Originally from: Stockholm International Arbitration Review

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"SEPARABILITY" IN THE UNITED STATES SUPREME COURT

Alan Scott Rau

In a highly predictable decision--but one that is certain nevertheless to elicit considerable commentary--the Supreme Court of the United States has confirmed:

• The broad scope of the principle of the "separability" of the arbitration clause, and
• The broad scope of federal legislation overriding any rule of state law to the contrary.

It thus made explicit what should have been clear ever since the wellknown case of Prima Paint decided almost 40 years ago: that the doctrine of "severability"--reserving issues of contract validity to the arbitrator "unless the challenge is to the arbitration clause itself"--is an integral part of the "substantive federal" common law of arbitration.

The Cardegna Case

The problem before the Court was quite straightforward: The Cardegnas brought a class-action lawsuit against Buckeye alleging that the transaction they had entered into--although disguised as a "check cashing" operation--was in reality an illegal usurious loan in violation of Florida law. The defendants moved to compel arbitration, relying on a clause calling for application of the AAA Commercial Rules and drafted, through an excess of caution, with extraordinary breadth: It encompassed "any claim, dispute, or controversy" "arising from or relating to this Agreement"--"whether in contract, tort or otherwise, whether pre-existing, present, or future, and including statutory, common law, intentional tort, and equitable claims"--and including "the validity, enforceability or scope of this arbitration provision or the entire agreement." While the trial court denied the motion, the court of appeals reversed--holding that the challenge to the validity of the contract must be submitted to an arbitrator.