## Facts

- Prima Paint Corporation purchased Flood & Conklin Manufacturing Co.’s paint business and entered a related consulting and noncompetition agreement requiring Prima to pay a percentage of sales receipts over six years.
- The consulting agreement contained an integration clause and a broad arbitration clause requiring arbitration in New York under American Arbitration Association rules for any controversy arising out of the agreement or its breach.
- About a year after execution, when the first payment became due, Prima asserted that Flood & Conklin had breached the agreements and alleged fraud in the inducement of the consulting agreement as a whole based on claimed misrepresentations of solvency and intent to perform.
- Flood & Conklin served a notice of intention to arbitrate under the arbitration clause.
- Prima filed a federal diversity action seeking rescission of the consulting agreement and an injunction against arbitration.
- The district court stayed the court action pending arbitration under the Federal Arbitration Act (FAA); the Second Circuit dismissed Prima’s appeal.
- The Supreme Court granted certiorari to determine whether the court or the arbitrator should decide the fraudulent-inducement claim under the FAA.

## Issues

1. Whether the consulting agreement was a contract “evidencing a transaction involving commerce” covered by the FAA.
2. Whether, under the FAA, a federal court may adjudicate a claim that the contract was fraudulently induced when the contract contains a broad arbitration clause, or whether that claim must be decided by the arbitrator absent an attack on the arbitration clause itself.

## Decision

- The Supreme Court affirmed.
- The Court held the agreement involved interstate commerce and fell within FAA coverage.
- The Court held that when fraud is alleged as to the contract generally, and not specifically as to the arbitration clause, the fraud claim is for the arbitrator to decide.
- The Court treated the FAA as supplying a federal rule governing arbitrability in federal court, requiring arbitration unless “the making of the agreement for arbitration” is itself put in issue.

## Legal Principles

- FAA § 2 makes written arbitration provisions in contracts involving commerce enforceable, subject to generally applicable contract-revocation defenses.
- An arbitration clause is separable from the remainder of the contract for purposes of determining arbitrability.
- A court decides challenges directed specifically to the formation or validity of the arbitration agreement (i.e., “the making of the agreement for arbitration”).
- Challenges to the validity or enforceability of the contract as a whole, including fraudulent inducement of the overall agreement, are for the arbitrator when the arbitration clause is not separately attacked.
- Once the court determines the dispute is referable to arbitration under the agreement, FAA § 3 requires a stay of the judicial action pending arbitration.

## Conclusion

The Court required arbitration because the alleged fraudulent inducement targeted the consulting agreement as a whole rather than the arbitration clause, establishing that under the FAA such contract-validity disputes are ordinarily decided by arbitrators while courts address only challenges to the arbitration agreement’s making.


Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967)