Risk Management

Supreme Court Backs Business Arbitration

Ruling especially benefits financial services companies, which often face allegations that their contracts are unenforceable.
Dave CookFebruary 23, 2006

The U.S. Supreme Court has reversed a Florida opinion and given businesses more power to compel customers to take disputes to arbitration.

The 7-1 decision was handed down Tuesday, on Justice Samuel Alito’s first day on the bench, though since he had not heard arguments in the case he did not vote. Justice Clarence Thomas filed the sole dissent.

Buckeye Check Cashing Inc. v. Cardegna stemmed from a lawsuit brought by John Cardegna and Donna Reuter in 2001 in Florida state court. The two individuals each had received a so-called payday loan from Buckeye, an Ohio-based company, that they alleged violated Florida’s usury laws. Buckeye, citing a provision in the loan contract that all claims must go to arbitration, made a motion to that effect.

The state court, and ultimately the Florida Supreme Court, decided against the company, ruling that a judge and jury would first need to determine whether the contract itself was enforceable. On Tuesday, Justice Antonin Scalia, writing for the majority, stated that arguments concerning the validity of the contract itself must also go to an arbitrator.

Bloomberg noted that the ruling especially benefits financial services companies, which often face allegations that their contracts are unenforceable. It is unclear how widely this decision might otherwise be applied.

The Supreme Court decision remands the case to the Florida Supreme Court ”for further proceedings not inconsistent with this opinion.”