Recent Developments in Dispute Resolution
Willamette University, College of Law
Center for Dispute Resolution

February 21 - 27, 2006
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THIS WEEK:

1. Arbitration: Where a contract contains an arbitration clause, a challenge to the validity of
the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator,
regardless of whether the challenge is brought in federal or state court. (US Supreme Court)

2. Arbitration: Party waived right to arbitrate by engaging in discovery. (Miss.)

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CASE SUMMARIES:

Arbitration: Where a contract contains an arbitration clause, a challenge to the validity of
the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator,
regardless of whether the challenge is brought in federal or state court. (US Supreme Court)

Buckeye Check Cashing, Inc. v. Cardegna, 2006 WL 386362

John Cardegna and Donna Reuter (Borrowers) entered into deferred-payment transactions with
Buckeye Check Cashing, Inc. (Lender). Borrowers sued Lender alleging Lender charged usurious
interest rates that were illegal under Florida law. Lender moved to compel arbitration pursuant to the
agreements’ arbitration provisions. The trial court denied the motion, holding that a court should resolve
the issue of the contract’s legality. The appeals court reversed. The Florida Supreme Court reversed,
holding Borrowers’ claim that the contract was illegal and void had to be resolved before ordering
arbitration. The United States Supreme Court granted certiorari to determine whether a court or an
arbitrator should consider a claim that a contract containing an arbitration provision is void for illegality.
The Court stated the Prima Paint and Southland cases established three propositions that resolve the
issue: (1) As a matter of substantive federal arbitration law, an arbitration provision is severable from the
remainder of the contract; (2) Unless the challenge is to the arbitration clause itself, the issue of the
contract’s validity is considered by the arbitrator in the first instance; and (3) This arbitration law applies
in state as well as federal courts. The Court concluded that because Borrowers challenged the agreement
as a whole, but not specifically the arbitration provisions, the arbitration provisions are enforceable. The
Court stated that use of the word “contract” in FAA § 2 must include contracts that later prove to be void. The
Court reaffirmed that regardless of whether a challenge is brought in federal or state court, a challenge to
the validity of a contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator. (CC)

Opinion available at
http://a257.g.akamaitech.net/7/257/2422/21Feb20061230/www.supremecourtus.gov/opinions/05pdf/04-1264.pdf

Arbitration: Party waived right to arbitrate by engaging in discovery. (Miss.)

MS Credit Center v. Horton, 2006 WL 408415 (Miss. Feb. 23, 2006).

Catherine Horton received three loans from MS Credit Center and the third contained an arbitration provision.
Horton later sued for fraud and misrepresentation of the credit insurance she purchased, and she asserted
that all of her loan documents were unconscionable. MS Credit filed an answer, then amended the answer to
include the affirmative defense that Horton signed an arbitration agreement. MS Credit proceeded with discovery,
including deposing Horton, then filed a motion to compel arbitration, eight months after filing its answer. The
trial court denied the motion on the grounds that the arbitration agreement was procedurally unconscionable.
On appeal, the Court disagreed, and found that thearbitration agreement was valid. However, the Court held that
MS Credit waived its right to compel arbitration by delaying in requesting arbitration and engaging in discovery.
The Court held that unreasonable delay in asking for arbitration coupled with participation in litigation constitutes
waiver of the right to compel arbitration. (MAK).

Full opinion available on Westlaw.

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Editor in Chief: Geoffrey McCann
Copy Editors: Forrest Collins, Alycia Huskins, and Geoffrey McCann
Writers: Andrea Boucher, Cristin Casey, Michelle DaRosa, Robert Dengel, Darin Dooley, Whitney Holcombe, Ian Johnson,
Michael Kakuk, Heather Katz, Nicholas Kuwanda, Myah Osher, Breckan Scott, Blythe Urutia, and Seth Wolfert
Faculty Advisors: Richard Birke, A. Lee Jordan
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