Opinion ID: 76850
Heading Depth: 2
Heading Rank: 3

Heading: Legality of the Underlying Transactions

Text: Jenkins raises an alternative argument for affirming the denial of Defendants’ motion to compel arbitration. Jenkins argues Defendants’ motion should not be granted because the underlying payday loan contracts are illegal and void ab initio under Georgia law. See Ga. Code Ann. § 16-17-1 (2003 & Supp. 2004) (effective May 2004). Because the loan contracts are allegedly void, Jenkins contends “there is nothing to arbitrate.” We have, however, previously considered and rejected such an argument. Bess, 294 F.3d at 1304–06. In Bess, a class action lawsuit arose out of “check advances” or “deferred payment transactions” between the plaintiffs and defendants. Id. at 1300. A deferred payment transaction is essentially the same as a payday lending transaction. See id. at 1300–01. One of the named plaintiffs in Bess, Luna Clifton Colburn, signed an arbitration agreement in connection with the deferred payment transactions. The defendants sought to enforce this agreement and compel arbitration. Like Jenkins’ argument in this case, Colburn argued the arbitration agreements were unenforceable because the underlying deferred payment transactions were void as illegal under Alabama law. Colburn 26 alleged the loans charged usurious rates of interest, and the collection of the loans violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961–1968 (2000). In rejecting Colburn’s argument, we applied the Prima Paint rule. Bess, 294 F.3d at 1304–05. We explained the “allegations of illegality go to the deferred payment transactions generally, and not to the arbitration agreements specifically.” Id. at 1305. Therefore, an arbitrator, and not a federal court, should determine whether the underlying transactions are illegal and void. Id. at 1306. In Bess, we also distinguished our holding from our earlier decision in Chastain v. Robinson-Humphrey Co., Inc., 957 F.2d 851 (11th Cir. 1992).11 In Chastain, we considered an “unusual” set of facts, in which the plaintiff never personally signed the customer agreements at issue. Id. at 852–53. Without such a signature, the plaintiff argued she never assented to the arbitration clauses found within the customer agreements. Id. at 853. We explained: Under normal circumstances, an arbitration provision within a contract admittedly signed by the contractual parties is sufficient to require the district court to send any controversies to arbitration. Under such circumstances, the parties have at least presumptively 11 Jenkins’ argument relies on a Georgia case, Stewart v. Favors, 590 S.E.2d 186 (Ga. Ct. App. 2003), and a Florida case, Cardegna v. Buckeye Check Cashing, Inc., — So. 2d — (Fla. 2005), both of which cite this Court’s decision in Chastain. 27 agreed to arbitrate any disputes, including those disputes about the validity of the contract in general. Id. at 854 (citations omitted). “Where the party seeking to avoid arbitration admittedly did not sign any contract requiring arbitration, however, ‘there is no presumptively valid general contract which would trigger the district court’s duty to compel arbitration pursuant to the [FAA].’” Bess, 294 F.3d at 1305 (quoting Chastain, 957 F.2d at 854) (alteration in original). In Chastain, the plaintiff alleged “that a contract never existed at all” because she never signed and assented to the contracts in question. 957 F.2d at 855. She challenged “the very existence of any agreement, including the existence of an agreement to arbitrate.” Id. at 854. In that situation, we held the plaintiff placed the making of the arbitration agreement in question, thereby permitting the district court to adjudicate the issue. Id. at 855. We concluded that before determining whether arbitration should be compelled under the FAA, the district court can decide whether the parties assented to the contracts containing the arbitration clauses. Id. at 855–56; see also Bess, 294 F.3d at 1305. The plaintiff in Bess, Colburn, attempted to compare his void ab initio allegation to the contentions in Chastain that a contract never existed. 294 F.3d at 1305. We rejected this argument, explaining Colburn’s reliance on Chastain was 28 misplaced because Chastain focused primarily “on the question of assent.” Id. We explained: Colburn urges that the transactions in this case are void, not because he failed to assent to the essential terms of the contracts, but because those terms allegedly render the contracts illegal under Alabama law. At bottom, Colburn challenges the content of the contracts, not their existence. Indeed, unlike the contracts in Chastain, both the arbitration agreement and the deferred payment contracts were signed by Colburn, and there is no question about Colburn’s assent to those contracts. Thus, this case falls within the “normal circumstances” described in Chastain, where the parties have signed a presumptively valid agreement to arbitrate any disputes, including those about the validity of the underlying transaction. Id. at 1305–06. Because assent to the contracts was not in question, we applied Prima Paint and held that whether or not the deferred payment transactions were usurious and void was an issue to be decided by an arbitrator, not a federal court. Id. at 1306; see also John B. Goodman Ltd. P’ship v. THF Constr., 321 F.3d 1094 (11th Cir. 2003) (holding whether or not the underlying construction contracts were unenforceable under Florida law was a question for the arbitrator to decide).12 12 Other federal circuit courts have similarly held that allegations claiming high interest loan agreements are void as illegal will not preclude the enforcement of arbitration provisions included in the allegedly illegal contracts. See, e.g., Snowden v. Checkpoint Check Cashing, 290 F.3d 631, 637 (4th Cir. 2002) (“[Plaintiff’s] allegations of usurious rates of interest . . . do not relate specifically to the Arbitration Agreement. Neither do they underlie a claim that [Plaintiff] failed to assent to the terms of the . . . Agreement.”); Burden v. Check Into Cash of Kentucky, LLC, 267 F.3d 483, 489–91 (6th Cir. 2001) (holding plaintiffs’ allegations that the high interest loan agreements were void as illegal was an issue to be decided by an arbitrator). 29 Jenkins’ void ab initio argument is no different from the argument we dismissed in Bess. Jenkins assented to the payday loan contracts and the Arbitration Agreements associated with those contracts. It is undisputed that she signed and dated both a Promissory Note and an Arbitration Agreement each time she obtained a loan from FNB. Jenkins argues the payday loan contracts are void, not because she failed to assent to the terms of the contracts, but because those terms render the contracts usurious and void under Georgia law. Thus, Jenkins does not challenge the existence of either the payday loan contracts or the accompanying Arbitration Agreements; rather she challenges the content of the contracts—i.e., the rates of interest charged in the loan agreements. As we held in Bess, we conclude Jenkins and Defendants entered into “presumptively valid agreement[s] to arbitrate any disputes, including those about the validity of the underlying transaction.” Bess, 294 F.3d at 1306; see also John B. Goodman Ltd. P’ship, 321 F.3d at 1096. We conclude, therefore, that Jenkins’ void ab initio argument, which challenges the legality of the payday lending transactions, is an issue for the arbitrator, not the court, to decide.13 13 We note this issue raised a question of federal law—namely, deciding whether the district court has the authority under the FAA to adjudicate Jenkins’ claim that the payday lending transactions were illegal. See Bess, 294 F.3d at 1306 n.3. In deciding this federal question, we do not pass judgment on any issues of Georgia contract law. See id. 30