Cardegna v. Buckeye Check Cashing, Inc.

• Decision Date: 20 January 2005
• Docket Number: No. SC02-2161.,SC02-2161.
• Citation: 894 So.2d 860
• Parties: John CARDEGNA, et al., Petitioners, v. BUCKEYE CHECK CASHING, INC., Respondent.
• Court: Florida Supreme Court

894 So.2d 860

John CARDEGNA, et al., Petitioners, v. BUCKEYE CHECK CASHING, INC., Respondent.

No. SC02-2161.

Supreme Court of Florida.

January 20, 2005.

E. Clayton Yates, Fort Pierce, FL, F. Paul Bland, Jr., Washington, D.C., Christopher C. Casper of James, Hoyer, Newcomer and Smiljanich, P.A., Tampa, FL, and Richard A. Fisher, Cleveland, TN, for Petitioner. John R. Hart of Carlton Fields, P.A., West Palm Beach, FL, Amy L. Brown, James P. Wehner of Squire, Sanders and Dempsey, LLP, Washington, D.C. and Pierre H. Bergeron of Squire, Sanders and Dempsey, LLP, Cincinnati, OH, for Respondent.

Deborah M. Zuckerman, AARP Foundation, Washington, D.C., and Lynn Drysdale, Florida Legal Services, Inc., Jacksonville, FL on behalf of AARP, Consumer Federation of America and National Consumer Law Center; and Daniel S. Pearson, Lenore C. Smith, and Scott B. Newman of Holland and Knight, LLP, Miami, FL on behalf of The Check Cashing Store, Inc., for Amici Curiae.

ANSTEAD, J.

We have for review Buckeye Check Cashing, Inc. v. Cardegna, 824 So.2d 228 (Fla. 4th DCA 2002), which expressly and directly conflicts with the decision in Fast-Funding the Company, Inc. v. Betts, 758 So.2d 1143 (Fla. 5th DCA 2000). We have jurisdiction. See art. V, 3(b)(3), Fla. Const. For the reasons expressed below, we quash the decision of the Fourth District Court of Appeal in Buckeye, and approve the decision of the Fifth District Court of Appeal in FastFunding. We hold that an arbitration provision contained in a contract which is void under Florida law cannot be separately enforced while there is a claim pending in a Florida trial court that the contract containing the arbitration provision is itself illegal and void ab initio.

FACTUAL BACKGROUND

The relevant facts in Buckeye are summarized by the district court's opinion:

Appellant, Buckeye Check Cashing, Inc., timely appeals from an order that denied its motion to compel arbitration and to stay proceedings. We reverse and remand.

Appellees brought a class action lawsuit against Appellant. They alleged that Appellant made illegal usurious loans disguised as check cashing transactions in violation of various Florida Statutes. In response, Appellant filed a motion to compel arbitration and to stay proceedings, pursuant to the provisions for arbitration contained in the deferred deposit and disclosure agreement signed by Appellees. The agreement provided in pertinent part:

Arbitration provisions. Any claim, dispute, or controversy (whether in contract, tort or otherwise, whether pre-existing, present, or future, and including statutory, common law, intentional tort, and equitable claims) 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 pursuant to this Arbitration Provision.... 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.

Appellees filed a memorandum in opposition to Appellant's motion to compel arbitration in which they argued that the arbitration agreement should not be enforced because it is contained in an illegal usurious contract and is, therefore, void ab initio.

Buckeye, 824 So.2d at 229. The district court continued:

The trial court denied Appellant's motion to compel arbitration, relying on Party Yards, Inc. v. Templeton, 751 So.2d 121 (Fla. 5th DCA 2000), and FastFunding v. Betts, 758 So.2d 1143 (Fla. 5th DCA 2000). Appellant contends the Federal Arbitration Act applies and that the trial court erred when it failed to construe the arbitration provision in a manner consistent with Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and its progeny. Appellant also contends the trial court misplaced its reliance on Party Yards and FastFunding. We agree.

Buckeye, 824 So.2d at 229-30. The Fourth District reversed the trial court's decision and held that Cardegna's challenge to the underlying contract's validity must be resolved by an arbitrator, not a trial court.

ANALYSIS

The petitioners claim that the Fourth District's holding in Buckeye conflicts with the Fifth District's decision in FastFunding, holding that arbitration could not be compelled under a contract that would be void under Florida law and that the issue of the contract's legality must be determined in Florida's courts.

FastFunding

In FastFunding, FastFunding the Company, Inc., appealed a trial court's order that denied FastFunding's motion to compel arbitration. See FastFunding, 758 So.2d at 1143. The complaint asserted that "under the guise of a payment instrument sale," FastFunding compelled the payment of unconscionable, usurious interest rates on check cashing loans, in violation of various Florida statutes. Id. at 1144. Pursuant to the arbitration clause of the contract, FastFunding moved to compel arbitration. Id. FastFunding's motion was denied by the trial court. Id.

FastFunding appealed the trial court's ruling to the Fifth District Court of Appeal, which, consistent with its recent decision in a similar case, held that the trial court properly denied FastFunding's motion to compel arbitration. The district court reasoned: "If Ms. Betts is correct in her complaint that the contract violates the usury laws, then the contract is illegal and an arbitrator could not require Ms. Betts to perform under the contract. Pursuant to Party Yards, Inc., the trial court was correct in refusing to order the parties to arbitrate Ms. Betts' claims." FastFunding, 758 So.2d at 1144.

In the earlier decision, Party Yards, Inc. v. Templeton, 751 So.2d 121 (Fla. 5th DCA 2000), the district court held that "[w]here the facts alleged by the plaintiff are sufficient to put the making of a lawful agreement at issue, the trial court must determine the validity of the agreement before compelling a party to submit to arbitration." Id. at 124. Judge Sharp, writing for the district court, reasoned:

A court's failure to first determine whether the contract violates Florida's usury laws could breathe life into a contract that not only violates state law, but also is criminal in nature, by use of an arbitration provision. This would lead to an absurd result. Legal authorities from the earliest time have unanimously held that no court will lend its assistance in any way towards carrying out the terms of an illegal contract. Illegal promises will not be enforced in cases controlled by federal law.

Id. at 123 (citation omitted). Thus, the Fifth District concluded: "A party who alleges and offers colorable evidence that a contract is illegal cannot be compelled to arbitrate the threshold issue of the existence of the agreement to arbitrate; only a court can make that determination." Id. at 123-24. We agree with Judge Sharp's reasoning and analysis.

Prima Paint

Buckeye asserts that the U.S. Supreme Court's decision in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), supports the Fourth District's decision and requires that an arbitrator resolve Cardegna's illegality claim, because the parties agreed in the contract to be governed by the Federal Arbitration Act and the cases applying the Act.

In Prima Paint, the Supreme Court resolved the issue of "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. Having acknowledged that various courts have differed in their approach to resolving this question, the Court agreed with the approach of the Second Circuit Court of Appeals that the arbitration clause contained in a contract may be severable from the contract itself, and that "where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud." Id. at 402, 87 S.Ct. 1801. In so holding, the Court looked to the express language of the United States Arbitration Act (now known as the Federal Arbitration Act (FAA)), which required a federal court to order arbitration to proceed if it determined that the making of the arbitration agreement itself or failure to comply with the arbitration agreement was not in issue. See Prima Paint, 388 U.S. at 402, 87 S.Ct. 1801. The Court reasoned that this requirement reflected the intent of Congress to provide a speedy remedy for parties who elected to resolve disputes via arbitration. Id. at 404, 87 S.Ct. 1801.

However, we conclude that the rationale of Prima Paint should not be extended to the facts of this case. There is a key distinction between the claim in Prima Paint and the claim presently before us: in Prima Paint, the claim of fraud in the inducement, if true, would have rendered the underlying contract merely voidable. In the case before us today, however, the underlying contract at issue would be rendered void from the outset if it were determined that the contract indeed violated Florida's usury laws. Therefore, if the underlying contract is held entirely void as a matter of law, all of its provisions, including the arbitration clause, would be nullified as well.

Appellate courts in other states have also distinguished Prima Paint and reached conclusions similar to those of the Fifth District in FastFunding and Party Yards, Inc. See Rosenthal v. Great Western Fin. Sec. Corp., 14 Cal.4th 394, 58 Cal.Rptr.2d 875, 926 P.2d 1061, 1074 (1996) (stating that contracts that render an agreement void ab initio are not arbitrable); R.P.T. of Aspen, Inc. v. Innovative Communications, Inc., 917 P.2d 340, 342 (Col.Ct.App.1996) (stating that "if a party asserts that the entire...