## Facts

- Borrowers entered into deferred-payment transactions with Buckeye Check Cashing, Inc. under written agreements containing a clause requiring binding arbitration for disputes arising out of the agreement.
- The borrowers filed a putative class action in Florida state court alleging Buckeye charged usurious interest rates and that the agreements violated Florida law, making them illegal and void from inception.
- The borrowers did not separately challenge the arbitration clause as unconscionable or unlawful; their claim was that the entire agreement (including the arbitration clause) was unenforceable due to illegality.

## Issues

1. Under the Federal Arbitration Act (FAA), when a party challenges the validity of a contract as a whole (including as void for illegality) but does not specifically challenge the arbitration clause, must the dispute be sent to the arbitrator rather than decided by the court?
2. Does the FAA’s severability rule apply in state courts, displacing contrary state-law approaches that would have courts decide contract-wide illegality claims?

## Decision

- The Supreme Court reversed the Florida Supreme Court and remanded.
- A challenge to the validity of the contract as a whole, not directed specifically at the arbitration clause, must be resolved by the arbitrator.
- The arbitration clause is treated as severable and enforceable apart from the remainder of the contract for purposes of deciding who resolves the contract’s validity.
- The rule applies in state as well as federal courts; state courts must apply the FAA’s substantive arbitration law.
- Justice Thomas dissented on the ground that the FAA does not apply in state courts. Justice Alito did not participate.

## Legal Principles

- Under the FAA, an arbitration provision is severable from the remainder of the contract.
- Unless the party’s challenge is directed specifically to the arbitration clause, questions about the contract’s validity (including alleged illegality) are for the arbitrator in the first instance.
- The severability and allocation rules do not turn on a void-versus-voidable distinction; allegations that the entire contract is void do not, by themselves, authorize a court to refuse arbitration.
- The FAA’s substantive arbitration rules apply in state courts and preempt contrary state public-policy or contract-law rules that would require courts to decide contract-wide validity challenges.

## Conclusion

The Court held that, under the FAA, borrowers’ claim that the entire payday-loan agreement was illegal and void had to be decided by an arbitrator because the arbitration clause itself was not specifically challenged, and this federal severability rule binds state courts.


Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)