Prima Paint Corp. v. Flood & Conklin Mfg. Co.
Binding arbitration clauses are incredibly important to businesses today. However, when these provisions are part of a contract, who is to decide whether the contract itself is enforceable? That's the question that the Supreme Court had to decide in the case of Prima Paint Corp. v. Flood & Conklin Mfg. Co.. This 1967 case was one of the first where the Supreme Court had to look at the enforceability of contracts that contained binding arbitration clauses. Its decision was extremely controversial, leading some states to enact laws that acted in direct opposition to the court's ruling. Today, Prima Paint Corp. v. Flood & Conklin Mfg. Co. is not a law that is obeyed in every state.
Binding Arbitration Clauses
If you've ever signed an employment contract or an end user license agreement, you have probably signed a binding arbitration clause. These clauses say that if you have any dispute about the contract, you are required to have a private arbitrator settle your dispute rather than suing in a civil court system. This kind of clause is generally thought to benefit employers and businesses, rather than workers and consumers, because arbitrators are more likely to side with businesses who employ them consistently.
In this case, the question in front of the court was whether questions about whether a contract was enforceable should be settled by an arbitrator or a court. Prima Paint Corporation argued in Prima Paint Corp. v. Flood & Conklin Mfg. Co. that they should not be bound by a consulting agreement they signed with a company that had purchased their paint business three weeks before. Prima said that they had been defrauded into signing the contract, and that the arbitration clause (and the rest of the contract) was therefore not valid.
The Court's Decision
The court determined that the United States Arbitration Act of 1925 applied to the contract that had been signed between the parties in Prima Paint Corp. v. Flood & Conklin Mfg. Co.. What this meant was that regardless of whether Prima had been defrauded into signing the contract, the court had no authorization to determine its enforceability due to the arbitration clause, and would need to be taken to an arbitrator rather than through the court system.
The only exception to this is if the arbitration clause itself is the unenforceable portion of the contract. Questions about the enforceability of arbitration clauses specifically could still be taken up with the courts, according to the ruling in Prima Paint Corp. v. Flood & Conklin Mfg. Co..
State Laws Modifying Prima Paint Corp.
Prima was a very contentious decision, and many states have since created laws designed to get around its ruling. When Texas passed its law allowing courts to determine the enforceability of arbitration clauses, its legislators noted that according to the doctrine created by Prima, someone could make a person sign a contract at gunpoint—and as long as it still had an arbitration clause, the enforceability of the contract overall would need to be decided by an arbitrator.
You can check your own state's laws about arbitration clauses and contractual enforceability to learn whether the precedent set in Prima applies in your state.