Arbitration: U.S. Supreme Court Will Hear Arguments on the Separability Doctrine (Web)

Arbitration: U.S. Supreme Court Will Hear Arguments on the Separability Doctrine

The U.S. Supreme Court granted certiorari on June 20 to clarify the separability doctrine in a class action arbitration case emanating from the Florida Supreme Court. At the heart of the Court’s review is the struggle between federal and state power.

The nation’s top court will review Cardegna v. Buckeye Check Cashing Inc., No. 04-1264 this fall, early in its 2005-2006 term.

In the case, the Florida Supreme Court held that an arbitration provision contained in a contract, that was itself found void under Florida law, cannot be separately enforced while there is a claim pending regarding that arbitration provision itself. Cardegna v. Buckeye Check Cashing Inc., 894 So.2d 860 (2005)(available at http://www.law.fsu.edu/library/flsupct/sc02-2161/op-sc02-2161.pdf).

The "separability doctrine" first emerged in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), where the U.S. Supreme Court held that arbitration clauses can be "separable" from the contracts that include them. The Prima Paint Court held that when an agreement includes an arbitration clause, a party's claim that it has been fraudulently induced to enter into that agreement must be referred to an arbitrator, unless the claim pertains specifically to the making of the arbitration clause.

 The Florida Supreme Court distinguished Cardegna from Prima Paint by finding that the “underlying contract at issue [was] rendered void from the outset” by state law. Therefore, PrimaPaint did not apply.

The Florida court ruled that the state court has the jurisdiction to first determine a contract’s general enforceability prior to the enforcement of any embedded arbitration clauses because the Federal Arbitration Act should not preempt state contract law.

Besides federalism questions, the case will test some fundamental arbitration assumptions. The advantages of judicial efficiency, standardization, and overall clarity of a federal policy on arbitration will be weighed against the states’ interest in interpreting the enforceability of a contract within the context of state substantive law. By granting certiorari in Cardegna, the U.S. Supreme Court likely will clarify Prima Paint ambiguities.

 --Preeti Gupta