546 U.S. 440 (2006), 04-1264, Buckeye Check Cashing, Inc. v. Cardegna

• Citation: 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038
• Party Name: BUCKEYE CHECK CASHING, INC., Petitioner, v. John CARDEGNA et al.
• Case Date: February 21, 2006
• Court: U.S. Supreme Court

Page 440

546 U.S. 440 (2006)

126 S.Ct. 1204, 163 L.Ed.2d 1038

BUCKEYE CHECK CASHING, INC., Petitioner,

v.

John CARDEGNA et al.

No. 04-1264.

United States Supreme Court

February 21, 2006

Argued Nov. 29, 2005.

CERTIORARI TO THE SUPREME COURT OF FLORIDA

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[126 S.Ct. 1205] SYLLABUS ^[*]

For each deferred-payment transaction respondents entered into with Buckeye [126 S.Ct. 1206] Check Cashing, they signed an Agreement containing provisions that required binding arbitration to resolve disputes arising out of the Agreement. Respondents sued in Florida state court, alleging that Buckeye charged usurious interest rates and that the Agreement violated various Florida laws, rendering it criminal on its face. The trial court denied Buckeye's motion to compel arbitration, holding that a court rather than an arbitrator should resolve a claim that a contract is illegal and void ab initio. A state appellate court reversed, but was in turn reversed by the Florida Supreme Court, which reasoned that enforcing an arbitration agreement in a contract challenged as unlawful would violate state public policy and contract law.

Held:

Regardless of whether it is brought in federal or state court, a challenge to the validity of a contract as a whole, and not specifically to the arbitration clause within it, must go to the arbitrator, not the court. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270, and Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1, answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. See Prima Paint, 388 U.S. at 400, 402-404, 87 S.Ct. 1801. 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. See id., at 403-404, 87 S.Ct. 1801. Third, this arbitration law applies in state as well as federal courts. See Southland, supra, at 12, 104 S.Ct. 852. The crux of respondents' claim is that the Agreement as a whole (including its arbitration provision) is rendered invalid by the usurious finance charge. Because this challenges the Agreement, and not specifically its arbitration provisions, the latter are enforceable apart from the remainder of the contract, and the challenge should be considered by an arbitrator, not a court. The Florida Supreme Court erred in declining to apply Prima Paint's severability rule, and respondents' assertion that that rule does not apply in state court runs contrary to Prima Paint and Southland. Pp. 1207-1211.

894 So.2d 860, reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in which ROBERTS, C. J., and STEVENS, KENNEDY, SOUTER, GINSBURG, and BREYER, JJ., joined. THOMAS, J., filed a dissenting opinion. ALITO, J., took no part in the consideration or decision of the case.

COUNSEL

Amy L. Brown, Pierre H. Bergeron, Squire, Sanders & Dempsey LLP, Washington, DC, Christopher Landau, Counsel of Record, Michael Shumsky, Kirkland & Ellis LLP, Washington, DC, for petitioner.

E. Clayton Yates, Yates & Mancini, LLC, Fort Pierce, Florida, Christopher C. Casper, James, Hoyer, Newcomer, & Smiljanich, P.A., Tampa, Florida, Richard A. Fisher, Richard Fisher Law Office, Cleveland, Tennessee, F. Paul Bland, Jr., Counsel of Record, Michael J. Quirk, Trial Lawyers for Public Justice, P.C., Washington, DC, Arthur H. Bryant, Leslie A. Bailey, Trial Lawyers for Public Justice, P.C., Oakland, California, for Respondents.

[126 S.Ct. 1207]

OPINION

SCALIA, JUSTICE

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We decide whether a court or an arbitrator should consider the claim that a contract containing an arbitration provision is void for illegality.

I

Respondents John Cardegna and Donna Reuter entered into various deferred-payment transactions with petitioner Buckeye Check Cashing (Buckeye), 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 a "Deferred Deposit and Disclosure Agreement" (Agreement), which included the following arbitration provisions:

"1. Arbitration Disclosure By signing this Agreement, you agree that i[f] a dispute of any kind arises out of this Agreement or your application therefore or any instrument relating thereto, th[e]n either you or we or third-parties involved can choose to have that dispute resolved by binding arbitration as set forth in Paragraph 2 below ....

2. Arbitration Provisions Any claim, dispute, or controversy . . . arising from or relating to this Agreement ... or the validity, enforceability, or scope of this Arbitration Provision or the entire Agreement (collectively 'Claim'), shall be resolved, upon the election of you or us or said third-parties, by binding arbitration .... This arbitration Agreement is made pursuant to a transaction involving interstate commerce, and shall be governed

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by the Federal Arbitration Act ('FAA'), 9 U.S.C. Sections 1-16. The arbitrator shall apply applicable substantive law constraint [sic] with the FAA and applicable statu[t]es of limitations and shall honor claims of privilege recognized by law ...."

Respondents brought this 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 a claim that a contract is illegal and void ab initio. The District Court of Appeal of Florida for the Fourth District reversed, holding that 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.

Respondents appealed, and the Florida Supreme Court 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 also is criminal in nature ... .' " 894 So.2d 860, 862 (2005) (quoting Party Yards, Inc. v. Templeton, 751 So.2d 121, 123 (Fla. App. 2000)). We granted certiorari. 545 U.S. 1127, 125 S.Ct. 2937, 162 L.Ed.2d 864 (2005).

II

A

To overcome judicial resistance to arbitration, Congress enacted the Federal Arbitration Act (FAA), 9 U.S.C. §§1-16. Section 2 embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts:

[126 S.Ct. 1208] "A written provision in . . . a contract . . . to settle by arbitration a controversy thereafter arising out of such

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contract . . . or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

Challenges to the validity of arbitration agreements "upon such grounds as exist at law or in equity for the revocation of any contract" can be divided into two types. One type challenges specifically the validity of the agreement to arbitrate. See, e.g., Southland Corp. v. Keating, 465 U.S. 1, 4-5, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (challenging the agreement to arbitrate as void under California law insofar as it purported to cover claims brought under the state Franchise Investment Law). The other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid. ¹ Respondents' claim is of this second type. The crux of the complaint is that the contract as a whole (including its arbitration provision) is rendered invalid by the usurious finance charge.

In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), we addressed the question of who--court or arbitrator--decides these two types of challenges. The issue in the case was "whether a claim of fraud in the inducement of the entire contract is to be resolved by the federal

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court, or whether the matter is to be referred to the arbitrators." Id., at 402, 87 S.Ct. 1801. Guided by §4 of the FAA, ² we held that "if the claim is fraud in the inducement of the arbitration clause itself--an issue which goes to the making of the agreement to arbitrate--the federal court may...