Buckeye Check Cashing v. Cardegna: void vs. voidable contracts

« Reinstatement of nurse did not violate public policy | Main | Add to Google button »

Buckeye Check Cashing v. Cardegna: void vs. voidable contracts
November 23, 2005 by Ross Runkel at LawMemo

Feb 21, 2006 update: Case decided in favor of Buckeye.

The US Supreme Court hears oral argument on November 29 on the question of who should decide whether a contract is void under state law - an arbitrator or a court. Buckeye Check Cashing v. Cardegna.

John Cardegna borrowed money from Buckeye Check Cashing and now claims the deal was usurious under Florida law and that the whole "contract" was void from the very beginning. Cardegna sued, and Buckeye moved to send the case to arbitration as provided in the loan agreement. The trial court denied the motion, saying that the issue of whether the whole contract is void (not merely voidable) is an issue for the court to decide. The Florida Supreme Court agreed. Cardegna v. Buckeye Check Cashing (Florida 2005).

It all goes back to Prima Paint Corp v. Flood & Conklin Mfg (US Supreme Court 1967), where a contract contained an arbitration clause and one party claimed the underlying contract was voidable because it was procured by fraud. The Supreme Court said that unless there is a claim that the arbitration agreement itself was procured by fraud, a court should send to an arbitrator the question of whether the underlying contract is voidable.

Cardegna's argument: Prima Paint applies only when the claim is that the underlying contract is voidable. Here the entire "contract" was void, so there was no valid agreement to arbitrate. Alternatively, the FAA language used in Prima Paint applies in federal courts, not state courts, so the Florida courts were free to make the decision they made.

Buckeye's arguments: Follow the Federal Arbitration Act (FAA). Prima Paint says that the FAA requires that the issue of the validity of the underlying contract must be decided by an arbitrator.

Briefs supporting Buckeye