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SUPREME COURT SUPPORTS BUSINESS ARBITRATION |
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Last week, the U.S. Supreme Court gave business interests a victory by supporting the right of businesses to compel arbitration in disputes with their customers. The U.S. Court reversed the Florida Supreme Court that held that the arbitration agreement should not be enforced because to do so “could breathe life into a contract that not only violates state law, but is also criminal in nature …” The Alabama Supreme Court had previously ruled similarly. In light of the harsh criticism given by the Florida Court, the ruling is a clear victory for all (hopefully more legitimate) businesses that use arbitration provisions in their form contracts with customers. Such provisions are particularly common in the financial services industries. Plaintiffs attacking these businesses often claim that the entire contract is unenforceable. This raises the question decided here – who should decide the threshold issue of whether the contract itself is enforceable? In Buckeye Check Cashing v. Cardegna (no. 04-1264), the U.S. Supreme Court explained: “To overcome judicial resistance to arbitration, Congress enacted the Federal Arbitration Act (FAA), 9 USC 1-16. Section 2 embodies the national policy favoring arbitration and places arbitration agreements on equal footing with other contracts: ‘A written provision in … a contract … to settle by arbitration a controversy … shall be valid, irrevocable, and enforceable, save upon such grounds as exist in law or in equity for the revocation of any contract.’” The Court concluded that a prior case (Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 US 395 (1967)) addressed this issue. In the current case the Court concluded: “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.” This was a 7-1 ruling (Justice Alito did not participate because he did not participate in oral arguments). Justice Thomas was the sole dissenting vote. In a one paragraph dissent, Thomas explained that he believes the Federal Arbitration Act does not apply to proceedings in state courts, and therefore can not be used for displacing state law. Fulcrum Financial Inquiry regularly performs damages analysis, electronic discovery assistance, and valuations for litigators. |
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