Buckeye Check Cashing Inc. v. Cardegna

Buckeye Check Cashing Inc. v. Cardegna

Arbitration agreements are used more and more commonly today by companies across the United States, as litigation costs soar. However, when a contract is not valid and contains an arbitration clause, who gets to decide whether the contract is void—an arbitrator, or the court system? Buckeye Check Cashing Inc. v. Cardegna is a case about exactly this question. Building off of the Federal Arbitration Act of 1925, this case set the standard for deciding how a dispute would be resolved when an arbitration agreement was void.

Arbitration Agreements

Under the terms of an arbitration agreement, disputes over violations of a contract are to be handled by a trained arbiter. An arbiter is not a public official, but rather resolves disputes privately. The decision of an arbiter is binding—that is, the two parties are required by the arbitration agreement to abide by whatever ruling the arbiter issues.

Arbitration agreements are now common in everything from employment agreements to loan documentation, because it is substantially less expensive to have an arbitrator decide a dispute than to go through discovery and trial in a traditional courtroom setting. However, some consumer rights organizations have claimed that binding arbitration tends to result in consumers getting poorer results than if they had been able to go to court. The provisions remain the subject of a great deal of controversy today.

Case Facts

The petitioner at the trial level, John Cardegna, had taken out several loans from a check cashing store called Buckeye Check Cashing. After reading the provisions of the loans and comparing them to available Florida state statutes, Cardegna realized the lender was charging amounts significantly in excess of Florida's statutory limits for usury. This meant that the contract was illegal on its face, and he sued in a Florida state court.

The check cashing company argued that the court had no right to adjudicate the dispute, because an arbitration clause in the contract meant it should instead go to an arbitrator. Cardegna's attorneys disagreed, saying that because the entire contract was voidable due to its violation of Florida statutes, this meant that the arbitration provision was voidable as well. The district court agreed, but the appeals court reversed, saying that existing arbitration laws only allowed the courts to examine such contracts when the arbitration clause specifically was in violation of existing contract law.

Supreme Court Ruling

The Supreme Court decided in Buckeye Check Cashing Inc. v. Cardegna that the appeals court had been correct. Regardless of whether a contract was void or voidable because of other provisions in it, the arbitration clause was seen as separable from the rest of the contract. As long as the arbitration clause was not, itself, illegally written, Cardegna would have to resolve his case with an arbiter and not with a judge.

Several states have now passed laws requiring judicial review of contracts that are about to go into arbitration. These state laws supersede Buckeye Check Cashing Inc. v. Cardegna.