Can An Arbitrator Decide the Legality of a Contract ?
In Bess v. Check Express, 294 F.3d 1298, 1304 (11th Cir. 2002), the plaintiffs had signed deferred payment transactions containing arbitration agreements governed by the Federal Arbitration Act ("FAA").
They filed a class action suit against Check Express, alleging that the transactions constituted usurious loans under state law. Id. at 1301-02.
When Check Express invoked the arbitration clause, the plaintiffs contended that the court, not an arbitrator, must decide the legal question of whether the transactions were void as usurious.
The court recognized that its task was not to determine the legality of the contract, but simply to address the threshold question of who should decide the issue, the arbitrator or the court. Id. at 1304.
Noting that the FAA limits courts to the issue of the "making of the arbitration agreement," the court concluded that it must determine whether the allegation that the underlying contract was illegal placed at issue the making of the arbitration agreement. Id.
The court emphasized that the plaintiffs did not dispute having assented to the underlying contracts.
The court thus concluded that the question of the legality of the contract was for the arbitrator because the case fell "within the 'normal circumstances' . . . where the parties have signed a presumptively valid agreement to arbitrate any disputes, including those about the validity of the underlying transaction." Id. at 1306 (citing Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 854 (11th Cir. 1992)).