Buckeye Check Cashing, Inc. v. Cardegna

• Decision Date: 21 February 2006
• Docket Number: No. 04-1264,04-1264
• Parties: BUCKEYE CHECK CASHING, INC., PETITIONER v. JOHN CARDEGNA ET AL
• Court: U.S. Supreme Court

546 U.S. 440

126 S. Ct. 1204

BUCKEYE CHECK CASHING, INC., PETITIONER v. JOHN CARDEGNA ET AL.

No. 04-1264

SUPREME COURT OF THE UNITED STATES

November 29, 2005, Argued

February 21, 2006, Decided

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, post, p. 449. ALITO, J., took no part in the consideration or decision of the case.

SCALIA

OPINION

JUSTICE SCALIA delivered the opinion of the Court.

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 if a dispute of any kind arises out of this Agreement or your application therefore or any instrument relating thereto, then 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 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 statutes of limitations and shall honor claims of privilege recognized by law . . . ." App. 36, 38, 40, 42.

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:

"A written provision in . . . a contract . . . to settle by arbitration a controversy thereafter arising out of such 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 court, or whether the matter is to be referred to the arbitrators." Id., at 402, 87 S. Ct. 1801, 18 L. Ed. 2d 1270. 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 proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally." Id., at 403-404, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (internal quotation marks and footnote omitted). We rejected the view that the question of "severability" was one of state law, so that if state law held the arbitration provision not to be severable a challenge to the contract as a whole would be decided by the court. See id., at 400, 402-403, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 .

Subsequently, in Southland Corp., we held that the FAA "created a body of federal substantive law," which was "applicable in state and federal courts." 465 U.S., at 12, 104 S. Ct. 852, 79 L. Ed. 2d 1 (internal quotation marks omitted). We rejected the view that state law could bar enforcement of § 2, even in the context of state-law claims brought in state court. See id., at 10-14, 104 S. Ct. 852, 79 L. Ed. 2d 1; see also Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270-273, 115 S. Ct. 834, 130 L. Ed. 2d 753 (1995).

B

Prima Paint and Southland 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. 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. The parties have not requested, and we do not undertake, reconsideration of those holdings. Applying them 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.

In declining to apply Prima Paint's rule of severability, the Florida Supreme Court relied on the distinction between void and voidable contracts. "Florida public policy and contract law," it concluded, permit "no severable, or salvageable, parts of a contract found illegal and void under Florida law." 894 So. 2d, at 864. Prima Paint makes this conclusion irrelevant. That case rejected application of state severability rules to the arbitration agreement without discussing whether the challenge at issue would have rendered the contract void or voidable. See 388 U.S., at 400-404, 87 S. Ct. 1801, 18 L. Ed. 2d 1270. Indeed, the opinion expressly disclaimed any need to decide what state-law remedy was available, id., at 400, n. 3, 87 S. Ct. 1801, 18 L. Ed. 2d 1270, (though Justice Black's dissent asserted that state law rendered the contract void, id., at 407, 87 S. Ct. 1801, 18 L. Ed. 2d 1270). Likewise in Southland, which arose in state court, we did not ask whether the several challenges made there -- fraud, misrepresentation, breach of contract, breach of fiduciary duty, and violation of the California Franchise Investment Law -- would render the contract void or voidable. We simply rejected the proposition that the enforceability of the arbitration agreement turned on the state legislature's judgment concerning the forum for enforcement of the state-law cause of action. See 465 U.S., at 10, 104 S. Ct. 852, 79 L. Ed. 2d 1. So also here, we cannot accept the Florida Supreme Court's conclusion that enforceability of the arbitration agreement should turn on "Florida public policy and contract law," 894 So. 2d, at 864.

C

Respondents assert that Prima Paint's rule of severability does not apply in state court. They argue that Prima Paint interpreted only §§ 3 and 4 -- two of the FAA's procedural provisions, which appear to apply by their terms only in federal court -- but not § 2, the only provision that we have applied in state court. This does not accurately describe Prima Paint. Although § 4, in particular, had much to do with Prima Paint's understanding of the rule of severability, see 388 U.S., at 403-404, 87 S. Ct. 1801, 18 L. Ed. 2d 1270, this rule ultimately arises out of § 2, the FAA's substantive command that arbitration agreements be treated like all other contracts. The rule of severability establishes how this equal-footing guarantee for "a written [arbitration] provision" is to be implemented. Re...