ADR Case Updates
Arbitrator, Not the Court, Must Decide Contracts Validity, 03/13/06
Attached are two recent cases compelling arbitration. The first is a United States Supreme Court case, Buckeye Check Cashing v. Cardegna, decided February 21, 2006 (2006 DJDAR 2008). Respondents sued Buckeye in Florida state court alleging that Buckeye charged usurious interest in deferred payment transactions, which were memorialized in agreements that contained an arbitration clause. Buckeyes motion to compel arbitration was denied since it was against public policy to enforce arbitration of an unlawful agreement.
Reversed. Unless the challenge is to just the arbitration clause, which is a question for the court, the issue of the contracts validity is for the arbitrator in the first instance. Here, the gist of the action was to challenge the entire agreement due to the usurious interest charges. Thus, that challenge should be considered by the arbitrator, not the court.
The second case is Rodriguez v. American Technologies, Inc., filed February 6, 2006, (2006 DJDAR 1959) involving an arbitration provision in a residential remediation contract that expressly provided that the Federal Arbitration Act would apply. The trial court denied Defendants motion to compel arbitration under CCP § 1281.2 on the grounds that inconsistent rulings were a possibility.
Reversed. The FAA does not address the practical problems that may arise because some, but not all, parties may be required to arbitrate. Since the court had no discretion under the FAA to deny the motion, Defendant could compel arbitration.
For those parties that may wish to ultimately compel arbitration, this case demonstrates the advantages of making the FAA applicable to an arbitration agreement.
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