Parochialism in arbitration? How some arbitration decisions by Florida courts are at variance with federal arbitration precedent.

• Author: Giuliano, Douglas J.

Courts are often called on to decide issues related to the enforcement of arbitration clauses, and the Florida Supreme Court is no exception. In the last few years, the court has issued some decisions involving arbitration, including one that later was reversed by the U.S. Supreme Court, that appear to be at variance with how federal courts have dealt with the same arbitration issues, and more generally, with the federal policy of favoring arbitration that is embodied by the Federal Arbitration Act. This article will begin with a brief glimpse into the purpose of the Federal Arbitration Act, after which the Florida Arbitration Code is patterned, and will then analyze how some of the court's decisions are at odds with its federal counterparts and arguably, by extension, at odds with the federal policy of favoring arbitration.

The Federal Arbitration Act

Borrowing from the English common law tradition, American courts were once known to be notoriously hostile toward arbitration. As explained by the U.S. Supreme Court:

The need for the [Federal Arbitration Act] law arises from an anachronism of our American law. Some centuries ago, because of the jealousy of the English courts for their own jurisdiction, they refused to enforce specific agreements to arbitrate upon the ground that the courts were thereby ousted from their jurisdiction. This jealousy survived for so long a period that the principle became firmly embedded in the English common law and was adopted with it by the American courts. The courts have felt that the precedent was too strongly fixed to be overturned without legislative enactment, although they have frequently criticised the rule and recognized its illogical nature and the injustice which results from it. This bill declares simply that such agreements for arbitration shall be enforced, and provides a procedure in the [f]ederal courts for their enforcement. (1)

In response to this, Congress, pursuant to its Commerce Clause power, enacted the Federal Arbitration Act (FAA) in 1925 (2) with the goal of "revers[ing] the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements on the same footing as other contracts." (3) As a result, rather than hostility, there is presently a "liberal federal policy favoring arbitration agreements." (4)

Even after the passage of the FAA, some states continued their efforts to restrict the availability of arbitration. After all, Congress was principally concerned with judicial hostility toward arbitration in federal, not state, courts. (5) Such efforts were dealt a serious blow in the form of the 1984 U.S. Supreme Court decision in Southland Corporation v. Keating, 465 U.S. 1 (1984), where the court struck down as unconstitutional a California law whose effect was to nullify certain arbitration agreements. (6) In its decision, the court held that the FAA preempted state law and that any "state legislative attempts to undercut the enforceability of arbitration agreements" (7) were void under the Supremacy Clause.

The result of Keating was that "[s]tates can no longer harbor their historical hostility toward arbitration." (8) Indeed, "[m]any state legislatures also have enacted statutes that encourage the use of arbitration and ensure that agreements to arbitrate will be enforced according to their terms and conditions." (9) Florida is one such state. As early as 1953, the Florida Supreme Court wrote of arbitration: "Agreements to arbitrate disputes between parties are generally looked upon with approval by the courts when the subject matter of such agreements is confined within legally permissible limits." (10) Four years later, the Florida Legislature enacted the Florida Arbitration Code, F.S. Ch. 682. (11) Under F.S. [section]682.02, "arbitration agreements are valid, irrevocable and enforceable." (12) As a result of the Florida Arbitration Code, "Florida law strongly favors the resolution of disputes by way of arbitration," (13) and "courts are encouraged to resolve all doubts in favor of arbitration." (14)

Cardegna v. Buckeye Check Cashing, Inc.

With opinions like Keating and statutes such as the Florida Arbitration Code, one might think that courts are more amenable to arbitration than ever before. Certainly, no one could rightfully say that Florida courts are hostile to arbitration. Nevertheless, certain decisions from the Florida Supreme Court do seem to be at odds with their federal counterparts and, thus, at odds with the federal policy of favoring arbitration.

One of those decisions is Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860 (Fla. 2005), which was later reversed by the U.S. Supreme Court. In Cardegna, the Florida Supreme Court held that a plaintiff may not be compelled to arbitrate his or her claims based on an arbitration clause if at the time there is a claim pending before a Florida trial court that the contract containing the arbitration clause is itself illegal and void ab initio. Over a strong dissent by Justice Cantero, who argued that the majority decision was contrary to U.S. Supreme Court precedent, the court ruled that it is up to the trial court and not an arbitrator to initially decide the validity of the underlying contract.

The facts and procedural history of Cardegna are not overly complex. A class action lawsuit was brought against the appellant, Buckeye Check Cashing, in which appellees alleged that Buckeye had made illegal usurious loans in the guise of check cashing transactions, thus, violating a number of Florida statutes. Buckeye, pointing to the arbitration clause contained in the agreements signed by appellees, responded by filing a motion to compel arbitration and to stay the proceedings. In part, the broad arbitral clause provided, "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."

In opposition to Buckeye's motion, appellees argued that the arbitration clause should not be given effect because the agreement that contained the clause was itself void ab initio due to its being an illegal usurious contract; thus, the clause, too, was void. The trial court denied Buckeye's motion, citing the cases of Party Yards, Inc. v. Templeton, 751 So. 2d 121 (Fla. 5th DCA 2000), and FastFunding v. Betts, 758 So. 2d 1143 (Fla. 5th DCA 2000), where in both instances the Fifth District had ruled that arbitration cannot be compelled where the underlying validity of the agreement containing the clause is brought into question. The trial court's decision was reversed by the Fourth District, however, which held that the validity of the underlying contract was a task better suited for an arbitrator to decide.

On review of the Fourth District's ruling, the Florida Supreme Court began its analysis by noting the conflict between the Fourth District's holding in Cardegna and the Fifth District opinions, including FastFunding, which had affirmed the trial court's denial of a motion to compel arbitration of the plaintiff's claim where the plaintiff had alleged in her complaint that the contract was void because it violated usury laws: "If [the plaintiff] is correct in her complaint that the contract violates the usury laws, then the contract is illegal and an arbitrator could not require [her] to perform under the contract."

The Florida Supreme Court, after noting that it agreed with the Fifth District's reasoning in FastFunding, turned its attention to Prima Paint Corporation v. Flood & Conklin Manufacturing Company, 388 U.S. 395 (1967), which Buckeye contended to be controlling on the present case because the agreement signed by appellees had specified the contract was to be governed by the Federal Arbitration Act and the cases applying the act.

In Prima Paint, the Supreme Court had to resolve the issue of "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." The court ruled that where the arbitration clause contained in a contract is severable from the contract itself, and where the alleged fraud was not directed to the arbitration clause itself, the "arbitration clause will be held to encompass arbitration of the claim that...