
Cardegna and Reuter brought a putative class action in Florida state court.4 They alleged that Buckeye charged usurious interest rates and that the agreements violated Florida lending and consumer-protection laws, rendering the contracts criminal on their face.5 Buckeye moved to compel arbitration pursuant to the agreements.6
The trial court denied the motion to compel arbitration.7 It held that a court rather than an arbitrator should resolve a claim that a contract is illegal and void from the beginning.8 The District Court of Appeal of Florida for the Fourth District reversed, holding that because the 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.9
Cardegna and Reuter appealed to the Florida Supreme Court, which reversed the decision of the intermediate appellate court.10 The Florida Supreme Court reasoned 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 also is criminal in nature.11 The United States Supreme Court granted certiorari to review the case.12
Whether an arbitrator rather than a court should consider the claim that a contract containing an arbitration provision is void for illegality?13
As a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance. This arbitration law applies in state as well as federal courts.14
Yes. Cardegna and Reuter challenged the Deferred Deposit and Disclosure Agreements as a whole by alleging that Buckeye charged usurious interest rates in violation of Florida lending and consumer-protection laws, rendering the contracts criminal on their face. They did not challenge the arbitration provisions specifically.15 The arbitration provisions are therefore enforceable apart from the remainder of the contract, and the challenge to the contracts' validity must be considered by an arbitrator in the first instance rather than by a court.16
The Florida Supreme Court's conclusion that enforceability turns on Florida public policy and contract law distinguishing void contracts is irrelevant under federal arbitration law.17
An arbitrator rather than a court should consider the claim that the contract is void for illegality.18
Related opinions on this issue
Justice Thomas dissented from the majority's application of the Federal Arbitration Act in this state-court proceeding.19 He remained of the view that the FAA does not apply to proceedings in state courts, as he had expressed in prior dissenting opinions.20 Consequently, in state-court proceedings the FAA cannot serve as the basis for displacing a state law that prohibits enforcement of an arbitration clause contained in a contract unenforceable under state law.21
Thomas therefore concluded that he would leave undisturbed the judgment of the Florida Supreme Court.22