The Court reaffirms that a challenge to the validity of the contract as a whole, but that fails to specifically challenge the arbitration clause, must be ordered into arbitration.

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Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)
 

Relevant Facts: Victims of a predatory “payday” lending trap sued the predatory lender, a check cashing company. The documents they signed as part of the predatory loan included a forced arbitration clause. The plaintiffs then filed a class action, alleging usurious interest rates, among other things, which under the law made the contract illegal on its face. The check cashing company invoked the arbitration provision.

 

Question Before The Court: Whether a court or an arbitrator should consider the claim that a contract containing an arbitration provision is void for illegality.

 

The Opinion: The Court used precedent to reach its holding: “First, as a matter of substantive federal arbitration law, an arbitration 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 considered 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 considered by an arbitrator, not a court.”

 

“It is true,” the Court continued, “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 [the consumers’] 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 validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.”

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