Opinion ID: 1940044
Heading Depth: 2
Heading Rank: 4

Heading: Federal Appellate Cases on Point

Text: In the last three years no fewer than three federal courts of appeals have decided the precise issue we confront today  whether, under the FAA, the issue of whether a check-cashing transaction is void as usurious is for the court or the arbitrator to decide. Every one unanimously has held that the issue is one for the arbitrators. Nevertheless, the majority fails to distinguish one of them and simply ignores the others. Most recently, the Eleventh Circuit Court of Appeals decided this issue. In Bess v. Check Express, 294 F.3d 1298, 1304 (11th Cir.2002), the plaintiffs had signed deferred payment transactions containing arbitration agreements governed by the FAA. They filed a class action suit against Check Express, alleging that the transactions constituted usurious loans under state law. Id. at 1301-02. When Check Express invoked the arbitration clause, the plaintiffs contended that the court, not an arbitrator, must decide the legal question of whether the transactions were void as usurious. The court recognized that its task was not to determine the legality of the contract, but simply to address the threshold question of who should decide the issue, the arbitrator or the court. Id. at 1304. Noting that the FAA limits courts to the issue of the making of the arbitration agreement, the court concluded that it must determine whether the allegation that the underlying contract was illegal placed at issue the making of the arbitration agreement. Id. The court emphasized that the plaintiffs did not dispute having assented to the underlying contracts. The court thus concluded that the question of the legality of the contract was for the arbitrator because the case fell within the `normal circumstances' ... where the parties have signed a presumptively valid agreement to arbitrate any disputes, including those about the validity of the underlying transaction. Id. at 1306 (citing Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 854 (11th Cir.1992)). The majority acknowledges Bess, but distinguishes it on the purported ground that the federal court was deciding an issue of federal law, while this Court is deciding an issue of state law. Majority op. at 864. That conclusion is blatantly wrong. The majority cites a footnote in which the Eleventh Circuit stated the following in pertinent part: Colburn contends that we are bound by Alabama law in deciding defenses to the arbitration agreement, and therefore, [Alabama case law] requires that the void ab initio argument be decided by the court. In reaching our decision, however, we are not deciding questions of Alabama contract law; rather we are deciding the scope of the district court's authority under [the FAA], a question of federal law. Id. at 1306 n. 3. The identical situation exists here. Just as the Eleventh Circuit did not decide questions of Alabama law, we are not deciding questions of Florida law. Specifically, we are not deciding whether the check-cashing contract is usurious. The sole issue before both courts is the same: who decides the legality of the underlying contract? The issue here, as in Bess, is one of federal law because the FAA governs the arbitration agreement. Bess cannot be distinguished. The Fourth Circuit Court of Appeals also has addressed the precise claim presented here. In Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 636 (4th Cir.2002), cert. denied, 537 U.S. 1087, 123 S.Ct. 695, 154 L.Ed.2d 631 (2002), the court considered whether the plaintiff's contention that a deferred deposit transaction, such as the one in this case, was a usurious loan void under Maryland law was subject to arbitration. Noting that the plaintiff did not dispute that the FAA governed the arbitration agreement or that her claim fell within the scope of the arbitration agreement, the court applied Prima Paint and the FAA's requirement that the party contesting arbitration must allege grounds relating to the arbitration clause, not the underlying contract. Id. at 636. The court concluded that under the severability doctrine of Prima Paint, arbitration must proceed because the plaintiff's allegations of usurious rates of interest ... d[id] not relate specifically to the Arbitration Agreement [nor did] they underlie a claim that [the plaintiff] failed to assent to the terms of the ... Agreement. Id. at 637. Finally, in Burden v. Check Into Cash of Kentucky, LLC, 267 F.3d 483, 486-87 (6th Cir.2001), cert. denied, 535 U.S. 970, 122 S.Ct. 1436, 152 L.Ed.2d 380 (2002), the plaintiffs also alleged that the check cashing agreements they signed were usurious in violation of state law and therefore void. The court concluded that because the plaintiffs admitted assenting to the agreements, the challenge to the legality of the underlying contract constituted a challenge [to] the substance, rather than the existence, of the loan agreements. Id. at 490; accord Furgason v. McKenzie Check Advance of Indiana Inc., No. IP00-121-C H/G, 2001 WL 238129 (S.D.Ind. Jan.3, 2001) (holding that a plaintiff cannot avoid arbitration by alleging or showing the illegality of a so-called payday loan contract); see also Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd., 1 F.3d 639, 642 (7th Cir.1993) (holding that under Prima Paint the claim that the underlying contract should be rescinded because it violated state law was subject to arbitration under the broad scope of the contract's arbitration clause). We should follow Bess, Snowden , and Burden, which considered the identical issue under identical facts and held that, under the plain language of the FAA, the issue of whether a check-cashing transaction is usurious must be determined by the arbitrators. These decisions are persuasive on matters of federal law. See State v. Dwyer, 332 So.2d 333, 335 (Fla.1976) (stating that federal court rulings are persuasive). Justice Bell, specially concurring, agrees with me that the issue before us is one of federal law and that the decisions of federal courts of appeals should be considered as persuasive authority. Concurring op. at 864-65. He is not persuaded by those decisions, however, because he thinks they go too far towards treating arbitration clauses as a class of `super' clauses, immune from a state's otherwise generally applicable contract law. Concurring op. at 866. I disagree with Justice Bell for two reasons. First, the federal circuit courts have treated arbitration clauses not as a class of super clauses, but as a class of separate clauses  separate, that is, from the other clauses in a contract. Under the reasoning of the federal courts, arbitration clauses are not immune from state contract law. They are simply evaluated independently of the rest of the contract under the state's otherwise generally applicable contract law. Concurring op. at 866. Second, although it is true that Bess, Snowden , and Burden are only persuasive, they are all based on Prima Paint, which is binding. All three cases reached the same conclusion on similar facts because they each found Prima Paint indistinguishable, as I do, and therefore controlling. See Bess, 294 F.3d at 1306 (stating that, under the holding of Prima Paint, courts may only consider issues relating to the making and performance of the agreement to arbitrate); Snowden, 290 F.3d at 637 (stating that the independent evaluation of arbitration clauses is a rule ... derived from the Supreme Court's opinion in Prima Paint ); Burden, 267 F.3d at 490 (finding no logical distinction between Prima Paint and cases where a party subsequently discover[s] that certain terms of the contract may violate state law). The majority's reasoning contradicts not just the federal circuit court cases, but also Prima Paint.