Buckeye Check Cashing, Inc. v. Cardegna

(Slip Opinion) OCTOBER TERM, 2005 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

being done in connection with this case, at the time the opinion is issued.

The syllabus constitutes no part of the opinion of the Court but has been

prepared by the Reporter of Decisions for the convenience of the reader.

See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

BUCKEYE CHECK CASHING, INC. v. CARDEGNA

ET AL.

CERTIORARI TO THE SUPREME COURT OF FLORIDA

No. 04–1264. Argued November 29, 2005—Decided February 21, 2006

For each deferred-payment transaction respondents entered into with

Buckeye Check Cashing, they signed an Agreement containing provi-

sions that required binding arbitration to resolve disputes arising out

of the Agreement. Respondents sued in Florida state court, alleging

that Buckeye charged usurious interest rates and that the Agreement

violated various Florida laws, rendering it criminal on its face. The

trial court denied Buckeye’s motion to compel arbitration, holding

that a court rather than an arbitrator should resolve a claim that a

contract is illegal and void ab initio. A state appellate court reversed,

but was in turn reversed by the Florida Supreme Court, which rea-

soned that enforcing an arbitration agreement in a contract chal-

lenged as unlawful would violate state public policy and contract law.

Held: Regardless of whether it is brought in federal or state court, a

challenge to the validity of a contract as a whole, and not specifically

to the arbitration clause within it, must go to the arbitrator, not the

court. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395,

and Southland Corp. v. Keating, 465 U. S. 1, answer the question

presented here by establishing three propositions. First, as a matter

of substantive federal arbitration law, an arbitration provision is sev-

erable from the remainder of the contract. See Prima Paint, 388

U. S., at 400, 402–404. Second, unless the challenge is to the arbitra-

tion clause itself, the issue of the contract’s validity is considered by

the arbitrator in the first instance. See id., at 403–404. Third, this

arbitration law applies in state as well as federal courts. See South-

land, supra, at 12. The crux of respondents’ claim is that the Agree-

ment as a whole (including its arbitration provision) is rendered inva-

lid by the usurious finance charge. Because this challenges the

2 BUCKEYE CHECK CASHING, INC. v. CARDEGNA

Syllabus

Agreement, and not specifically its arbitration provisions, the latter

are enforceable apart from the remainder of the contract, and the

challenge should be considered by an arbitrator, not a court. The

Florida Supreme Court erred in declining to apply Prima Paint’s sev-

erability rule, and respondents’ assertion that that rule does not ap-

ply in state court runs contrary to Prima Paint and Southland.

Pp. 3–8.

894 So. 2d 860, reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in which ROBERTS,

C. J., and STEVENS, KENNEDY, SOUTER, GINSBURG, and BREYER, JJ.,

joined. THOMAS, J., filed a dissenting opinion. ALITO, J., took no part in

the consideration or decision of the case.

Cite as: 546 U. S. ____ (2006) 1

Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the

preliminary print of the United States Reports. Readers are requested to

notify the Reporter of Decisions, Supreme Court of the United States, Wash-

ington, D. C. 20543, of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

_________________

No. 04–1264

_________________

BUCKEYE CHECK CASHING, INC., PETITIONER v.

JOHN CARDEGNA ET AL.

ON WRIT OF CERTIORARI TO THE SUPREME COURT OF

FLORIDA

[February 21, 2006]

JUSTICE SCALIA delivered the opinion of the Court.

We decide whether a court or an arbitrator should con-

sider the claim that a contract containing an arbitration

provision is void for illegality.

I

Respondents John Cardegna and Donna Reuter entered

into various deferred-payment transactions with peti-

tioner Buckeye Check Cashing (Buckeye), in which they

received cash in exchange for a personal check in the

amount of the cash plus a finance charge. For each sepa-

rate transaction they signed a “Deferred Deposit and

Disclosure Agreement” (Agreement), which included the

following arbitration provisions:

“1. Arbitration Disclosure By signing this Agreement,

you agree that i[f] a dispute of any kind arises out of

this Agreement or your application therefore or any

instrument relating thereto, th[e]n either you or we or

third-parties involved can choose to have that dispute

resolved by binding arbitration as set forth in Para-

graph 2 below . . . .

2 BUCKEYE CHECK CASHING, INC. v. CARDEGNA

Opinion of the Court

2. Arbitration Provisions Any claim, dispute, or con-

troversy . . . arising from or relating to this Agreement

. . . or the validity, enforceability, or scope of this Arbi-

tration Provision or the entire Agreement (collectively

‘Claim’), shall be resolved, upon the election of you or

us or said third-parties, by binding arbitration . . . .

This arbitration Agreement is made pursuant to a

transaction involving interstate commerce, and shall

be governed by the Federal Arbitration Act (‘FAA’), 9

U. S. C. Sections 1–16. The arbitrator shall apply ap-

plicable substantive law constraint [sic] with the FAA

and applicable statu[t]es of limitations and shall

honor claims of privilege recognized by law . . . .”

Respondents brought this putative class action in Flor-

ida state court, alleging that Buckeye charged usurious

interest rates and that the Agreement violated various

Florida lending and consumer-protection laws, rendering

it criminal on its face. Buckeye moved to compel arbitra-

tion. The trial court denied the motion, holding that a

court rather than an arbitrator should resolve a claim that

a contract is illegal and void ab initio. The District Court

of Appeal of Florida for the Fourth District reversed,

holding that because respondents did not challenge the

arbitration provision itself, but instead claimed that the

entire contract was void, the agreement to arbitrate was

enforceable, and the question of the contract’s legality

should go to the arbitrator.

Respondents appealed, and the Florida Supreme Court

reversed, reasoning that to enforce an agreement to arbi-

trate in a contract challenged as unlawful “ ‘could breathe

life into a contract that not only violates state law, but

also is criminal in nature . . . .’ ” 894 So. 2d 860, 862

(2005) (quoting Party Yards, Inc. v. Templeton, 751 So. 2d

121, 123 (Fla. App. 2000)). We granted certiorari. 545

U. S. ___ (2005).

Cite as: 546 U. S. ____ (2006) 3

Opinion of the Court

II

A

To overcome judicial resistance to arbitration, Congress

enacted the Federal Arbitration Act (FAA), 9 U. S. C. §§1–

16. Section 2 embodies the national policy favoring arbi-

tration and places arbitration agreements on equal footing

with all other contracts:

“A written provision in . . . a contract . . . to settle by

arbitration a controversy thereafter arising out of

such contract . . . or an agreement in writing to sub-

mit to arbitration an existing controversy arising out

of such a contract . . . shall be valid, irrevocable, and

enforceable, save upon such grounds as exist at law or

in equity for the revocation of any contract.”

Challenges to the validity of arbitration agreements “upon

such grounds as exist at law or in equity for the revocation

of any contract” can be divided into two types. One type

challenges specifically the validity of the agreement to

arbitrate. See, e.g., Southland Corp. v. Keating, 465 U. S.

1, 4–5 (1984) (challenging the agreement to arbitrate as

void under California law insofar as it purported to cover

claims brought under the state Franchise Investment

Law). The other challenges the contract as a whole, either

on a ground that directly affects the entire agreement

(e.g., the agreement was fraudulently induced), or on the

ground that the illegality of one of the contract’s provi-

sions renders the whole contract invalid.1 Respondents’

——————

1 The issue of the contract’s validity is different from the issue of

whether any agreement between the alleged obligor and obligee was

ever concluded. Our opinion today addresses only the former, and does

not speak to the issue decided in the cases cited by respondents (and by

the Florida Supreme Court), which hold that it is for courts to decide

whether the alleged obligor ever signed the contract, Chastain v.

Robinson-Humphrey Co., 957 F. 2d 851 (CA11 1992), whether the

signor lacked authority to commit the alleged principal, Sandvik AB v.

4 BUCKEYE CHECK CASHING, INC. v. CARDEGNA

Opinion of the Court

claim is of this second type. The crux of the complaint is

that the contract as a whole (including its arbitration

provision) is rendered invalid by the usurious finance

charge.

In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U. S. 395 (1967), we addressed the question of who—court

or arbitrator—decides these two types of challenges. The

issue in the case was “whether a claim of fraud in the

inducement of the entire contract is to be resolved by the

federal court, or whether the matter is to be referred to

the arbitrators.” Id., at 402. Guided by §4 of the FAA,2 we

held that “if the claim is fraud in the inducement of the

arbitration clause itself—an issue which goes to the mak-

ing of the agreement to arbitrate—the federal court may

proceed to adjudicate it. But the statutory language does

not permit the federal court to consider claims of fraud in

the inducement of the contract generally.” Id., at 403–404

(internal quotation marks and footnote omitted). We

rejected the view that the question of “severability” was

one of state law, so that if state law held the arbitration

provision not to be severable a challenge to the contract as

a whole would be decided by the court. See id., at 400,

402–403.

Subsequently, in Southland Corp., we held that the FAA

——————

Advent Int’l Corp., 220 F. 3d 99 (CA3 2000); Sphere Drake Ins. Ltd. v.

All American Ins. Co., 256 F. 3d 587 (CA7 2001), and whether the

signor lacked the mental capacity to assent, Spahr v. Secco, 330 F. 3d

1266 (CA10 2003).

2 In pertinent part, §4 reads:

“A party aggrieved by the alleged failure, neglect, or refusal of

another to arbitrate under a written agreement for arbitration may

petition any United States district court [with jurisdiction] . . . for an

order directing that such arbitration proceed in a manner provided for

in such agreement . . . . [U]pon being satisfied that the making of the

agreement for arbitration or the failure to comply therewith is not in

issue, the court shall make an order directing the parties to proceed to

arbitration in accordance with the terms of the agreement . . . .”

Cite as: 546 U. S. ____ (2006) 5

Opinion of the Court

“create[d] a body of federal substantive law,” which was

“applicable in state and federal court.” 465 U. S., at 12

(internal quotation marks omitted). We rejected the view

that state law could bar enforcement of §2, even in the

context of state-law claims brought in state court. See id.,

at 10–14; see also Allied-Bruce Terminix Cos. v. Dobson,

513 U. S. 265, 270–273 (1995).

B

Prima Paint and Southland answer the question pre-

sented here by establishing three propositions. First, as a

matter of substantive federal arbitration law, an arbitra-

tion provision is severable from the remainder of the

contract. Second, unless the challenge is to the arbitration

clause itself, the issue of the contract’s validity is consid-

ered by the arbitrator in the first instance. Third, this

arbitration law applies in state as well as federal courts.

The parties have not requested, and we do not undertake,

reconsideration of those holdings. Applying them to this

case, we conclude that because respondents challenge the

Agreement, but not specifically its arbitration provisions,

those provisions are enforceable apart from the remainder

of the contract. The challenge should therefore be consid-

ered by an arbitrator, not a court.

In declining to apply Prima Paint’s rule of severability,

the Florida Supreme Court relied on the distinction be-

tween void and voidable contracts. “Florida public policy

and contract law,” it concluded, permit “no severable, or

salvageable, parts of a contract found illegal and void

under Florida law.” 894 So. 2d, at 864. Prima Paint

makes this conclusion irrelevant. That case rejected

application of state severability rules to the arbitration

agreement without discussing whether the challenge at

issue would have rendered the contract void or voidable.

See 388 U. S., at 400–404. Indeed, the opinion expressly

disclaimed any need to decide what state-law remedy was

6 BUCKEYE CHECK CASHING, INC. v. CARDEGNA

Opinion of the Court

available, id., at 400, n. 3, (though Justice Black’s dissent

asserted that state law rendered the contract void, id., at

407). Likewise in Southland, which arose in state court,

we did not ask whether the several challenges made

there—fraud, misrepresentation, breach of contract,

breach of fiduciary duty, and violation of the California

Franchise Investment Law—would render the contract

void or voidable. We simply rejected the proposition that

the enforceability of the arbitration agreement turned on

the state legislature’s judgment concerning the forum for

enforcement of the state-law cause of action. See 465

U. S., at 10. So also here, we cannot accept the Florida

Supreme Court’s conclusion that enforceability of the

arbitration agreement should turn on “Florida public

policy and contract law,” 894 So. 2d, at 864.

C

Respondents assert that Prima Paint’s rule of severabil-

ity does not apply in state court. They argue that Prima

Paint interpreted only §§3 and 4—two of the FAA’s proce-

dural provisions, which appear to apply by their terms

only in federal court—but not §2, the only provision that

we have applied in state court. This does not accurately

describe Prima Paint. Although §4, in particular, had

much to do with Prima Paint’s understanding of the rule

of severability, see 388 U. S., at 403–404, this rule ulti-

mately arises out of §2, the FAA’s substantive command

that arbitration agreements be treated like all other con-

tracts. The rule of severability establishes how this equal-

footing guarantee for “a written [arbitration] provision” is

to be implemented. Respondents’ reading of Prima Paint

as establishing nothing more than a federal-court rule of

procedure also runs contrary to Southland’s understand-

ing of that case. One of the bases for Southland’s applica-

tion of §2 in state court was precisely Prima Paint’s

“reli[ance] for [its] holding on Congress’ broad power to

Cite as: 546 U. S. ____ (2006) 7

Opinion of the Court

fashion substantive rules under the Commerce Clause.”

465 U. S., at 11; see also Prima Paint, supra, at 407

(Black, J., dissenting) (“[t]he Court here holds that the

[FAA], as a matter of federal substantive law . . .” (empha-

sis added)). Southland itself refused to “believe Congress

intended to limit the Arbitration Act to disputes subject

only to federal-court jurisdiction.” 465 U. S., at 15.

Respondents point to the language of §2, which renders

“valid, irrevocable, and enforceable” “a written provision

in” or “an agreement in writing to submit to arbitration an

existing controversy arising out of” a “contract.” Since,

respondents argue, the only arbitration agreements to

which §2 applies are those involving a “contract,” and

since an agreement void ab initio under state law is not a

“contract,” there is no “written provision” in or “contro-

versy arising out of” a “contract,” to which §2 can apply.

This argument echoes Justice Black’s dissent in Prima

Paint: “Sections 2 and 3 of the Act assume the existence of

a valid contract. They merely provide for enforcement

where such a valid contract exists.” 388 U. S., at 412–413.

We do not read “contract” so narrowly. The word appears

four times in §2. Its last appearance is in the final clause,

which allows a challenge to an arbitration provision “upon

such grounds as exist at law or in equity for the revocation

of any contract.” (Emphasis added.) There can be no

doubt that “contract” as used this last time must include

contracts that later prove to be void. Otherwise, the

grounds for revocation would be limited to those that

rendered a contract voidable—which would mean (implau-

sibly) that an arbitration agreement could be challenged

as voidable but not as void. Because the sentence’s final

use of “contract” so obviously includes putative contracts,

we will not read the same word earlier in the same sen-

tence to have a more narrow meaning.3 We note that

——————

3 Our more natural reading is confirmed by the use of the word “con-

8 BUCKEYE CHECK CASHING, INC. v. CARDEGNA

Opinion of the Court

neither Prima Paint nor Southland lends support to re-

spondents’ reading; as we have discussed, neither case

turned on whether the challenge at issue would render the

contract voidable or void.

* * *

It is true, as respondents assert, that the Prima Paint

rule permits a court to enforce an arbitration agreement in

a contract that the arbitrator later finds to be void. But it

is equally true that respondents’ approach permits a court

to deny effect to an arbitration provision in a contract that

the court later finds to be perfectly enforceable. Prima

Paint resolved this conundrum—and resolved it in favor of

the separate enforceability of arbitration provisions. We

reaffirm today that, regardless of whether the challenge is

brought in federal or state court, a challenge to the valid-

ity of the contract as a whole, and not specifically to the

arbitration clause, must go to the arbitrator.

The judgment of the Florida Supreme Court is reversed,

and the case is remanded for further proceedings not

inconsistent with this opinion.

It is so ordered.

JUSTICE ALITO took no part in the consideration or

decision of this case.

——————

tract” elsewhere in the United States Code to refer to putative agree-

ments, regardless of whether they are legal. For instance, the Sherman

Act, 26 Stat. 209, as amended, states that “[e]very contract, combina-

tion . . . , or conspiracy in restraint of trade . . . is hereby declared to be

illegal.” 15 U. S. C. §1. Under respondents’ reading of “contract,” a

bewildering circularity would result: A contract illegal because it was in

restraint of trade would not be a “contract” at all, and thus the statu-

tory prohibition would not apply.

Cite as: 546 U. S. ____ (2006) 1

THOMAS, J., dissenting

SUPREME COURT OF THE UNITED STATES

_________________

No. 04–1264

_________________

BUCKEYE CHECK CASHING, INC., PETITIONER v.

JOHN CARDEGNA ET AL.

ON WRIT OF CERTIORARI TO THE SUPREME COURT OF

FLORIDA

[February 21, 2006]

JUSTICE THOMAS, dissenting.

I remain of the view that the Federal Arbitration Act

(FAA), 9 U. S. C. §1 et seq., does not apply to proceedings

in state courts. See Allied-Bruce Terminix Cos. v. Dobson,

513 U. S. 265, 285–297 (1995) (THOMAS, J., dissenting);

Doctor’s Associates, Inc. v. Casarotto, 517 U. S. 681, 689

(1996) (same); Green Tree Financial Corp. v. Bazzle, 539

U. S. 444, 460 (2003) (same). Thus, in state-court proceed-

ings, the FAA cannot be the basis for displacing a state law

that prohibits enforcement of an arbitration clause con-

tained in a contract that is unenforceable under state law.

Accordingly, I would leave undisturbed the judgment of the

Florida Supreme Court.