Supreme Court grants cert to clarify scope of arbitration clause

On June 20, 2005, the U.S. Supreme Court granted certiorari in Cardegna v. Buckeye Check Cashing, Inc., 894 So.2d 860 (Fla. 2005).  Plaintiffs in Cardegna brought a class action against the defendant, alleging usurious loan practices disguised as check cashing transactions.  The defendant invoked an arbitration clause in the agreement, but the Florida Supreme Court ruled that a trial court, not an arbitrator, should decide whether the underlying agreement was illegal.  In so doing, the Florida court distinguished Prima Paint Corp. V. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), which held that a claim of fraud in the inducement to enter a contract was encompassed by the agreement’s mandatory arbitration provision pursuant to the Federal Arbitration Act.  The Florida court cited other state courts and a number of federal courts of appeals opinions similarly ruling that claims a contract is “void ab initio” rather than “voidable” should be decided in court, not in arbitration, but acknowledged a contrary Eleventh Circuit opinion from 2002.

Judging by the lively discussion at the session on Contracts and Arbitration at the recent AALS Conference on Exploring the Boundaries of Contract Law, the scope and implementation of mandatory arbitration clauses is one of the hot topics in contract enforcement, and the Supreme Court decision in Cardegna will help clarify one more aspect of that subject.