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Washington-The U.S. Supreme Court last week continued a generally pro-arbitration stance in ruling that arbitrators, not courts, must determine the validity of an allegedly illegal contract containing a mandatory arbitration clause. The high court, ruling 7-1, overturned a Florida Supreme Court decision in a putative class action brought under Florida law by John Cardegna and Donna Reuter on behalf of a class of Florida consumers against Buckeye Check Cashing Inc. The consumers had alleged that Buckeye, falsely portraying itself as a legitimate check-cashing service, illegally collected usurious interest from thousands of Florida residents for so-called payday loans. Buckeye moved to enforce arbitration of the claim. Writing for the majority in Buckeye Check Cashing v. Cardegna, No. 04-1264, Justice Antonin Scalia agreed with Buckeye’s high court counsel, Christopher Landau of the Washington office of Chicago’s Kirkland & Ellis, that an earlier high court decision- Prima Paint Corp. v. Flood & Conklin, 388 U.S. 395 (1967)-answered the question in Buckeye. Scalia wrote that Prima Paint, as well as Southland Corp. v. Keating, 465 U.S. 1 (1984), established three propositions: As a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract; 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 this arbitration law applies in state as well as federal courts. Cardegna’s counsel, F. Paul Bland of Trial Lawyers for Public Justice, accurately argued that Prima Paint allows a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void, noted Scalia. But, the justice added, “It is equally true that [Cardegna's] 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.” Thomas dissents Justice Clarence Thomas dissented, saying that he does not believe the Federal Arbitration Act applies to proceedings in state courts, and thus cannot be the basis for displacing a state law prohibiting enforcement of an arbitration clause in a contract that is unenforceable under state law. The decision establishes a very strong federal pre-emption rule without going through the normal steps of justifying it, said Bland. “There’s no discussion of the normal role state law plays in arbitration law. A number of years ago Justice [Sandra Day] O’Connor said the law in this area was becoming an edifice of the court’s own making. I think this case represents sort of the epitome of that practice.” But business groups hailed the ruling. “Businesses use arbitration because it is a fairer, faster and less expensive way of resolving contract disputes,” said Robin Conrad, senior vice president of the National Chamber Litigation Center. “This decision sends a strong message to the judiciary to not interfere with an arbitration system that has proven a useful tool in resolving legal disagreements,” Conrad said.

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