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Summer 2006-12 Arbitrator to decide on validity of contract as a whole

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Number 64
Summer 2006
U.S. Supreme Court:

Arbitrator to decide on validity of contract as a whole

In Buckeye Check Cashing, Inc. v. Cardegna et al., no. 04-1264 (February 21, 2006), the United States Supreme Court reviewed the issue of whether a court or an arbitrator should consider the claim that a contract containing an arbitration provision is void.

Previous decisions

Previously, in Prima Paint Corp. v. Flood & Conklin Mgf., 388 U.S. 395 (1967), the Court had held that an arbitration provision is severable from the remainder of the contract. In addition, it resolved that 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. And in Southland Corp. v. Keating, 465 U.S. 1 (1984), the Court had stated that the arbitration law applies in both federal and state courts.

Buckeye

The controversy in Buckeye was that one of the provisions of the contract was considered illegal by the respondents. As a consequence, they claimed that the whole agreement, including the arbitration provision, was invalid. The Supreme Court reaffirmed that regardless of whether the challenge is brought in federal or state court, a challenge of the validity of the contract as a whole, and not specifically the arbitration clause, must go first to the arbitrator.

√ Note:

The case also clarifies that state and territorial courts have to defer issues concerning the validity and arbitration agreements to the arbitrator. A party who is denied recourse to arbitration may seek enforcement of said agreement in federal court by means of the Federal Arbitration Act.

"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 validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator."

© 2006 Goldman Antonetti & Cordova, LLC

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