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June 20, 2005
Who decides legality of the contract?
The US Supreme Court has agreed to take up a Florida case to decide whether it is for an arbitrator - or for a court - to decide whether or not a contract containing an arbitration clause is illegal.
The case: Buckeye Check Cashing, Inc. v. Cardegna (Docket No. 04-1264), certiorari granted 06/20/2005.
The Florida case: Cardegna v. Buckeye Check Cashing, Inc. (Florida 01/20/2005).
Cardegna claimed that Buckeye made illegal usurious loans disguised as check cashing transactions in violation of Florida law. The agreement Cardegna signed contained an arbitration clause, so Buckeye filed a motion to compel arbitration.
Buckeye argued from Prima Paint Corp v. Flood & Conklin, 388 US 395 (1967), in which the US Supreme Court said that it was up to the arbitrator - not the court - to decide whether the underlying contract was subject to a defense of fraud in the inducement.
The Florida Supreme Court distinguished Prima Paint, saying that case dealt with whether the contract was voidable. In Cardegna's case the issue was whether the contract was void under Florida law. Therefore, said the Florida court, since a void contract would mean the arbitration clause could not be enforced, the issue was to be decided by a court.
My view: I don't see Prima Paint as being limited to voidable as opposed to void contracts. Prima Paint stands for the proposition that a court decides whether the arbitration clause is legal and, if it is, an arbitrator decides whether the contract as a whole is legal.
Resources relating to the Florida Supreme Court proceedings:
- Initial Brief of Appellants Cardegna et al.
- Answer Brief of Respondent Buckeye Check Cashing, Inc.
- Reply Brief of Appellants Cardegna et al.
- Amicus Curiae Brief of the Check Cashing Store, Inc.
- Brief Amici Curiae of AARP, Consumer Federation of America and National Consumer Law Center
- Transcript of oral arguments
Posted by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
