Business Law 11th Edition by Kenneth Clarkson,Roger LeRoy Miller,Gaylord Jentz,Frank Cross

Exercise 22

Buckeye Check Cashing, Inc. v. Cardegna
Supreme Court of the United States, 2006. 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038.
www.law.cornell.edu/supct/index.html a
• Background and Facts Buckeye Check Cashing, Inc., cashes personal checks for consumers in Florida. Buckeye agrees to delay submitting a check for payment in exchange for a consumer's payment of a "finance charge." For each transaction, the consumer signs a "Deferred Deposit and Disclosure Agreement," which states, "By signing this Agreement, you agree that i[f] a dispute of any kind arises out of this Agreement * * * th[e]n either you or we or third-parties involved can choose to have that dispute resolved by binding arbitration." John Cardegna and others filed a suit in a Florida state court against Buckeye, alleging that the "finance charge" represented an illegally high interest rate in violation of Florida state laws, rendering the agreement "criminal on its face." Buckeye filed a motion to compel arbitration. The court denied the motion. On Buckeye's appeal, a state intermediate appellate court reversed this denial, but on the plaintiffs' appeal, the Florida Supreme Court reversed the lower appellate court's decision. Buckeye appealed to the United States Supreme Court.
Justice SCALIA delivered the opinion of the Court.
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* * * Section 2 [of the Federal Arbitration Act (FAA)] embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts:
A written provision in * * * a contract * * * to settle by arbitration a controversy thereafter arising out of such contract * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
* * * The crux of the [respondents'] complaint is that the contract as a whole (including its arbitration provision) is rendered invalid by the * * * finance charge.
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* * * [Our holdings in previous cases] answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable [capable of being legally separated] from the remainder of the contract. Second, 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. Third, this arbitration law applies in state as well as federal courts.
* * * Applying [those holdings] to this case, we conclude that because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract. The challenge should therefore be considered by an arbitrator, not a court. [Emphasis added.]
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* * * Since, respondents argue, the only arbitration agreements to which [Section] 2 applies are those involving a "contract," and since an agreement void ab initio [from the beginning] under state law is not a "contract," there is no "written provision" in or "controversy arising out of" a "contract," to which [Section] 2 can apply.* * * We do not read "contract" so narrowly. The word appears four times in [Section] 2. Its last appearance is in the final clause, which allows a challenge to an arbitration provision "upon such grounds as exist at law or in equity for the revocation of any contract." There can be no doubt that "contract" as used this last time must include contracts that later prove to be void. Otherwise, the grounds for revocation would be limited to those that rendered a contract voidable-which would mean (implausibly) that an arbitration agreement could be challenged as voidable but not as void. Because the sentence's final use of "contract" so obviously includes putative [alleged] contracts, we will not read the same word earlier in the same sentence to have a more narrow meaning.
a. In the "Supreme Court Collection" menu at the top of the page, click on "Search." When that page opens, in the "Search for:" box, type "Buckeye Check," choose "All decisions" in the accompanying list, and click on "Search." In the result, scroll to the name of the case and click on the appropriate link to access the opinion.
• Decision and Remedy The United States Supreme Court reversed the judgment of the Florida Supreme Court and remanded the case for further proceedings. The United States Supreme Court ruled that a challenge to the validity of a contract as a whole, and not specifically to an arbitration clause contained in the contract, must be resolved by an arbitrator.
• The Ethical Dimension Does the holding in this case permit a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void Is this fair Why or why not
• The Legal Environment Dimension As indicated in the parties' arguments and the Court's reasoning in this case, into what categories can contracts be classified with respect to their enforceability