Opinion ID: 1940044
Heading Depth: 1
Heading Rank: 4

Heading: Prima Paint

Text: Buckeye asserts that the U.S. Supreme Court's decision in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), supports the Fourth District's decision and requires that an arbitrator resolve Cardegna's illegality claim, because the parties agreed in the contract to be governed by the Federal Arbitration Act and the cases applying the Act. In Prima Paint, the Supreme Court resolved the issue of whether a claim of fraud in the inducement of the entire contract is to be resolved by the federal court, or whether the matter is to be referred to the arbitrators. Id. at 402, 87 S.Ct. 1801. Having acknowledged that various courts have differed in their approach to resolving this question, the Court agreed with the approach of the Second Circuit Court of Appeals that the arbitration clause contained in a contract may be severable from the contract itself, and that where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud. Id. at 402, 87 S.Ct. 1801. In so holding, the Court looked to the express language of the United States Arbitration Act (now known as the Federal Arbitration Act (FAA)), which required a federal court to order arbitration to proceed if it determined that the making of the arbitration agreement itself or failure to comply with the arbitration agreement was not in issue. See Prima Paint, 388 U.S. at 402, 87 S.Ct. 1801. The Court reasoned that this requirement reflected the intent of Congress to provide a speedy remedy for parties who elected to resolve disputes via arbitration. Id. at 404, 87 S.Ct. 1801. However, we conclude that the rationale of Prima Paint should not be extended to the facts of this case. There is a key distinction between the claim in Prima Paint and the claim presently before us: in Prima Paint, the claim of fraud in the inducement, if true, would have rendered the underlying contract merely voidable. In the case before us today, however, the underlying contract at issue would be rendered void from the outset if it were determined that the contract indeed violated Florida's usury laws. Therefore, if the underlying contract is held entirely void as a matter of law, all of its provisions, including the arbitration clause, would be nullified as well. Appellate courts in other states have also distinguished Prima Paint and reached conclusions similar to those of the Fifth District in FastFunding and Party Yards, Inc. See Rosenthal v. Great Western Fin. Sec. Corp., 14 Cal.4th 394, 58 Cal.Rptr.2d 875, 926 P.2d 1061, 1074 (1996) (stating that contracts that render an agreement void ab initio are not arbitrable); R.P.T. of Aspen, Inc. v. Innovative Communications, Inc., 917 P.2d 340, 342 (Col.Ct.App.1996) (stating that if a party asserts that the entire contract is illegal, the court must determine this threshold issue). A number of federal courts have likewise distinguished Prima Paint and declined to extend its holding to instances where a party claims that a contract was void from its inception. See Spahr v. Secco, 330 F.3d 1266, 1272 (10th Cir.2003) (holding that the rule announced in Prima Paint does not extend to a case where a party challenges a contract on the basis that the party lacked the mental capacity to enter into a contract); Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587, 591 (7th Cir.2001) (concluding that as arbitration depends on a valid contract an argument that the contract does not exist can't logically be resolved by the arbitrator); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 110 n. 9 (3d Cir.2000) (stating that Prima Paint's holding dealt strictly with fraud in the inducement of the larger contract and made no broader pronouncements regarding `void' agreements); Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 855 (11th Cir.1992) (stating that  Prima Paint has never been extended to require arbitrators to adjudicate a party's contention, supported by substantial evidence, that a contract never existed at all ); Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136 (9th Cir.1991) (limiting Prima Paint to voidable contracts and holding that a challenge to a signatory's authority to bind plaintiffs to an agreement must be resolved by a trial court). We agree with the reasoning of these cases distinguishing Prima Paint. We acknowledge that recently, under similar facts, the Eleventh Circuit Court of Appeals rejected the argument that a contract's legality was to be determined by a trial court, not an arbitrator. See Bess v. Check Express, 294 F.3d 1298 (11th Cir.2002). In that case, the plaintiffs also challenged the legality of a check cashing contract's arbitration clause. The Eleventh Circuit held that because there was no dispute about the plaintiffs' assent to the contract itself, the contract was presumptively valid, and any disputes, including those about the validity of the contract, were to be determined by an arbitrator. Id. at 1305. However, the case presently before us is distinguishable because Bess was expressly resolved under federal law, not state law principles. The court said: 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 9 U.S.C. § 4, a question of federal law. Bess, 294 F.3d at 1306 n. 3 (emphasis supplied). We conclude that Florida public policy and contract law prohibit breathing life into a potentially illegal contract by enforcing the included arbitration clause of the void contract. Florida's law has long held that contracts which are determined to be against public policy and void should not be enforced. A contract which violates a provision of the constitution or a statute is void and illegal and will not be enforced in our courts. Harris v. Gonzalez, 789 So.2d 405, 409 (Fla. 4th DCA 2001). This Court itself long ago declared: The inherent and inalienable right of every man to enter into contracts or refuse so to contract is not only recognized but well established. Competent persons have the utmost liberty of contracting and when these agreements are shown to be voluntarily and freely made and entered into, then the courts usually will uphold and enforce them. The general right to contract is subject to the limitation that the agreement must not violate the Federal or State Constitutions or state statutes or ordinances of a city or town or some rule of the common law. Wechsler v. Novak, 157 Fla. 703, 26 So.2d 884, 887 (1946). As others have also noted, Contracts in violation of statutory prohibitions are void, and issues arising under such contracts are therefore not arbitrable. R.P.T., 917 P.2d at 342 (citing 2 Martin Domke, Commercial Arbitration 8.06 (rev. ed.1995)). In other words, there are no severable, or salvageable, parts of a contract found illegal and void under Florida law. Judge Sharp's observation in Party Yards, Inc., that a contrary holding would lead to an absurd result is right on point. We do not believe federal arbitration law was ever intended to be used as a means of overruling state substantive law on the legality of contracts.