Opinion ID: 1940044
Heading Depth: 2
Heading Rank: 3

Heading: The FAA and Prima Paint

Text: Contrary to the majority's assumption, the issue in this case arises under federal, not Florida, law. As no one disputes, the arbitration agreement itself provides that it 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 parties concede they are governed by the FAA. Any discussion of the arbitrability of the parties' dispute should therefore begin with the plain language of the FAA  language conspicuously absent from the majority opinion. Section 2 of the FAA provides that an agreement to arbitrate in any maritime transaction or a contract evidencing a transaction involving commerce ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2 (2000). Section 4 of the FAA provides in pertinent part as follows: The court shall hear the parties, and upon 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 .... If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. 9 U.S.C. § 4 (2000) (emphasis added). Therefore, as many courts have recognized, under the FAA the issue for a court confronted with a plaintiff seeking to avoid arbitration is whether the plaintiff is contesting the making of the arbitration agreement or the underlying contract. Given the parties' agreement to be governed by the FAA, the district court in this case correctly recognized its task as simply to apply controlling federal law to the case at hand. See Buckeye Check Cashing, Inc. v. Cardegna, 824 So.2d 228, 230 (Fla. 4th DCA 2002); see also Jensen v. Rice, 809 So.2d 895, 899 (Fla. 3d DCA 2002) (recognizing that the FAA supersedes inconsistent state law and [a]s a result, Florida courts must enforce arbitration agreements that are valid and enforceable under the [FAA], even where, as here, the arbitration agreement would not be enforceable under Florida law). Federal law favors arbitration. As the United States Supreme Court has recognized, the purpose of the FAA is to override the judiciary's reluctance to enforce arbitration agreements. See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). The FAA places such agreements on the same footing as other contracts. Id. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act. Moses H. Cone Mem. Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Under the FAA, questions of arbitrability must be resolved with a healthy regard for the federal policy favoring arbitration, even when general state law principles of contract interpretation are applied. Volt Info. Scis., 489 U.S. at 475-76. The [FAA] establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. Moses H. Cone, 460 U.S. at 24-25, 103 S.Ct. 927. In concluding that the check-cashing agreement's enforceability should be decided in arbitration, the district court relied in part on Prima Paint, where the United States Supreme Court addressed whether the federal court or an arbitrator is to resolve a claim of `fraud in the inducement,' under a contract governed by the [FAA]. 388 U.S. at 396-97, 87 S.Ct. 1801; see 824 So.2d at 230. Citing to section 4 of the Act (quoted above), which requires arbitration to go forward if the making of the agreement for arbitration or the failure to comply therewith is not in issue, the Court concluded that the statute itself answers the question. 388 U.S. at 403, 87 S.Ct. 1801. That is, the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.  Id. at 404, 87 S.Ct. 1801 (emphasis added). The Court held that a court may adjudicate a claim of fraud in the inducement of the arbitration clause itself, id. at 403-04, 87 S.Ct. 1801, because then the issue is the making of the arbitration agreement. Thus, a court may consider only issues relating to the making and performance of the agreement to arbitrate.  Id. at 404, 87 S.Ct. 1801 (emphasis added). As the Court stated: Accordingly, 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.... We hold, therefore, that in passing upon a § 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate. Id. at 403-04, 87 S.Ct. 1801 (footnote omitted) (emphasis added). Applying these principles, the Court held that because the fraud claim did not specifically address the arbitration agreement and the arbitration clause was sufficiently broad to encompass the dispute, including legal issues, the parties must proceed to arbitration. Id. at 406-07, 87 S.Ct. 1801. The import of Prima Paint, then, is that under the FAA, arbitration agreements or arbitration clauses contained in contracts are treated separately from the underlying contracts. The FAA expressly limits courts to determining whether the making of the arbitration agreement itself  not the underlying contract  is disputed. The only exception, as explained later, is where a party contests its very assent to the underlying contract, and therefore to the arbitration agreement as well. The majority violates the FAA's express directive. It dismisses Prima Paint as applicable only to voidable  as opposed to void  contracts. Nothing in that opinion makes that distinction, and even though the issue in that case involved a voidable contract  it was allegedly fraudulently induced  the Court did not limit its holding. Cf. Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 110 n. 9 (3d Cir.2000) (noting that the dissenting opinion in Prima Paint impl[ies] that the majority rejected the void/voidable distinction). Nor can its holding logically be limited to such contracts because the Court interpreted the plain language of the FAA, which does not exempt from arbitration allegations that the underlying contract is void. The Court did acknowledge a distinction  apparent in the statute itself  but not between void and voidable contracts. Such a distinction is arbitrary and totally disconnected from the statutory language. Rather, the Court distinguished between issues concerning the making of the underlying contract, which are arbitrable, and issues concerning the making of the arbitration agreement, which are not.