The U.S. Supreme Court has ruled that arbitrators, not courts, decide the validity of contracts that include arbitration clauses (“Buckeye Check Cashing Inc. v. Cardegna”). The ruling is a victory for those financial services providers that include clauses regarding disputes to be heard before industry-oriented arbitration panels, and will make it harder for consumers to attack those clauses by claiming that the underlying contract is illegal.

The Court held that the Federal Arbitration Act requires the question to be heard by the arbitrator.

Still to be settled is whether the Act allows enforcement of arbitration contracts that bar consumers from participating in class actions, even if those restrictions violate state law. Courts across the nation have given different answers to that question, and four state supreme courts are now weighing the issue.

For further information, please contact Sherwin F. Root at (213) 617-5465.