Buckeye Check Cashing, Inc. v. Cardegna
Buckeye Check Cashing, Inc. v. Cardegna | |
---|---|
Subsequent | On remand, 930 So. 2d 610 (Fla. 2006). |
Holding | |
Where contract contains arbitration clause, arbitrator alone can rule on legality of contract under state law in first instance unless clause itself is challenged, distinguishing between void and voidable. Florida Supreme Court reversed and remanded | |
Court membership | |
| |
Case opinions | |
Majority | Scalia, joined by Roberts, Stevens, Kennedy, Souter, Ginsburg, Breyer |
Dissent | Thomas |
Alito took no part in the consideration or decision of the case. | |
Laws applied | |
Federal Arbitration Act, 9 U.S.C. §§ 1–4 |
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), is a
The lending agreements called for all disputes between the borrower and lender to be settled in arbitration. The original plaintiffs argued that the entire contract, including the arbitration clause, was invalid because it violated the law. When it was appealed to the High Court, Justice Antonin Scalia wrote for a majority of seven that the Federal Arbitration Act, as previously interpreted by the Court, settled a question that had long been debated by legal scholars and lower-court judges. The opinion distinguished void and voidable contracts, requiring that in the latter an arbitrator rule on all issues including the legality of the contract unless the arbitration clause was itself challenged.[1] The only dissenter was Clarence Thomas, who restated his belief that the Arbitration Act does not supersede state law.
Background of the case
In 1978, the court's
Most such lenders had their customers sign credit agreements that included
Litigation history
In 1999, John Cardegna, a
The company moved to have the case dismissed and compel arbitration. When that was denied, it petitioned the
Buckeye petitioned the Supreme Court for
Before the Court
Briefs
Christopher Landau of the Washington firm Kirkland & Ellis, a former clerk to justices Antonin Scalia and Clarence Thomas,[11] argued for Buckeye Check; Paul Bland of TLPJ represented Cardegna. Many banking and business groups filed amici briefs on the company's behalf.[12]
Landau's brief reiterated much of the argument Florida's Justice Cantero had made in his dissent: that it did not matter whether the claim was that the contract had been fraudulently induced as in Prima Paint or that it was illegal on its face, as it was here. "Whether the underlying contract is good, bad or indifferent is of no legitimate concern to the court," he wrote. "If the parties agreed to arbitrate their dispute, and do not challenge either the arbitration agreement itself or their assent to the underlying contract, that is the end of the matter as far as the court is concerned." Otherwise, arbitration clauses were pointless as anyone could avoid them by filing a suit challenging the contract.[13] Bland argued that an illegal contract cannot exist, much less be enforced in any way:
Under generally applicable principles of Florida law – and that of most other jurisdictions – an agreement to perform a criminal act does not form a contract. There may be an agreement to sell cocaine, for example, but there is no such thing under Florida law as a "contract" to sell cocaine (much less an enforceable arbitration provision in a "contract" to sell cocaine). That principle governs this case.[14]
He also reminded the justices of the heavy presumption against pre-empting state law,[15] particularly in the area of contract formation, and that Prima Paint did not apply to the sections of the FAA under issue.[16]
In a reply brief Landau insisted again that the court's previous jurisprudence made it quite clear that the arbitration clause could only be negated if separately challenged. He accused the respondents of having a covert agenda to overturn the controlling cases. "The reason that Prima Paint and Southland have stood the test of time is no mystery: those decisions are eminently sensible.", he concluded.[17]
Another amicus brief was filed by Theis Research, a California company with a certiorari petition then before the Court in a similar case[18] it had brought against a law firm that had failed to disclose a potential conflict of interest prior to patent litigation in which it represented Theis. While differing on some procedural points with Bland's brief, Theis lawyer Paul Johnson likewise urged the court to rule in Cardegna's favor lest the Arbitration Act become "a Trojan Horse to assault the citadel of police powers vested in the states".[19]
Oral argument
At oral argument, Justices Sandra Day O'Connor (one of two dissenters in Southland) and John Roberts seemed receptive to Bland's argument that no clause of a contract illegal under state law, including an arbitration clause, can be enforced. "The state itself makes a decision that certain contracts can't be entered into", O'Connor said. Ruth Bader Ginsburg likewise was not convinced that Prima Paint, which had arisen from a suit filed in federal court, applied to states as well. Roberts and John Paul Stevens also saw the potential for conflict of interest in an arbitrator ruling on the legality of the contract. "The arbitrator always has an interest in finding that the contract is valid and arbitrable because that's his source of business — arbitrating disputes", said the latter.[10]
On the other side, Anthony Kennedy felt that Prima Paint and subsequent decisions had "certainly displaced the states and state law from this area [to] a very substantial extent". It was up to the Court to resolve confusion similar to that created in the instant case, he added. Antonin Scalia worried that ruling in Cardegna's favor would open the floodgates of litigation. "All you have to do is open the door and you will have litigation in court," Ginsburg agreed, "and then the court will decide what the arbitrator would otherwise decide."[10]
Decision
Less than two months after oral argument, the justices ruled 7-1 for Buckeye. O'Connor had retired and been replaced by Samuel Alito, who as he had not seated for oral argument took no part in the decision.
Antonin Scalia wrote for the majority. The Florida Supreme Court's distinction between void and voidable contracts was, as Cantero had said, irrelevant under Prima Paint and Southland. The relevant section of the FAA was indeed applicable to the case, he said, since it required that contracts with arbitration clauses be treated like all others, and that its definition of "contract" included those that would or could later be voided since it explicitly mentioned such contracts that might later be revoked.[20]
Clarence Thomas was the lone dissenter. He wrote a single paragraph citing his three earlier dissents in similar cases and restated his belief that the FAA does not pre-empt state law.[21]
Aftermath
After the case was remanded to the Florida courts in which it had originated, the parties eventually
Legacy
The case established a precedent and was seen as expanding the scope of earlier court rulings applying the FAA to the states. The Court itself relied on it in a later opinion, and legal scholars have discussed its impact and implications.
Subsequent jurisprudence
Two years later, the Court heard Preston v. Ferrer,[22] the case brought by the former manager of Alex Ferrer (television's Judge Alex) against him. Ferrer had moved to bypass arbitration, arguing both that Preston was not licensed by California to work as a talent agent and thus could not legally contract with him for such services, and that that state's Talent Agencies Act required that all such disputes be considered by the state labor commissioner's office first. He argued that this distinguished the case from Buckeye Check.
This time it was Justice Ginsburg who wrote for the 8-1 majority that the FAA compelled arbitration even when state law vested dispute resolution authority in a specific state regulatory body. Again, Thomas wrote a short dissent reiterating his position and this time including Buckeye Check among his prior opinions to this effect.[22]
Criticism and commentary
Proponents of arbitration and other means of alternative dispute resolution have seen in the decision a reassuring reaffirmation of the separability principle that cleared up whether it covered a challenge to the legality of the underlying contract. "While seemingly a mere reiteration of Prima Paint's holding," the International Institute for Conflict Prevention and Resolution (IICPR) wrote, "the Buckeye decision both clarifies and expands an arbitrator's jurisdiction by adding potentially void contracts to an arbitrator’s domain and by unequivocally extending the severability and validity principles into state court."[23] The decision left open the question of whether it was still for the courts to decide if a contract had been properly formed, however, and some lower courts had denied motions to compel arbitration when that was the issue.[23] Lawyers from the international arbitration department at White & Case praised the decision for making U.S. law "consistent with current international arbitration case law and doctrine", under which separability has a stronger foundation than it does in the U.S. "[It] avoids damage to the reputation of the United States as a 'safe' host of international arbitration."[24]
Those who approached from a consumer-rights standpoint were not as solicitous. Texas arbitration expert Alan Scott Rau called Scalia's phrasing "sloppy and unguarded", noting it failed to recognize that some challenges to a contract that the law reserves for courts, such as capacity and forgery, necessarily include the arbitration clause.[25] Stephen Ware of Kansas calls on Congress to repeal the separability doctrine and require that courts be permitted to compel arbitration only after they have heard and rejected any challenges to the validity of the contract itself: "The separability doctrine separates arbitration law from an important part of contract law — the defenses to enforcement — and thus fails to provide the right to litigate with the protection of those defenses."[26]
"[T]he Buckeye decision forces the lower courts to either continue the search for a workable rule or accept the undermining of the moral foundations of contract law," says Timothy Hall of the
The upshot of all this may be that the Court, in attempting to simplify the issue by sending more claims to arbitration, has in fact complicated things by requiring an analysis of the nature of the contract defense alleged, instead of simply hearing the contract defense claim and, if invalid, then sending the underlying claim to arbitration.[29]
He suggests ways both legislative and judicial bodies could remedy this situation.
See also
- List of United States Supreme Court cases, volume 546
- List of United States Supreme Court cases
References
- ^ Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006). This article incorporates public domain material from this U.S government document.
- ^ King, Uriah, Parrish, Leslie and Tanik, Ozlem; "Financial Quicksand: Payday lending sinks borrowers in debt with $4.2 billion in predatory fees every year" (PDF). Archived from the original (PDF) on October 27, 2008. Retrieved September 30, 2008. (1.12 MB); November 30, 2006; retrieved September 29, 2008.
- ^ Public Citizen, "The Arbitration Trap: How Credit Card Companies Ensnare Consumers" (PDF). (508 KB), September 2007, retrieved October 13, 2008.,
- ^ Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).
- ^ a b Selvin, Molly (June 25, 2005). "High Court Takes Case on Right to Sue". Los Angeles Times. Retrieved September 2, 2008.
- ^ Southland Corp. v. Keating, 465 U.S. 1 (1984).
- ^ a b Jones, Elgin (March 17, 2008). "Settlement reached in Check Cashing Store lawsuit". South Florida Times. Beatty Media PLC. Retrieved September 2, 2008.
- ^ Buckeye Check Cashing, Inc. v. Cardegna, 824 So. 2d 228 (Fla. Dist. Ct. App. 2002).
- ^ Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860 (Fla. 2005).
- ^ Medill News Service. Retrieved September 2, 2008.[permanent dead link]
- ^ "Christopher Landau, P.C." Kirkland & Ellis. 2008. Archived from the original on October 10, 2007. Retrieved September 4, 2008.
Chris served twice as a law clerk at the United States Supreme Court, first to Justice Antonin Scalia (1990-91) and then to Justice Clarence Thomas (1991-92).
- ^ "Buckeye Check Cashing, Inc. v. Cardegna, John, et al. (02/21/2006)". Retrieved September 2, 2008.[permanent dead link]
- ^ Landau, Christopher; "Brief for Petitioner" (PDF). (1.10 MB), 18, retrieved September 2, 2008.
- ^ Bland, Paul; "Briefs for Respondents" (PDF). (196 KB), 8, retrieved September 2, 2008.
- ^ Bland, 9-12.
- ^ Bland, 13-19.
- ^ Landau, "Reply Brief for Petitioner" (PDF). (0.99 MB), 2, retrieved September 3, 2008.
- ^ Theis Research Inc. v. Brown & Bain, 240 F.3d 795 (9th Cir. 2001).
- ^ Johnson, Paul; "Brief of Amicus Curiae Theis Research Inc. In Support of No Party On the Merits" (PDF). (2.94 MB), 1, Retrieved September 3, 2008.
- ^ Buckeye Check Cashing, 546 U.S. at 443.
- ^ Buckeye Check Cashing, 546 U.S. at 447 (Thomas, J., dissenting).
- ^ a b Preston v. Ferrer, 552 U.S. 346 (2008).
- ^ a b McLaughlin, Joseph T.; Scanlon, Kathleen M. and Clare, James; "Back to Buckeye: Clarifying An Arbitrator's Jurisdiction" (PDF).[permanent dead link] (197 KB), retrieved September 4, 2008
- ^ McDougall, Andrew de Lotbiniére and Ioannou, Leon; "Separability Saved: US Supreme Court Eliminates Threat to International Arbitration" (PDF). Archived from the original (PDF) on July 20, 2011. (147 KB), Mealey's International Arbitration Report; March 2006; retrieved September 4, 2008.
- ), 8 Nevada Law Journal 107, 117, 2007.
- ^ Ware, 121.,
- ), draft; February 15, 2007; 6.
- ^ Hall, 17.
- ^ Hall, 22-24.
External links
- Text of Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) is available from: CourtListener Findlaw Google Scholar Justia Oyez (oral argument audio)