OPINION OF THE COURT
BUCKEYE CHECK CASHING, INC. V. CARDEGNA
 546 U. S. ____ (2006)
SUPREME COURT OF THE UNITED STATES
NO. 04-1264
BUCKEYE CHECK CASHING, INC., PETITIONER
v.
JOHN CARDEGNA et al.
on writ of certiorari to the supreme court of
florida
[February 21, 2006]
Justice Scalia delivered the
opinion of the Court.
We decide whether a court or an
arbitrator should consider the claim that a contract containing an
arbitration provision is void for illegality.
I
Respondents John Cardegna and
Donna Reuter entered into various deferred-payment transactions
with petitioner Buckeye Check Cashing (Buckeye), in which they
received cash in exchange for a personal check in the amount of the
cash plus a finance charge. For each separate transaction they
signed a “Deferred Deposit and Disclosure Agreement” (Agreement),
which included the following arbitration provisions:
“1.
Arbitration Disclosure By signing
this Agreement, you agree that i[f] a dispute of any kind arises
out of this Agreement or your application therefore or any
instrument relating thereto, th[e]n either you or we or
third-parties involved can choose to have that dispute resolved by
binding arbitration as set forth in Paragraph 2
below … .
2.
Arbitration Provisions Any claim, dispute, or
controversy … arising from or relating to this Agreement … or the
validity, enforceability, or scope of this Arbitration Provision or
the entire Agreement (collectively ‘Claim’), shall be resolved,
upon the election of you or us or said third-parties, by binding
arbitration … . This arbitration Agreement is made pursuant to
a transaction involving interstate commerce, and shall be governed
by the Federal Arbitration Act (‘FAA’), 9 U. S. C. Sections
1–16. The arbitrator shall apply applicable substantive law
constraint
[sic] with the FAA and applicable statu[t]es of
limitations and shall honor claims of privilege recognized by
law … .”
Respondents brought this putative
class action in Florida state court, alleging that Buckeye charged
usurious interest rates and that the Agreement violated various
Florida lending and consumer-protection laws, rendering it criminal
on its face. Buckeye moved to compel arbitration. The trial court
denied the motion, holding that a court rather than an arbitrator
should resolve a claim that a contract is illegal and void
ab
initio. The District Court of Appeal of Florida for the Fourth
District reversed, holding that because respondents did not
challenge the arbitration provision itself, but instead claimed
that the entire contract was void, the agreement to arbitrate was
enforceable, and the question of the contract’s legality should go
to the arbitrator.
Respondents appealed, and the Florida Supreme
Court reversed, reasoning that to enforce an agreement to arbitrate
in a contract challenged as unlawful “ ‘could breathe life
into a contract that not only violates state law, but also is
criminal in nature … .’ ” 894 So. 2d 860, 862 (2005)
(quoting
Party Yards, Inc. v.
Templeton, 751
So. 2d 121, 123 (Fla. App. 2000)). We granted certiorari. 545
U. S. ___ (2005).
II
A
To overcome judicial resistance
to arbitration, Congress enacted the Federal Arbitration Act (FAA),
9 U. S. C. §§1–16. Section 2 embodies the national policy
favoring arbitration and places arbitration agreements on equal
footing with all other contracts:
“A written provision in … a
contract … to settle by arbitration a controversy thereafter
arising out of such contract … or an agreement in writing to submit
to arbitration an existing controversy arising out of such a
contract … shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any
contract.”
Challenges to the validity of arbitration
agreements “upon such grounds as exist at law or in equity for the
revocation of any contract” can be divided into two types. One type
challenges specifically the validity of the agreement to arbitrate.
See,
e.g., Southland Corp. v.
Keating,
465 U. S. 1, 4–5 (1984)
(challenging the agreement to arbitrate as void under California
law insofar as it purported to cover claims brought under the state
Franchise Investment Law). The other challenges the contract as a
whole, either on a ground that directly affects the entire
agreement (
e.g., the agreement was fraudulently induced),
or on the ground that the illegality of one of the contract’s
provisions renders the whole contract invalid.[
Footnote 1] Respondents’ claim is of this second
type. The crux of the complaint is that the contract as a whole
(including its arbitration provision) is rendered invalid by the
usurious finance charge.
In
Prima Paint Corp. v.
Flood
& Conklin Mfg. Co., 388 U. S. 395 (1967), we
addressed the question of who—court or arbitrator—decides these two
types of challenges. The issue in the case was “whether a claim of
fraud in the inducement of the entire contract is to be resolved by
the federal court, or whether the matter is to be referred to the
arbitrators.”
Id., at 402. Guided by §4 of the
FAA,[
Footnote 2] we held that
“if the claim is fraud in the inducement of the arbitration clause
itself—an issue which goes to the making of the agreement to
arbitrate—the federal court may proceed to adjudicate it. But the
statutory language does not permit the federal court to consider
claims of fraud in the inducement of the contract generally.”
Id., at 403–404 (internal quotation marks and footnote
omitted). We rejected the view that the question of “severability”
was one of state law, so that if state law held the arbitration
provision not to be severable a challenge to the contract as a
whole would be decided by the court. See
id., at 400,
402–403.
Subsequently, in
Southland Corp., we
held that the FAA “create[d] a body of federal substantive law,”
which was “applicable in state and federal court.” 465 U. S., at 12
(internal quotation marks omitted). We rejected the view that state
law could bar enforcement of §2, even in the context of state-law
claims brought in state court. See
id., at 10–14; see also
Allied-Bruce Terminix Cos. v.
Dobson, 513 U. S. 265, 270–273
(1995).
B
Prima Paint and
Southland answer the question presented here by
establishing three propositions. First, as a matter of substantive
federal arbitration law, an arbitration provision is severable from
the remainder of the contract. Second, 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. Third, this
arbitration law applies in state as well as federal courts. The
parties have not requested, and we do not undertake,
reconsideration of those holdings. Applying them to this case, we
conclude that because respondents challenge the Agreement, but not
specifically its arbitration provisions, those provisions are
enforceable apart from the remainder of the contract. The challenge
should therefore be considered by an arbitrator, not a court.
In declining to apply
Prima
Paint’s rule of severability, the Florida Supreme Court relied
on the distinction between void and voidable contracts. “Florida
public policy and contract law,” it concluded, permit “no
severable, or salvageable, parts of a contract found illegal and
void under Florida law.” 894 So. 2d, at 864.
Prima
Paint makes this conclusion irrelevant. That case rejected
application of state severability rules to the arbitration
agreement
without discussing whether the challenge at
issue would have rendered the contract void or voidable. See 388 U.
S., at 400–404. Indeed, the opinion expressly disclaimed any need
to decide what state-law remedy was available,
id., at
400, n. 3, (though Justice Black’s dissent
asserted
that state law rendered the contract void,
id., at 407).
Likewise in
Southland, which arose in state court, we did
not ask whether the several challenges made there—fraud,
misrepresentation, breach of contract, breach of fiduciary duty,
and violation of the California Franchise Investment Law—would
render the contract void or voidable. We simply rejected the
proposition that the enforceability of the arbitration agreement
turned on the state legislature’s judgment concerning the forum for
enforcement of the state-law cause of action. See 465 U. S., at 10.
So also here, we cannot accept the Florida Supreme Court’s
conclusion that enforceability of the arbitration agreement should
turn on “Florida public policy and contract law,” 894 So. 2d,
at 864.
C
Respondents assert that
Prima
Paint’s rule of severability does not apply in state court.
They argue that
Prima Paint interpreted only §§3 and 4—two
of the FAA’s procedural provisions, which appear to apply by their
terms only in federal court—but not §2, the only provision that we
have applied in state court. This does not accurately describe
Prima Paint. Although §4, in particular, had much to do
with
Prima Paint’s understanding of the rule of
severability, see 388 U. S., at 403–404, this rule ultimately
arises out of §2, the FAA’s substantive command that arbitration
agreements be treated like all other contracts. The rule of
severability establishes how this equal-footing guarantee for “a
written [arbitration] provision” is to be implemented. Respondents’
reading of
Prima Paint as establishing nothing more than a
federal-court rule of procedure also runs contrary to
Southland’s understanding of that case. One of the bases
for
Southland’s application of §2 in state court was
precisely
Prima Paint’s “reli[ance] for [its] holding on
Congress’ broad power to fashion substantive rules under the
Commerce Clause.” 465 U. S., at 11; see also
Prima Paint,
supra, at 407 (Black, J., dissenting) (“[t]he Court here
holds that the [FAA], as a matter of
federal substantive
law …” (emphasis added)).
Southland itself refused to
“believe Congress intended to limit the Arbitration Act to disputes
subject only to
federal-court jurisdiction.” 465 U. S., at
15.
Respondents point to the language
of §2, which renders “valid, irrevocable, and enforceable” “a
written provision in” or “an agreement in writing to submit to
arbitration an existing controversy arising out of” a “contract.”
Since, respondents argue, the only arbitration agreements to which
§2 applies are those involving a “contract,” and since an agreement
void
ab initio under state law is not a “contract,” there
is no “written provision” in or “controversy arising out of” a
“contract,” to which §2 can apply. This argument echoes Justice
Black’s dissent in
Prima Paint: “Sections 2 and 3 of the
Act assume the existence of a valid contract. They merely provide
for enforcement where such a valid contract exists.” 388 U. S., at
412–413. We do not read “contract” so narrowly. The word appears
four times in §2. Its last appearance is in the final clause, which
allows a challenge to an arbitration provision “upon such grounds
as exist at law or in equity for the revocation of any
contract.” (Emphasis added.) There can be no doubt that
“contract” as used this last time must include contracts that later
prove to be void. Otherwise, the grounds for revocation would be
limited to those that rendered a contract voidable—which would mean
(implausibly) that an arbitration agreement could be challenged as
voidable but not as void. Because the sentence’s final use of
“contract” so obviously includes putative contracts, we will not
read the same word earlier in the same sentence to have a more
narrow meaning.[
Footnote 3] We
note that neither
Prima Paint nor
Southland lends
support to respondents’ reading; as we have discussed, neither case
turned on whether the challenge at issue would render the contract
voidable or void.
* * *
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.
The judgment of the Florida
Supreme Court is reversed, and the case is remanded for further
proceedings not inconsistent with this opinion.
It is so ordered.
Justice Alito took no part in the
consideration or decision of this case.
Footnote 1
The issue of the contract’s validity is
different from the issue of whether any agreement between the
alleged obligor and obligee was ever concluded. Our opinion today
addresses only the former, and does not speak to the issue decided
in the cases cited by respondents (and by the Florida Supreme
Court), which hold that it is for courts to decide whether the
alleged obligor ever signed the contract,
Chastain v.
Robinson-Humphrey Co., 957 F. 2d 851 (CA11 1992),
whether the signor lacked authority to commit the alleged
principal,
Sandvik AB v.
Advent Int’l Corp., 220
F. 3d 99 (CA3 2000);
Sphere Drake Ins. Ltd. v.
All American Ins. Co., 256 F. 3d 587 (CA7 2001), and
whether the signor lacked the mental capacity to assent,
Spahr v.
Secco, 330 F. 3d 1266 (CA10
2003).
Footnote 2
In pertinent part, §4 reads:
“A party aggrieved by the
alleged failure, neglect, or refusal of another to arbitrate under
a written agreement for arbitration may petition any United States
district court [with jurisdiction] … for an order directing that
such arbitration proceed in a manner provided for in such
agreement … . [U]pon being satisfied that the making of
the agreement for arbitration or the failure to comply therewith is
not in issue, the court shall make an order directing the parties
to proceed to arbitration in accordance with the terms of the
agreement … .”
Footnote 3
Our more natural reading is confirmed by the
use of the word “contract” elsewhere in the United States Code to
refer to putative agreements, regardless of whether they are legal.
For instance, the Sherman Act, 26 Stat. 209, as amended, states
that “[e]very contract, combination … , or conspiracy in restraint
of trade … is hereby declared to be illegal.” 15 U. S. C. §1.
Under respondents’ reading of “contract,” a bewildering circularity
would result: A contract illegal because it was in restraint of
trade would not be a “contract” at all, and thus the statutory
prohibition would not apply.
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