Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006)

This is not a nursing home case. Justice Scalia, writing for the Court, framed the issue as whether a court or an arbitrator should consider a claim that a contract containing an arbitration agreement is void for illegality. Customers of a check cashing company had signed agreements including an arbitration clause. A class of customers argued that the agreement was illegal because the company was charging usurious interest rates and that the agreement violated various Florida lending and consumer protection laws. The trial court denied the motion to arbitrate, the Florida Court of Appeals reversed, and then the Florida Supreme Court reversed reasoning that enforcement of the agreement to arbitrate could breathe life into a contract that not only violates State law but is criminal in nature. The court found there are two types of challenges to the validity of an arbitration agreement: (1) a challenge to the arbitration agreement itself and (2) a challenge to the contract as a whole. Relying on Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) and Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984), the Court addressed the issue at bar by finding: “First, as a matter of substantive federal arbitration law, an arbitration provision is severable 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 these principles, where the challenge is to the agreement, but not specifically to the arbitration provision, the challenge is considered by the arbitrator rather than the Court. The Court rejected an argument that this is a procedural rule, finding that it is federal substantive law, applying in federal and State courts. The Federal Arbitration Act covers putative contracts as well as valid contracts because, otherwise, a court might deny effect to an arbitration provision in a contract that the court might later find to be enforceable. The Florida Supreme Court was reversed.