The U.S. Supreme Court handed down its long-awaited (by us anyway) opinion in the Buckeye Check Cashing Case today. The majority opinion (link is to .pdf version), written by Justice Scalia for a 7-1 majority (Alito did not participate), reverses a decision by the Florida Supreme Court which held that a court, and not an arbitrator, must determine whether or not a contract between a check cashing company and consumers was an illegal violation of Florida’s usury laws. The Florida Supreme Court overturned a court of appeals order compelling arbitration, holding that enforcing the arbitration clause “could breathe life into a contract that not only violates state law, but also is criminal in nature.”
The Supreme Court, however, held that since the party opposing arbitration argued that the arbitration clause was invalid as a part of an illegal contract, rather than on its own discreet terms, the arbitrator, and not a court, must rule on the enforceability of the clause. The Court reinforces the separability rule from Prima Paint and holds, firmly, that any argument about a contract’s general illegality or unenforceability has no bearing whatever on the arbitration clause’s enforceability. The Court also reinforces the notion that in FAA cases, state law has absolutely no bearing on this issue. In other words, the arbitration clause trumps the clear rule of contract law in Florda that there can be “no severable, or salvageable, parts of a contract found illegal and void under Florida law.” This in a state court proceeding, under Florida state law. (For those interested, you can find a .pdf of the Florida Supreme Court opinion here).
Justice Thomas’ single-paragraph dissent (link is to .pdf file) focuses on this last point. He argues that the FAA should not apply to proceedings in state courts, and it should not supplant clear state law in state court proceedings.
Buckeye Check Cashing, Inc. v. Cardegna, et al., 546 U.S. ___ (2006) (Cause No. 04-1264 in the United States Supreme Court).
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