Amicus Curiae Brief — Buckeye Check Cashing, Inc. v. Cardegna

[Supreme Coun.US. |

‘ FILED

(0 MAY 2 3 2005

OFPICE OF THE cusrx. |

No. 04-1264

IN THE

Supreme Court of the United States

BUCKEYE CHECK CASHING, INC.,

Petitioner,

Vv.

JOHN CARDEGNA, et al.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME COURT OF FLORIDA

BRIEF FOR THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

ROBIN S. CONRAD SETH P. WAXMAN

AMAR D. SARWAL Counsel of Record

NATIONAL CHAMBER CHRISTOPHER R. LIPSETT

LITIGATION CENTER, INC. ERICJ. MOGILNICKI

1615 H Street, N.W. KELLY THOMPSON COCHRAN

Washington, DC 20062 WILMER CUTLER PICKERING

(202) 463-5337 HALE AND DORR LLP

2445 M Street, N.W.

Washington, DC 20037

(202) 663-6000

TABLE OF AUTHORITIEG...........-.scccsseeseseeeees

INTEREST OF AMICUS CURIAE

STATEMENT OF THE CASE

TABLE OF CONTENTS

SUMMARY OF THE ARGUMENT...

REASONS FOR GRANTING THE WRIT

I.

Il.

Ill.

THE FLORIDA SUPREME COURT’S REFUSAL

To ENFORCE AN ARBITRATION AGREEMENT

THAT WAS UNQUESTIONABLY ENTERED INTO

By THE PARTIES DECIDED AN IMPORTANT

QUESTION OF FEDERAL LAW IN A WAY THAT

CONFLICTS WITH THE DECISION OF THIS

COURT IN PRIMA PAINT .....<000+- s

THE FLORIDA SUPREME COURT'S REFUSAL

To ENFORCE AN ARBITRATION AGREEMENT

IN A CONTRACT ALLEGED TO BE VOID DE-

CIDED AN IMPORTANT QUESTION OF FED-

ERAL LAW IN A WAY THAT DIRECTLY CON-

FLICTS WITH THE DECISIONS OF AT LEAST

FIVE FEDERAL COURTS OF APPEALS

THERE IS A COMPELLING NEED FOR CER-

TIORARI TO PREVENT CARDEGNA AND SIMI-

LAR DECISIONS FROM UNDERMINING THE

GOALS AND CONSISTENT APPLICATION OF

(i)

SOE EEE SESE EEE OSES EEE SEE EEE ESSE STE SEE ESE SEES ESTES EE EES

mo

ii

TABLE OF AUTHORITIES

CASES

Page(s)

Alabama Catalog Sales v. Harris, 794 So. 2d 312

SADA c RIO siete thiceiccsesitcnahicthpseh ilinitehngiehiesiitetidees iii 4, 10, 12, 13

Allied-Bruce Terminix Cos. v. Dobson, 513 US.

IRE REP SNES uae ROI) Se ee OU PEO aye 13, 15

Bess v. Check Express, 294 F.3d 1298 (11th Cir.

Sai cndteniininlindecineeisicietenrtittinntinieibailerinatibactgnilaitastiilias 4, 11, 12, 13

Burden v. Check Into Cash of Kentucky, LLC,

267 F.3d 483 (6th Cir. 2001)..... 4,11, 12

Chastain v. Robinson Humphrey Co., 957 F. 2d 851

(11th Cir. 1992) is iy

Dewey v. Wegner, 138 S.W.3d 591 (Tex. App. 2004)... ‘impiek ty 38

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

i csacsicccipeiinacinibisicsiciteeLdacitianigincspendividdiineciocsngtinciiilighdiaetes 7,9

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

a eR licsontstntnnnncteriiaicnieasbitapidesttitginitentamppatcicnntelainiagiitlinteni 14

Green Tree Financial Corp. v. Bazzle, 539 U.S. 444

ee rcsctetitinintrcectarartipiermecctnciaseriiiccaininiiiaiasundnimanenientamnies 2

Green Tree Financial Corp.-Alabama v. Randolph,

531 U.S. 79 (2000)...... cicpiiediedineiadelbiespebanisidisiedsiiaadiie 14, 15

Harter v. lowa Grain Co., 220 F.3d 544 (7th Cir.

2000). wal . 4, 11, 12

Jenkins v. First American Cash Advance of Geor-

gia, LLC, 400 F.3d 868 (11th Cir. 2008) ....... 11,13

Lawrence v. Comprehensive Business Services Co.,

833 F.2d 1159 (5th Cir. 1987)... aw &

Mastrobuono v. Shearson Lehman Hutton, Inc.,

BR _« ERRR RPE EsS eur Ser ir e cenen 7,9

Mitsubishi Motors Corp. v. ~ Soler ” Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) .........ccccceccereeeeeees 9,14

Moses H. Cone Memorial Hosiptal v. Mercury

Construction Corp., 460 U.S. 1 (1983).........cc-cecceeseeees 9,15

Nature’s 10 Jewelers v. Gunderson, 648 N.W.2d 804

(S.D. 2002).......... asctnpaseninenetsliniunniintaitintaieds peesscbatsteey 4, 10, 12

Onvoy, Inc. v. Shal, LLC, 669 N.W.2d 344 (Minn.

‘iii

TABLE OF AUTHORITIES—Continued

Page(s)

PacifiCare tits Inc. v. Book, 5388 US. 401

(BOOB) .nncccccocescorecesesenssnsaseceesesesscesessecsnenssesessossssssescovesscoososseseets 2

Prima Paint Corp. v. Flood & Conklin Manufac- é

turing Co., 388 U.S. 395 (1967)........ passim

R.P.T. of Aspen, Inc. v. Innovative Communica-

tions, Inc., 917 P.2d 340 (Colo. Ct. App. 1996)......... 10, 12

Sandvik AB v. Advent International Corp.,

220 F.3d 9D (Bd Cir. 2000) ...ncnccoecscacsccccesssosersesnesotocsscocosess 11

Snowden v. Checkpoint Check Cashing, 290 F.3d

631 (4th Cir. 2002) _— .4, 11

Southland Corp. v. Keating, 465 U.S. 1 (1984)......000r0 8, 16

Sphere Drake Insurance Ltd. v. Clarendon Na-

tional Insurance Co., 263 F.3d 26 (2d Cir. 2001)........... 11

Three Valleys Municipal Water District v. E.F.

Hutton & Co., 925 F.2d 1136 (9th Cir. 1991) ............ 10, 11

STATUTES AND RULES

Federal Arbitration Ac

Ei Seb CI, seiectcceieceensincsigseinticsnsetenesnibtenaincentnienin 3

er Oe ei cinchttnediisiracciensstcepliinboentstasidiaaasncestenieanasideenamstatios 14

DI. BG irecrccentvtsitisinnctientectieniipnnscnieesiligmeimanne 3, 6,7

Seamer Camart Bathe WD ncrccecccessesereseseccenvesesssocssenssccesssnsccesnte 9,10

OTHER AUTHORITIES

Black’s Law Dictionary (8th ed. 204) 0.00... scccssssserssersesnesecess 8

1 Corbin on Contracts (Joseph M. Perillo ed., 1993)...........+++ 8

15 Corbin on Contracts (Joseph M. Perillo ed., 2003)........... 15

Perillo, Joseph M., Calamari & Perillo on Con-

tracts (5th ed. 2003) "cre OCTET ENERO WIE OPER 8, 15

Randall, Susan, Judicial Attitudes Toward Arbitra-

tion and the Resurgence of Unconscionability,

2 SR ee 14

Restatement (Second) of Contracts (1981)..........-cessesees 8,15

5 Williston on Contracts (Richard A. Lord ed., 4th

ed. 1993)... sssscitiltipiialidlaiabgdisiiiiinintaasautnadeiathadsanstitieiass 15

iv

TABLE OF AUTHORITIES—Continued

Page(s)

6 Williston on Contracts (Richard A. Lord ed., 4th

ed. 1995)...... Fe RRO CT we ES Seon 15

IN THE

Supreme Court of the Anited States

No. 04-1264

BUCKEYE CHECK CASHING, INC.,

7 Petitioner,

v.

JOHN CARDEGNA, et al.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME COURT OF FLORIDA

BRIEF FOR THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

INTEREST OF AMICUS CURIAE'

The Chamber of Commerce of the United States of

America (“the Chamber”) is the world’s largest business

federation, representing an underlying membership of more

than three million businesses, state and local chambers of

commerce, and professional organizations. Chamber mem-

' Letters of consent from both parties have been filed with the Clerk

of Court. Pursuant to Rule 37.6, amicus states that no counsel for a party

authored any part of this brief, and no person or entity other than amcus

and its counsel made a monetary contribution to the preparation or sub-

mission of this brief. f

2

bers operate in every sector of the economy and transact

business throughout the United States. A central function

of the Chamber is to represent the interests of its members

in important matters before the courts, Congress, and the

Executive Branch. To that end, the Chamber has filed

amicus curiae briefs in numerous cases that have raised is-

sues of vital concern to the nation’s business community.

For example, the Chamber has previously filed briefs con-

cerning arbitration issues before this Court in Green Tree

Financial Corp. v. Bazzle, 539 U.S. 444 (2003), and Pacifi-

Care Systems, Inc. v. Book, 5388 U.S. 401 (2003).

Many of the Chamber’s members, constituent organiza-

tions, and affiliates have adopted as standard features of

their business contracts provisions that provide for the arbi-

tration of disputes arising from or related to such contracts.

They use arbitration because it is a fast, fair, aud inexpen-

sive method of resolving disputes with consumers and other

contracting parties. Because many Chamber members may

be sued in a wide range of state and federal courts, they rely

on the protection afforded by the Federal Arbitration Act to

ensure that their arbitration agreements are enforced con-

sistently.

STATEMENT OF THE CASE

Respondents brought a class action lawsuit in Florida

state court against Petitioner Buckeye Check Cashing, Inc.,

alleging that certain transactions, in which they provided

Petitioner with a check to be cashed at a future date in re-

turn for an immediate cash payment, constituted usurious

loans. Because the parties’ contracts contained clauses

agreeing to arbitrate “[ajny claim, dispute, or controversy

... arising from or relating to this Agreement ... or the va-

lidity, enforceability, or scope of this Arbitration Provision

or the entire Agreement” (Pet. App. 2a, 27a-28a), Petitioner

moved to compel arbitration and stay the 'itigation. The

trial court summarily denied the motion, but the intermedi-

ate appellate court reversed.

3

The Florida Supreme Court reversed again in a split de-

cision, holding that because Respondents’ usury claim if

proven would render the entire contract—including the ar-

bitration clause—void ab initio under state law, the dispute

should be resolved in court. Pet. App. 7a-8a. The Florida

court acknowledged that this Court held in Prima Paint

Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395

(1967), that the Federal Arbitration Act (“FAA”), 9 U.S.C.

§§ 1 et seq., requires arbitration unless a party disputes it

agreed to arbitrate—even if that party claims the entire

contract is unenforceable. However, the Florida court dis-

tinguished Prima Paint as applying only to challenges that

would render a contract voidable under state law, like the

fraudulent inducement claim specifically at issue in that

case, and inapplicable to a claim that a contract is void ab

initio. Pet. App. 5a-Ga.

SUMMARY OF THE ARGUMENT

The Florida Supreme Court’s opinion in this case illus-

trates a dangerous point of confusion that has developed in

arbitration caselaw in the 40 years since this Court decided

Prima Paint Corp. v. Flood & Conklin Manufacturing Co.,

388 U.S. 395 (1967). The Court should grant certiorari to

resolve the growing split between state and federal author-

ity over the proper application of this seminal precedent.

Prima Paint held that the “plain meaning” of the Fed-

eral Arbitration Act required that courts treat the validity

of an arbitration provision as a “separable” threshold issue,

independent from any consideration of the validity of the

parties’ underlying contract. 388 U.S. at 402-404. Thus,

when the Prima Paint plaintiffs had resisted enforcement of

their arbitration agreement on the grounds that the contract

as a whole had been induced by fraud, the Court found that

the FAA provided jurisdiction “only [over] issues relating to

the making and performance of the agreement to arbitrate.”

Id. at 404 (interpreting 9 U.S.C. § 4). Because the making of

the arbitration agreement was not at issue, all other matters

were to be resolved by the arbitrator. /d. at 403-404. This

result not only complied with the plain language of the FAA,

4

but furthered its purposes by assuring that courts avoid un-

necessary interference where parties have agreed to arbi-

trate their conflicts. Jd. at 404.

The Florida Supreme Court in Cardegna distinguished

Prima Paint as applying only to claims that the underlying

contract is voidable under state law, but not to claims that

the contract is void ab initio. This distinction was improper,

as Prima Paint requires that courts limit their inquiries to

“the making and performance of the agreement to arbi-

trate,” 388 U.S. at 404, without regard to such state law dis-

tinctions.

Cardegna is merely the latest in a series of state court

decisions that distinguish Prima Paint in this way. See also,

e.g., Alabama Catalog Sales v. Harris, 794 So. 2d 312 (Ala.

2000); Onvoy, Inc. v. Shal, LLC, 669 N.W.2d 344 (Minn.

2003); Nature’s 10 Jewelers v. Gunderson, 648 N.W.2d 804

(S.D. 2002). These state cases directly contradict decisions

by at least five federal courts of appeals holding that allega-

tions that a contract containing an arbitration clause is void

for illegality should be subject to arbitration. See, e.g., Bess

v. Check Express, 294 F.3d 1298 (11th Cir. 2002); Snowden v.

Checkpoint Check Cashing, 290 F.3d 631 (4th Cir. 2002);

Burden v. Check Into Cash of Ky., LLC, 267 F.3d 483 (6th

Cir. 2001); Harter v. lowa Grain Co., 220 F.3d 544 (7th Cir.

2000); Lawrence v. Comprehensive Bus. Servs. Co., 833 F.2d

1159 (5th Cir. 1987); see also Dewey v. Wegner, 138 S.W.3d

591 (Tex. App. 2004).

_ The state cases that improperly distinguish the FAA

analysis described in Prima Paint have serious adverse con-

sequences for Chamber members and all other parties that

rely upon agreements to arbitrate. Judicial consideration of

claims that the parties’ contract as a whole is void frustrates

the “unmistakably clear congressional purpose that the arbi-

tration procedure, when selected by the parties to a con-

tract, be speedy and not subject to delay and obstruction in

the courts.” Prima Paint, 388 U.S. at 404. Furthermore,

the split in authority promotes forum shopping. For exam-

ple, a claim that an entire agreement (that includes an arbi-

5

tration provision) is void for illegality will be sent to arbitra-

tion by federal courts in the Eleventh Circuit, but remain in

court in Alabama and Florida. Finally, this effort to carve

out exceptions to Prima Paint is yet another demonstration

of the enduring suspicion of arbitration that the FAA was

intended to overcome.

Confusion over Prima Paint undermines the enforce-

ment of arbitration provisions across the country. This

Court should grant certiorari and reaffirm that the FAA re-

quires that courts confine themselves to determining

whether the making of an arbitration agreement is at issue.

REASONS FOR GRANTING THE WRIT

L THE FLORIDA SUPREME COURT'S REFUSAL TO ENFORCE AN

ARBITRATION AGREEMENT THAT WAS UNQUESTIONABLY EN-

TERED INTO BY THE PARTIES DECIDED AN IMPORTANT

QUESTION OF FEDERAL LAW IN A Way THAT CONFLICTS

Wir THE DECISION OF THIS CouRT IN PRIMA PAINT.

This case involves conflicting approaches to lawsuits

claiming that a contract that includes an arbitration provi-

sion is wholly invalid. Such lawsuits pose a special problem

because it is uncertain where such claims should first be

heard. If the contract (including the arbitration provision) is

in fact unenforceable, the claim belongs in court. If the con-

tract is valid, the claim belongs in arbitration under the

terms of the parties’ agreement. But a final decision as to

which forum should hear the merits cannot be made until! the

merits have already been resolved. This conundrum re-

quires a policy choice about which initial forum will hear

such claims.

In Cardegna, the Florida Supreme Court resolved this

dilemma by allowing litigation of plaintiffs’ claims that their

contract as a whole was void for illegality despite the undis-

puted fact that the parties had agreed to arbitrate all dis-

putes. Pet. App. 5a-8a. That resolution conflicts with this

Court’s decision in Prima Paint Corp. v. Flood & Conklin

Manufacturing Co., 388 U.S. 395 (1967). In Prima Paint,

the Court determined that “Congress has provided an ex-

plicit answer” to this policy question through the Federal

Arbitration Act, which requires that the court order arbitra-

tion as soon as it is satisfied that “the making of the agree-

ment for arbitration or the failure to comply (with the arbi-

tration agreement) is not in issue.” 388 U.S. at 403 (quoting

9 U.S.C. § 4) (alteration in original, emphasis added).

Thus, in passing on an application for a stay pending ar-

bitration under section 3 of the FAA, Prima Paint held that

courts “may consider only issues relating to the making and

performance of the agreement to arbitrate.” Jd. at 404. For

example, a court could resolve claims of “fraud in the in-

ducement of the arbitration clause itself... [bjut the statu-

tory language does not permit . . . consider{ation] [of] claims

of fraud in the inducement of the contract generally.” Jd. at

403-404. In Prima Paint, the absence of claims directed to

the making of the arbitration provision itself meant that the

contract dispute should be arbitrated. Jd. This result was

supported not only by “the plain meaning of the statute, but

also the unmistakably clear congressional purpose that the

arbitration procedure, when selected by the parties to a con-

tract, be speedy and not subject to delay and obstruction in

the courts.” /d. at 404. _

In the instant case, there was no dispute below that the

parties had made a written agreement, and that it contained

a broad arbitration provision. Pet. App. 2a. The borrowers

only contended that the underlying contract was void as a

matter of Florida policy or law. Jd. Thus, under Prima

Paint, once the courts had established that “the making of

the agreement for arbitration . . . is not in issue,” 388 U.S. at

? Justice Black argued in dissent that the majority’s decision im-

properly exalted arbitration provisions by enforcing them while the en-

forceability of the remainder of the contract remains at issue. See 388

US. at 423 (Black, J. dissenting) (stating that the FAA was only intended

to place arbitration agreements “upon the same footing as other con-

tracts” (citation omitted)). However, the alternative approach taken by

the Cardegna court—judicial consideration of general contract claims be-

fore any arbitration is ordered—would render arbitration agreements

nugatory by resolving in court disputes that may well be subject to a valid

arbitration agreement.

7

403 (quoting 9 U.S.C. § 4) (emphasis added), the arbitration

provision was enforceable as a matter of federal substantive

law, and the merits of the case (that is, a decision about the

validity of the entire contract) should have been directed to

arbitration instead of decided by the court.

Nevertheless, the Florida Supreme Court explained

that “the rationale of Prima Paint should not be extended to

the facts of this case,” because “if the underlying contract is

held entirely void as a matter of [state] law, all of its provi-

sions, including the arbitration clause, would be nullified as

well.” Pet. App. 5a-6a. The court’s conclusion that the risk

of such nullification was grounds for not enforcing the par-

ties’ arbitration provision was based cn state law: “Florida

public policy and contract law prohibit breathing life in to a

potentially illegal contract by enforcing the included arbitra-

tion clause of the void contract ... there are no severable, or

salvageable, parts of a contract found illegal and void under

Florida law.” Jd. at 7a-8a. In short, the Cardegna court

found that Florida law forbade the application of Prima

Paint.

This approach conflicts with Prima Paint and ignores

the pre-emptive effect of the FAA. The clearest proof of the

conflict is that the Florida court’s decision essentially adopts

the logic of the dissent in Prima Paint. Justice Black had

argued, in his dissenting opinion, that fraudulent inducement

challenges to a contract as a whole should be decided by

courts because “{i]f the contract was procured by fraud,

then, unless the defrauded party elects to affirm it, there is

absolutely no contract, nothing to be arbitrated.” 388 U.S. at

412 (Black, J., dissenting). In Cardegna, the argument is the

same, except that it is now applied to state law claims that

the contract is unenforceable for illegality rather than for

fraudulent inducement. This invocation of “Florida public

policy and contract law” (Pet. App. 7a), to forbid arbitration

of certain types of contract challenges not only contradicts

Prima Paint, but is pre-empted by the Federal Arbitration

Act. See, e.g., Doctor’s Assocs., Inc. v. Casarotto, 517 US.

681, 683 (1996); Mastrobuono v. Shearson Lehman Hutton,

8

Inc., 514 U.S. 52, 57-58 (1995); Southland Corp. v. Keating,

465 U.S. 1, 12-15 (1984).

Cardegna justified this result by relying on previous

state and federal cases that have distinguished Prima Paint

as applying only to challenges that would render a contract

voidable under state law, but not to challenges that would

render a contract void ab initio. Pet. / pp. 6a-Ta.’ As is de-

scribed in detail infra, this distinction is a source of consid-

erable conflict and confusion in both state and federal appel-

late courts. However, it is not a distinction that matters in

the context of Prima Paint.

Prima Paint explains that the FAA requires as a mat-

ter of substantive federal law that courts focus solely on “is-

sues relating to the making and performance of the agree-

ment to arbitrate,” and refer remaining disputes to arbitra-

tion if the arbitration agreement itself is not at issue. 388

U.S. at 404. This reading of the FAA does not turn on

whether the state law involved would make the contract

void or merely voidable.‘ Indeed, Prima Paint specifically

* A “voidable contract” is generally defined as “{a) contract that can

be affirmed or rejected at the option of one of the parties; a contract that

is void as to the wrongdoer but not void as to the party wronged, unless

that party elects to treat it as void.” Black’s Law Dictionary 350 (8th ed.

2004). A “void contract,” in contrast, is generally defined as “[a) contract

that is of no legal effect, so that there is really no contract in existence at

all.” Jd. Void contracts generally fall into two categories, one involving

contracts in which one of the normal requirements for the creation of a

contract (such as assent) is absent, and the other in which the normal re-

quirements are satisfied but the agreement is deemed unenforceable be-

cause the law disapproves of its purpose or the terms by which it seeks to

achieve such purpose. /d. (quoting P.S. Atiya, An Introduction to the Law

of Contract 36-37 (38d ed. 1981)). See generally Restatement (Second) of

Contracts, § 7 & emt. a (1981); 1 Corbin on Contracts §§ 1.6, 1.7 (Joseph M.

Perillo ed., 1998); Joseph M. Perillo, Calamari & Perillo on Contracts

§ 1.8 (5th ed. 2003).

“ Nothing in the majority opinion or the dissent accords any particu-

lar significance to the fact that it was technically possible for the plaintiffs

to ratify their contract under state law. The majority opinion does not

focus at all on the specific nature of the challenge to enforceability under

state law. See id. at 402-404. And the dissent criticizes the majority opin-

9

rejected a decision by the Court of Appeals for the First

Circuit that had suggested that the issue whether an arbi-

tration clause is separable from the underlying contract

should be determined by state law. Jd. at 402-403 (discuss-

ing Lummus Co. v. Commonwealth Oil Ref. Co., 280 F.2d

915 (1st Cir. 1960)); see also id. at 404-406 (holding that the

FAA is an exercise of Congress’s Commerce Clause powers

and must be applied by federal courts even in diversity ju-

risdiction cases).

Thus, certiorari is warranted because Cardegna “de-

cided an important federal question in a way that conflicts

with relevant decisions of this Court.” Sup. Ct. R. 10(¢). Al-

though this Court has not had occasion to revisit the specific

issues presented by Prima Paint in nearly 40 years, it has

reaffirmed generally in subsequent decisions that because

“the policy of the Arbitration Act requires a liberal reading

of arbitration agreements ... some issues that might be

thought relevant to arbitrability are themselves arbitrable.”

Moses H. Cone Mem’! Hosp. v. Mercury Constr. Corp., 460

U.S. 1, 22 n.27 (1983) (discussing Prima Paint). Indeed,

Prima Paint’s separability rule is simply a specific applica-

tion of the general principle that “as a matter of federal law,

any doubts concerning the scope of arbitrable issues should

be resolved in favor of arbitration.” Jd. at 24-25; see also,

e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514

U.S. 52, 62 & n.8 (1995); Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985).

ion in a manner that obliterates any distinction between void and voidable

contracts: Justice Black’s concern was that “a court might, after a fair

trial, hold the entire contract—including the arbitration agreement—void

because of fraud in the inducement.” /d. at 407 (Black, J., dissenting) (em-

phasis added).

10

Il. THE FLORIDA SUPREME CouURT’S REFUSAL TO ENFORCE AN

ARBITRATION AGREEMENT IN A CONTRACT ALLEGED TO BE

VorD DECIDED AN [IMPORTANT QUESTION OF FEDERAL LAW

IN A WAY THAT DIRECTLY CONFLICTS WITH THE DECISIONS

OF AT LEAST FIVE FEDERAL COURTS OF APPEALS

Even if it could legitimately be determined that there

were no direct conflict between the decision below and

Prima Paint itself, certiorari is warranted because there is a

unambiguous split in authority between at least four state

- supreme courts, on the one hand, and at least five federal

courts of appeals, on the other, regarding the arbitrability of

’ allegations that a contract is void for illegality. See Sup. Ct.

~ R. 10(b).

The Florida Supreme Court is one of many state appel-

late courts that have held that claims that a contract is ille-

gal and so void should be withheld from arbitration. See

Alabama Catalog Sales v. Harris, 794 So. 2d 312 (Ala. 2000)

(alleged violation of usury law); R.P.T. of Aspen, Inc. v. In-

novative Communications, Inc., 917 P.2d 340 (Colo. Ct. App.

1996) (state antitrust law); Pet. App. 6a-7a (usury law); On-

voy, Inc. v. Shal, LLC, 669 N.W.2d 344 (Minn. 2003) (corpo-

rate statute concerning transactions approved by interested

directors); Natwre’s 10 Jewelers v. Gunderson, 648 N.W.2d

804 (S.D. 2002) (franchise registration statute).

Many of these state court decisions rely upon a set of

opinions by federal courts of appeal that have mistakenly

suggested that state law distinctions between void and void-

able contracts are relevant to the application of Prima

Paint. This error is largely traceable to Three Valleys Mu-

nicipal Water District v. E.F. Hutton & Co., 925 F.2d 1136

(9th Cir. 1991), which held that a court should hear a dispute

over whether a particular signatory had authority to bind a

particular party to a contract that included an arbitration

provision. That holding was consistent with Prima Paint, as

a party who asserts that it never assented to any part of a

contract has raised an “issue[] relating to the making and

performance of the agreement to arbitrate.” 388 U.S. at 404.

However, the Ninth Circuit supported its holding by assert-

1]

ing that Prima Paint was “limited to challenges seeking to

avoid or rescind a contract—not to challenges going to the

very existence of a contract that a party claims never to

have agreed to,” and that “Prima Paint applies [only] to

‘voidable’ contracts.” 925 F.2d at 1140. Several federal

courts of appeals have followed Three Valleys’ void/voidable

distinction when deciding the arbitrability of claims that a

party did not assent to a contract. See, e.g., Sphere Drake

Ins. v. Clarendon Nat'l Ins. Co., 263 F.3d 26, 31 (2d Cir.

2001); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 106-

107 (3d Cir. 2000); Chastain v. Robinson Humphrey Co., 957

F’. 2d 851, 855 (11th Cir. 1992).

Cardegna and several other state decisions have ex-

tended the void/voidable distinction beyond cases in which

assent was allegedly lacking, to encompass claims that the

contract was illegal under state law. That application cre-

ates a direct conflict with a group of federal courts of appeals

that have held that such illegality challenges are subject to

arbitration under Prima Paint. See, e.g., Jenkins v. First

Am. Cash Advance of Ga., LLC, 400 F.3d 868, 880-882 (11th

Cir. 2005); Bess v. Check Express, 294 F.3d 1298, 1304-1306

(11th Cir. 2002); Snowden v. Checkpoint Check Cashing, 290

F.3d 631, 636-638 (4th Cir. 2002); Burden v. Check Into Cash

of Ky., LLC, 267 F.3d 483, 488-492 (6th Cir. 2001); Harter v.

Iowa Grain Co., 220 F.3d 544, 550-551 (7th Cir. 2000); Law-

rence v. Comprehensive Bus. Servs. Co., 833 F.2d 1159, 1161-

1162 (5th Cir. -1987); see also Dewey v. Wegner, 138 S.W.3d

591, 597-602 (Tex. App. 2004),

The analytical problem that underlies this conflict is

that the state law concepts underlying “void contracts” and

“voidable contracts” do not align with Prima Paint’s analy-

sis of whether a particular dispute raises an issue directly

“relating to the making and performance of the agreement

to arbitrate.” 388 U.S. at 404. In particular, the term “void

contract” may be used to refer either to situations in which

no contract was ever formed (e.g., because one party never

assented) or to situations in which the parties’ contract is

merely unenforceable for policy reasons (e.g., because one of

12

the parties lacked a license to conduct a certain activity, or

because the substantive terms of the contract violated a

state statute). See supra n.3. The first scenario, which was

at issue in Three Valleys and the federal cases following it,

raises an issue that relates to the making of the parties’ arbi-

tration agreement, since it challenges whether any agree-

ment was reached. In contrast, the second scenario, which

was at issue in Cardegna and similar state court cases, chal-

lenges only the substantive terms of the underlying con-

tract. This latter type of challenge does not relate to the

_ making of the arbitration agreement, and so is subject to ar-

bitration under Prima Paint.

At least five federal courts of appeals have recognized

that not all claims that a contract is void are grounds for al-

lowing a party to evade arbitration. See Bess, 294 F.3d at

1305; Snowden, 290 F.3d at 637; Burden, 267 F.3d at 490;

Harter, 220 F.3d at 550-551; Lawrence, 833 F.2d at 1161-

1162. In contrast, Cardegna and other state appellate cases

have treated all claims that a contract is void as subject to

adjudication, notwithstanding Prima Paint. See Alabama

Catalog Sales, 794 So. 2d at 314-317; R.P.T. of Aspen, 917

P.2d at 342; Pet. App. 6a-8a; Onvoy, 669 N.W.2d at 352-356;

Nature’s 10 Jewelers, 648 N.W.2d at 807. As noted by Jus-

tice Bell in his special concurrence in Cardegna, a grant of

certiorari is the only way to resolve the growing conflict

over this issue, since state courts are not bound by the deci-

sions of federal courts of appeal. Pet. App. 9a (Bell, J., spe-

cially concurring).

Ill. THERE Is A COMPELLING NEED FOR CERTIORARI TO PRE-

VENT CARDEGNA AND SIMILAR DECISIONS FROM UNDERMIN-

ING THE GOALS AND CONSISTENT APPLICATION OF THE FAA

The state court decisions that improperly distinguish

Prima Paint undermine the core goals of the FAA. Absent

a ruling reaffirming the breadth of Prima Paint’s holding

and the supremacy of federal law on this issue, courts will

face increasing numbers of claims that contracts are void, as

parties invoke and attempt to expand contract doctrines that

13

allow them—in some state courts—to evade their obligation

to arbitrate.

Decisions such as Cardegna have direct negative im-

pacts on the use of arbitration clauses across the country.

First, they prolong litigation and thus increase “the very

kind of costs and deiay ... that Congress wrote the [Federal

Arbitration] Act to help the parties avoid.” Allied-Bruce

Terminix Cos. v. Dobson, 513 U.S. 265, 278 (1995). This is-

sue is a concern not only for the party actually forced to liti-

gate a matter that properly belongs in arbitration, but for

the wide range of other businesses and organizations, includ-

ing Chamber members, who face increased uncertainty re-

garding the enforceability of arbitration agreements incor-

porated into their contracts.

Second, decisions misir.“erpreting Prima Paint under-

mine the uniformity of the FAA and provide a significant

incentive to forum-shop. In the Eleventh Circuit, for exam-

ple, a challenge to the parties’ contract as void for illegality

will be referred to arbitrators if heard in federal court, but

will be decided by state judges in Alabama and Florida.

Compare Jenkins v. First Am. Cash Advance of Ga., LLC,

400 F.3d 868, 880-882 (11th Cir. 2005), and Bess v. Check

Express, 294 F.3d 1298, 1304-1306 (11th Cir. 2002), with Ala-

bama Catalog Sales v. Harris, 794 So. 2d 312, 314-317 (Ala.

2000), and Pet. App. 7a-8a. That risk of inconsistent results

is antithetical to the FAA and creates significant tension

with this Court’s decisions on the pre-emptive force of the |

FAA. See, e.g., Southland Corp. v.. Keating, 465 U.S. 1, 15

(1984) (“We are unwilling to attribute to Congress the in-

tent, in drawing on the comprehensive powers of the Com-

merce Clause, to create a right to enforce an arbitration con-

tract and yet make the right dependent for its enforcement

on the particular forum in which it is asserted.”). This issue

is of vital importance to many of the businesses represented

by the Chamber, which rely on the FAA to ensure that their

arbitration agreements are enforced consistently across the

many jurisdictions in which they do business.

14

Third, the evasion of the rule in Prima Paint is simply

the latest manifestation of the persistence of judicial suspi-

cion toward arbitration. At bottom, the courts that fail to

order arbitration of certain contract claims have decided

that it is better to litigate issues that might be subject to

arbitration than to arbitrate issues that might belong in

court. That choice is not only at odds with the FAA and

Prima Paint, see supra pp. 5-9, but the long line of Supreme

Court cases rejecting generalized attacks based on “suspi-

cion of arbitration as a method of weakening the protections

afforded in the substantive law to would-be complainants,”

Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89-90

(2000) (citation omitted), and “the presumption that the par-

ties and arbitral body conducting a proceeding will be unable

or unwilling to retain competent, conscientious, and impar-

tial arbitrators,” Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614, 634 (1985). See also Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (cata-

loguing previous cases “recogniz{ing] that ‘[b]y agreeing to

arbitrate a statutory claim, a party does not forgo the sub-

stantive rights afforded by the statute; it only submits to

their resolution in an arbitral, rather than a judicial forum”

(citation omitted)). Here, as in Randolph, Mitsubishi Mo-

tors, Gilmer and a host of other cases, certiorari is necessary

to reinforce the strong federal policy in favor of arbitration.

Indeed, if the Court does not resolve the split in author- |

ity and reaffirm its holding in Prima Paint, courts are likely

to see a rise in voidness challenges, as parties attempt to

find reasons to claim that a contract is void rather than void-

able to evade arbitration.’ Depending on the particular

*The persistence of attacks on arbitration strongly suggests that

any claim that allows litigation rather than arbitration will become com-

mon. For example, the FAA allows unconscionability challenges to arbi-

tration agreements because such challenges are generally applicable to

any contract. 9 U.S.C. § 2. However, now most unconscionability cases

involve arbitration agreements. See Susan Randall, Judicial Attitudes

Toward Arbitration and the Resurgence of Unconscionability, 52 Buff. L.

Rev. 185, 194-196 (2004) (finding that the total number of unconscionabil-

15

state’s case law, a contract may be void not only if it involves

the commission of a crime or tor? or involves the violation of

a state statute that specifically provides that contravening

contracts are void, but also if it conflicts with general regula-

tory or administrative statutes, see, e.g., Calamari & Perillo

on Contracts § 22.1, or is otherwise contrary to public policy

under various balancing tests, see Restatement (Second) of

Contracts § 194. There is substantial uncertainty and com-

plexity to such claims. See generally 15 Corbin on Contracts

§$§ 79.1-79.5 (Joseph M. Perillo ed., 2003); 5 Williston on Con-

tracts §§ 12.1-12.3 (Richard A. Lord ed., 4th ed. 1993); 6 Wil-

liston on Contracts § 12.4 (Richard A. Lord ed., 4th ed.

1995). Under the rule in Cardegna, cases involving such al-

legations promise prolonged litigation before a court can de-

termine whether litigation—rather than arbitration—is ap-

propriate. Such prolonged litigation entails significant time

and expense to businesses that, under Prima Paint, should

not be in court atall. —

This Court has repeatedly rejected past attempts to im-

pede the functioning of the FAA and of parties’ arbitration

agreements by imposing procedural or substantive burdens

that would increase pre-arbitration litigation and undermine

“Congress's clear intent, in the Arbitration Act, to move the

parties to an arbitrable dispute out of court and into arbitra-

tion as quickly and easily as possible,” Moses H. Cone Mem'l

Hosp. v. Mercury Constr. t erp., 460 U.S. 1, 22 (1983). See,

e.g., Randolph, 531 U.S. at 90-91 (refusing to hold arbitration

agreements invalid based on vague allegations that the costs

of arbitration might prevent parties from vindicating their

federal statutory rights); Allied-Bruce Terminix, 513 US. at

275 (rejecting an assertion that parties must demonstrate

that they intended their contract to involve interstate com-

merce to come within the scope of the FAA because such a

result would “risk[{] the very kind of costs and delay through

ity cases available through computerized searches jumped from 54 in

1982-1983 to 235 in 2002-2003 and that nearly 70% of the recent cases in-

volved claims that arbitration agreements were unconscionable).

16

litigation (about the circumstances of contract formation)

that Congress wrote the Act to help the parties avoid”);

Southland, 465 U.S. at 7 (refusing to delay Supreme Court

review of a state judicial decision denying enforcement of an

arbitration provision because prolonged litigation is “one of

the very risks the parties, by contracting for arbitration,

sought to eliminate”); Prima Paint Corp. v. Flood & Conk-

lin Mfg. Co., 388 U.S. 395, 404 (1967) (recognizing the sepa-

rability doctrine as furthering the “unmistakably clear con-

gressional purpose that the arbitration procedure, when se-

lected by the parties to a contract, be speedy and not subject

to delay and obstruction in the courts”). Certiorari in this

case would once again help protect the FAA from being un-

dermined by state law doctrines that prevent the enforce-

ment of arbitration agreements.

CONCLUSION

For the foregoing reasons, the petition for writ of cer-

tiorari should be granted.

Respectfully submitted.

ROBIN S. CONRAD SETH P. WAXMAN

AMAR D. SARWAL Counsel of Record

NATIONAL CHAMBER CHRISTOPHER R. LIPSETT

LITIGATION CENTER, INC. ERICJ. MOGILNICKI

1615 H Street, N.W. KELLY THOMPSON COCHRAN

Washington, DC 20062 WILMER CUTLER PICKERING

(202) 463-5337 HALE AND DORR LLP

2445 M Street, N.W.

Washington, DC 20037

(202) 663-6000

MAY 2005

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