Buckeye Check Cashing, Inc. v. Cardegna
Encyclopedia
Buckeye Check Cashing Inc. v. Cardegna (546 U.S. 440) is a 2006 United States Supreme Court decision concerning contract
law and arbitration. The case arose from a class action
filed in Florida
against a payday lender alleging the loan agreements the plaintiffs had signed were unenforceable because they essentially charged a higher interest rate
than that permitted under Florida law.
The lending agreements called for all disputes between the borrower and lender to be settled in arbitration. The original plaintiff
s 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. The only dissenter was Clarence Thomas
, who restated his belief that the Arbitration Act does not supersede state law.
decision, which held that under the National Banking Act
of 1863 states could not enforce their anti-usury laws against nationally-chartered banks based in other states, opened the door to increased credit card
spending by Americans. Other forms of consumer credit, such as title and payday loans, became available for those who could not get even the most restrictive credit cards available. Social activists criticized the banks and companies that engaged in those practices, calling them predatory lenders
who targeted the poor with promises of no credit check and easy money that only came at extremely high interest rates, profiting when the loans were extended long beyond the original short term.
Most such lenders had their customers sign credit agreements that included arbitration clause
s specifying that all disputes were to be resolved through that process
rather than litigation. Arbitration in turn was criticized as a business-friendly forum which furthered the exploitation of consumers most in need of money. Lawsuits over these contracts, however, were increasingly dismissed by lower courts that followed the Supreme Court's Prima Paint Corp. v. Flood & Conklin Mfg. Co.
case, which created the separability doctrine, under which all issues in contracts with arbitration clauses, save the clause itself, were to be decided by the arbitrator and not a court, under the 1925 Federal Arbitration Act
. In Southland Corp. v. Keating
, the Court held the FAA, and thus the separability doctrine, applicable to contracts executed under state law as well.
9-1-1
operator
, took out a $337.50 payday loan from a local branch of The Check Cashing Store, a subsidiary
of Buckeye Check Cashing, Inc., a Dublin, Ohio
-based company (now Checksmart). Later he took out another loan, for $150. Unable to repay either from his paycheck
s, he kept rolling over
his loan by paying the fee to do so. Eventually these came to over $1,000, and with the help of an activist lawyers' group, Trial Lawyers for Public Justice (TLPJ), he filed a class action
alleging that the fees he was charged were effectively interest
payments at a 1,300% annual rate
, well over Florida's legal limit of 45%. The class would eventually be certified to include all the store's customers prior to September 30, 2001, reflecting a change in Florida law which allowed the fees.
The company moved to have the case dismissed and compel arbitration. When that was denied, it petitioned the Florida Fourth District Court of Appeal
which ruled that arbitration was required because the entire contract had been challenged, not the severable
arbitration clause. But then that decision was appealed to the Florida Supreme Court
, which reversed on the grounds that the contract was illegal ab initio
and thus the arbitration clause was unenforceable. It read Prima Paint to distinguish between void contracts that could never have legal standing, such as the one at issue, and voidable contracts where that result could come to pass later as a result of dispute resolution but where the contract was legal on its face. One justice of that court, Raoul Cantero
, dissented, saying that the majority was ignoring the actual language of the FAA.
Buckeye petitioned the Supreme Court for certiorari
, and it was granted in 2005. Since several of the appeals circuits
had ruled in favor of arbitration in similar cases, but the Alabama Supreme Court
had agreed with its Florida counterpart, the case was closely watched by the arbitration industry and consumer advocates.
, a former clerk
to justices Antonin Scalia
and Clarence Thomas
, argued for Buckeye Check; Paul Bland of TLPJ represented Cardegna. Many banking and business groups filed amici
briefs on the company's behalf.
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. Bland argued that an illegal contract cannot exist, much less be enforced in any way:
He also reminded the justices of the heavy presumption against pre-empting state law, particularly in the area of contract formation, and that Prima Paint did not apply to the sections of the FAA under issue.
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.
Another amicus brief was filed by Theis Research, a California
company with a certiorari petition then before the Court in a similar case 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".
, 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.
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."
, 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.
Clarence Thomas
, usually in agreement with Scalia, 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.
. In 2008 the company agreed to pay $7 million into a fund. Of that amount, $2.1 million went to pay the plaintiffs' lawyers. The members of the class, potentially 70,000 in number, divided the rest.
, (552 U.S. ___, (2008)), 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.
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." 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. 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."
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. 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."
"[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 University of Louisville
's Louis D. Brandeis School of Law
. "Scalia’s opinion in Buckeye is an astonishing attempt to ... [institute] ... an explicit federal policy imposing arbitration and rejecting judicial resolution of many legal issues." He, too, notes the fundamental contradiction posed by allowing defenses to contract formation to remain adjudicable by courts. Before and after the decision, most state court cases he looked at challenging contracts on those defenses have been very receptive to arguments, particular unconscionability
.
He suggests ways both legislative and judicial bodies could remedy this situation.
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
law and arbitration. The case arose from a class action
Class action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
filed in Florida
Florida
Florida is a state in the southeastern United States, located on the nation's Atlantic and Gulf coasts. It is bordered to the west by the Gulf of Mexico, to the north by Alabama and Georgia and to the east by the Atlantic Ocean. With a population of 18,801,310 as measured by the 2010 census, it...
against a payday lender alleging the loan agreements the plaintiffs had signed were unenforceable because they essentially charged a higher interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
than that permitted under Florida law.
The lending agreements called for all disputes between the borrower and lender to be settled in arbitration. The original plaintiff
Plaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
s argued that the entire contract, including the arbitration clause
Arbitration clause
An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process...
, was invalid because it violated the law. When it was appealed to the High Court, Justice Antonin Scalia
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
wrote for a majority of seven that the Federal Arbitration Act
Federal Arbitration Act
In United States law, the Federal Arbitration Act is a statute that provides for judicial facilitation of private dispute resolution through arbitration. It applies in both state courts and federal courts, as was held in Southland Corp. v. Keating...
, 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
Void (law)
In law, void means of no legal effect. An action, document or transaction which is void is of no legal effect whatsoever: an absolute nullity - the law treats it as if it had never existed or happened....
and voidable
Voidable
In law, a transaction or action which is voidable is valid, but may be annulled by one of the parties to the transaction. Voidable is usually used in distinction to void ab initio and unenforceable....
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. The only dissenter was Clarence Thomas
Clarence Thomas
Clarence Thomas is an Associate Justice of the Supreme Court of the United States. Succeeding Thurgood Marshall, Thomas is the second African American to serve on the Court....
, who restated his belief that the Arbitration Act does not supersede state law.
Background of the case
In 1978, the court's Marquette BankMarquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.
Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. , is a unanimous 1978 U.S. Supreme Court decision holding that state anti-usury laws regulating interest rates cannot be enforced against nationally-chartered banks based in other states...
decision, which held that under the National Banking Act
National Banking Act
The National Banking Acts of 1863 and 1864 were two United States federal laws that established a system of national charters for banks, and created the United States National Banking System. They encouraged development of a national currency backed by bank holdings of U.S...
of 1863 states could not enforce their anti-usury laws against nationally-chartered banks based in other states, opened the door to increased credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
spending by Americans. Other forms of consumer credit, such as title and payday loans, became available for those who could not get even the most restrictive credit cards available. Social activists criticized the banks and companies that engaged in those practices, calling them predatory lenders
Predatory lending
Predatory lending describes unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly...
who targeted the poor with promises of no credit check and easy money that only came at extremely high interest rates, profiting when the loans were extended long beyond the original short term.
Most such lenders had their customers sign credit agreements that included arbitration clause
Arbitration clause
An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process...
s specifying that all disputes were to be resolved through that process
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...
rather than litigation. Arbitration in turn was criticized as a business-friendly forum which furthered the exploitation of consumers most in need of money. Lawsuits over these contracts, however, were increasingly dismissed by lower courts that followed the Supreme Court's Prima Paint Corp. v. Flood & Conklin Mfg. Co.
Prima Paint Corp. v. Flood & Conklin Mfg. Co.
Prima Paint Corp. v. Flood & Conklin Mfg. Co. , is a United States Supreme Court decision that established what has become known as the "separability principle" in contracts with arbitration clauses...
case, which created the separability doctrine, under which all issues in contracts with arbitration clauses, save the clause itself, were to be decided by the arbitrator and not a court, under the 1925 Federal Arbitration Act
Federal Arbitration Act
In United States law, the Federal Arbitration Act is a statute that provides for judicial facilitation of private dispute resolution through arbitration. It applies in both state courts and federal courts, as was held in Southland Corp. v. Keating...
. In Southland Corp. v. Keating
Southland Corp. v. Keating
Southland Corp. v. Keating, 465 U.S. 1 , is a United States Supreme Court decision concerning arbitration. It was originally brought by 7-Eleven franchisees in California state courts, alleging breach of contract by the chain's then parent corporation...
, the Court held the FAA, and thus the separability doctrine, applicable to contracts executed under state law as well.
Litigation history
In 1999, John Cardegna, a Palm Beach CountyPalm Beach County, Florida
Palm Beach County is the largest county in the state of Florida in total area, and third in population. As of 2010, the county's estimated population was 1,320,134, making it the twenty-eighth most populous in the United States...
9-1-1
9-1-1
9-1-1 is the emergency telephone number for the North American Numbering Plan .It is one of eight N11 codes.The use of this number is for emergency circumstances only, and to use it for any other purpose can be a crime.-History:In the earliest days of telephone technology, prior to the...
operator
Telephone operator
A telephone operator is either* a person who provides assistance to a telephone caller, usually in the placing of operator assisted telephone calls such as calls from a pay phone, collect calls , calls which are billed to a credit card, station-to-station and person-to-person calls, and certain...
, took out a $337.50 payday loan from a local branch of The Check Cashing Store, a subsidiary
Subsidiary
A subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a...
of Buckeye Check Cashing, Inc., a Dublin, Ohio
Dublin, Ohio
Dublin is a city in Franklin, Delaware, and Union counties in the U.S. state of Ohio. The population was 41,751 at the 2010 census. Dublin is a suburb of Columbus, Ohio. Approximately 57,000 people live within the Dublin school district....
-based company (now Checksmart). Later he took out another loan, for $150. Unable to repay either from his paycheck
Paycheck
Paycheck can also refer to:* Paycheck , short story by science fiction author Philip K. Dick* Paycheck , film adaptation of the Philip K. Dick short story starring Ben Affleck...
s, he kept rolling over
Rollover (finance)
In foreign exchange trading a rollover is the action taking place at end of day, where all open positions with value date equals SPOT, will be rolled over to the next business day...
his loan by paying the fee to do so. Eventually these came to over $1,000, and with the help of an activist lawyers' group, Trial Lawyers for Public Justice (TLPJ), he filed a class action
Class action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
alleging that the fees he was charged were effectively interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
payments at a 1,300% annual rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
, well over Florida's legal limit of 45%. The class would eventually be certified to include all the store's customers prior to September 30, 2001, reflecting a change in Florida law which allowed the fees.
The company moved to have the case dismissed and compel arbitration. When that was denied, it petitioned the Florida Fourth District Court of Appeal
Florida Fourth District Court of Appeal
The Florida Fourth District Court of Appeal is headquartered in West Palm Beach, Florida. Its twelve judges have jurisdiction over cases arising in Palm Beach County, Broward County, St. Lucie County, Martin County, Indian River County, and Okeechobee County....
which ruled that arbitration was required because the entire contract had been challenged, not the severable
Severability
In law, severability refers to a provision in a contract which states that if parts of the contract are held to be illegal or otherwise unenforceable, the remainder of the contract should still apply...
arbitration clause. But then that decision was appealed to the Florida Supreme Court
Florida Supreme Court
The Supreme Court of the State of Florida is the highest court in the U.S. state of Florida. The Supreme Court consists of seven judges: the Chief Justice and six Justices who are appointed by the Governor to 6-year terms and remain in office if retained in a general election near the end of each...
, which reversed on the grounds that the contract was illegal ab initio
Ab initio
ab initio is a Latin term used in English, meaning from the beginning.ab initio may also refer to:* Ab Initio , a leading ETL Tool Software Company in the field of Data Warehousing.* ab initio quantum chemistry methods...
and thus the arbitration clause was unenforceable. It read Prima Paint to distinguish between void contracts that could never have legal standing, such as the one at issue, and voidable contracts where that result could come to pass later as a result of dispute resolution but where the contract was legal on its face. One justice of that court, Raoul Cantero
Raoul G. Cantero, III
Raoul G. Cantero, III is a Florida lawyer and a former Justice of the Florida Supreme Court.-Career:...
, dissented, saying that the majority was ignoring the actual language of the FAA.
Buckeye petitioned the Supreme Court for certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
, and it was granted in 2005. Since several of the appeals circuits
United States Court of Appeals for the Federal Circuit
-Vacancies and pending nominations:-List of former judges:-Chief judges:Notwithstanding the foregoing, when the court was initially created, Congress had to resolve which chief judge of the predecessor courts would become the first chief judge...
had ruled in favor of arbitration in similar cases, but the Alabama Supreme Court
Alabama Supreme Court
The Supreme Court of Alabama is the highest court in the state of Alabama. The court consists of an elected Chief Justice and eight elected Associate Justices. Each justice is elected in partisan elections for staggered six year terms. The Governor of Alabama may fill vacancies when they occur...
had agreed with its Florida counterpart, the case was closely watched by the arbitration industry and consumer advocates.
Briefs
Christopher Landau of the Washington firm Kirkland & EllisKirkland & Ellis
Kirkland & Ellis LLP is an international law firm with headquarters in Chicago, known for its profitability and its litigation, bankruptcy, intellectual property and private equity departments. Kirkland & Ellis is currently ranked as the ninth most prestigious law firm in the United States by...
, a former clerk
Law clerk
A law clerk or a judicial clerk is a person who provides assistance to a judge in researching issues before the court and in writing opinions. Law clerks are not court clerks or courtroom deputies, who are administrative staff for the court. Most law clerks are recent law school graduates who...
to justices Antonin Scalia
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
and Clarence Thomas
Clarence Thomas
Clarence Thomas is an Associate Justice of the Supreme Court of the United States. Succeeding Thurgood Marshall, Thomas is the second African American to serve on the Court....
, argued for Buckeye Check; Paul Bland of TLPJ represented Cardegna. Many banking and business groups filed amici
Amicus curiae
An amicus curiae is someone, not a party to a case, who volunteers to offer information to assist a court in deciding a matter before it...
briefs on the company's behalf.
Landau's brief
Brief (law)
A brief is a written legal document used in various legal adversarial systems that is presented to a court arguing why the party to the case should prevail....
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. Bland argued that an illegal contract cannot exist, much less be enforced in any way:
He also reminded the justices of the heavy presumption against pre-empting state law, particularly in the area of contract formation, and that Prima Paint did not apply to the sections of the FAA under issue.
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.
Another amicus brief was filed by Theis Research, a California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
company with a certiorari petition then before the Court in a similar case it had brought against a law firm that had failed to disclose a potential conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
prior to patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
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".
Oral argument
At oral argumentOral argument
Oral arguments are spoken presentations to a judge or appellate court by a lawyer of the legal reasons why they should prevail. Oral argument at the appellate level accompanies written briefs, which also advance the argument of each party in the legal dispute...
, Justices Sandra Day O'Connor
Sandra Day O'Connor
Sandra Day O'Connor is an American jurist who was the first female member of the Supreme Court of the United States. She served as an Associate Justice from 1981 until her retirement from the Court in 2006. O'Connor was appointed by President Ronald Reagan in 1981...
(one of two dissenters in Southland) and John Roberts
John Roberts
John Glover Roberts, Jr. is the 17th and current Chief Justice of the United States. He has served since 2005, having been nominated by President George W. Bush after the death of Chief Justice William Rehnquist...
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
Ruth Bader Ginsburg
Ruth Joan Bader Ginsburg is an Associate Justice of the Supreme Court of the United States. Ginsburg was appointed by President Bill Clinton and took the oath of office on August 10, 1993. She is the second female justice and the first Jewish female justice.She is generally viewed as belonging to...
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
John Paul Stevens
John Paul Stevens served as an Associate Justice of the Supreme Court of the United States from December 19, 1975 until his retirement on June 29, 2010. At the time of his retirement, he was the oldest member of the Court and the third-longest serving justice in the Court's history...
also saw the potential for conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
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.
On the other side, Anthony Kennedy
Anthony Kennedy
Anthony McLeod Kennedy is an Associate Justice of the United States Supreme Court, having been appointed by President Ronald Reagan in 1988. Since the retirement of Sandra Day O'Connor, Kennedy has often been the swing vote on many of the Court's politically charged 5–4 decisions...
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
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
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."
Decision
Less than two months after oral argument, the justices ruled 7-1 for Buckeye. O'Connor had retired and been replaced by Samuel AlitoSamuel Alito
Samuel Anthony Alito, Jr. is an Associate Justice of the U.S. Supreme Court. He was nominated by President George W. Bush and has served on the court since January 31, 2006....
, who as he had not seated for oral argument took no part in the decision.
Antonin Scalia
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
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.
Clarence Thomas
Clarence Thomas
Clarence Thomas is an Associate Justice of the Supreme Court of the United States. Succeeding Thurgood Marshall, Thomas is the second African American to serve on the Court....
, usually in agreement with Scalia, 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.
Aftermath
After the case was remanded to the Florida courts in which it had originated, the parties eventually settledSettlement (law)
In law, a settlement is a resolution between disputing parties about a legal case, reached either before or after court action begins. The term "settlement" also has other meanings in the context of law.-Basis:...
. In 2008 the company agreed to pay $7 million into a fund. Of that amount, $2.1 million went to pay the plaintiffs' lawyers. The members of the class, potentially 70,000 in number, divided the rest.
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. FerrerPreston v. Ferrer
Preston v. Ferrer, 552 U.S. 346 , was a decision by the Supreme Court of the United States holding that the Federal Arbitration Act overrules state laws declaring that certain disputes must be resolved by a state administrative agency....
, (552 U.S. ___, (2008)), the case brought by the former manager of Alex Ferrer
Alex Ferrer
Alex Ferrer is an American judge who hosts the television series Judge Alex.-Childhood & early adulthood:Ferrer was born in Havana, Cuba but emigrated to the United States with his family when a year old. At age 15, Alex landed a part-time job as a gas-station attendant; by his senior year of high...
(television's Judge Alex
Judge Alex
Judge Alex is a United States syndicated courtroom television show that debuted September 12, 2005. The host/arbitrator is the Hon. Alex Ferrer, a former police officer, lawyer, and Florida judge. The show was produced in Houston at the television studios of Fox's KRIV , as was previously done with...
) against him. Ferrer had moved to bypass arbitration, arguing both that Preston was not licensed by California to work as a talent agent
Talent agent
A talent agent, or booking agent, is a person who finds jobs for actors, authors, film directors, musicians, models, producers, professional athletes, writers and other people in various entertainment businesses. Having an agent is not required, but does help the artist in getting jobs...
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.
Criticism and commentary
Proponents of arbitration and other means of alternative dispute resolutionAlternative dispute resolution
Alternative Dispute Resolution includes dispute resolution processes and techniques that act as a means for disagreeing parties to come to an agreement short of litigation. ADR basically is an alternative to a formal court hearing or litigation...
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
White & Case
White & Case was founded in New York in 1901 and has grown into one of the world's leading global law firms. The firm has since expanded, and has practice groups in emerging markets including Latin America, Central & Eastern Europe, Africa, the Middle East and Asia, as well as in Europe...
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."
Those who approached from a consumer-rights standpoint were not as solicitous. Texas
University of Texas School of Law
The University of Texas School of Law, also known as UT Law, is an ABA-certified American law school located on the University of Texas at Austin campus. The law school has been in operation since the founding of the University in 1883. It was one of only two schools at the University when it was...
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
Capacity (law)
The capacity of both natural and legal persons determines whether they may make binding amendments to their rights, duties and obligations, such as getting married or merging, entering into contracts, making gifts, or writing a valid will...
and forgery
Forgery
Forgery is the process of making, adapting, or imitating objects, statistics, or documents with the intent to deceive. Copies, studio replicas, and reproductions are not considered forgeries, though they may later become forgeries through knowing and willful misrepresentations. Forging money or...
, necessarily include the arbitration clause. Stephen Ware of Kansas
University of Kansas School of Law
The University of Kansas School of Law is a public law school located on the main campus of the University of Kansas in Lawrence, Kansas. The University of Kansas Law School was founded in 1893, replacing the earlier Department of Law, which had existed since 1878. The school has more than 50...
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."
"[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 University of Louisville
University of Louisville
The University of Louisville is a public university in Louisville, Kentucky. When founded in 1798, it was the first city-owned public university in the United States and one of the first universities chartered west of the Allegheny Mountains. The university is mandated by the Kentucky General...
's Louis D. Brandeis School of Law
Louis D. Brandeis School of Law
The Louis D. Brandeis School of Law is the law school of the University of Louisville. Established in 1846, it is the oldest law school in Kentucky and the fifth oldest in the country in continuous operation. The law school is named after Justice Louis Dembitz Brandeis, who served on the Supreme...
. "Scalia’s opinion in Buckeye is an astonishing attempt to ... [institute] ... an explicit federal policy imposing arbitration and rejecting judicial resolution of many legal issues." He, too, notes the fundamental contradiction posed by allowing defenses to contract formation to remain adjudicable by courts. Before and after the decision, most state court cases he looked at challenging contracts on those defenses have been very receptive to arguments, particular unconscionability
Unconscionability
Unconscionability is a term used in contract law to describe a defense against the enforcement of a contract based on the presence of terms that are excessively unfair to one party...
.
He suggests ways both legislative and judicial bodies could remedy this situation.