Supreme Court Finds Binding Arbitration Clause is Severable from the Remainder of the Contract

Tuesday, March 28, 2006
The U. S. Supreme Court recently held in a case that was not employment related that a challenge to the validity of a contract, and not specifically to the contract's arbitration clause, must be decided by the arbitrator, not the court. Citing prior decisions that established the law applicable to arbitration agreements under the Federal Arbitration Act, the Court enumerated three specific and governing principles: 1) an arbitration provision is severable from the remainder of the contract; 2) unless the challenge is to the arbitration clause, the validity of the contract is to be considered first by the arbitrator; 3) these principles of arbitration law apply in state as well as federal courts.

Even if the contract as a whole is invalid under state or federal law, the arbitration provision may survive, the Court concluded. Under the FAA, the arbitration provision is separately enforceable, and the arbitrator is permitted to hear claims concerning the validity of the contract.

Buckeye Check Cashing , Inc. v. Cardegna, 2/21/06
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