The Georgia Court of Appeals decided on Tuesday, March 2, 2021, that the public policy favoring arbitration provisions prevails over Georgia's public policy to render agreements entered into by unlicensed contractors unenforceable. See Jhun v. Imagine Castle, LLC, A20A1724, 2021 WL 790162 (Ga. Ct. App. Mar. 2, 2021).
In Jhun, the two parties entered into an agreement for a remodel of a residential dwelling. Id. at *1. The agreement was later amended to include an arbitration agreement governed by the Federal Arbitration Act ("FAA"). Id. The homeowners later discovered the contractors were not licensed and they brought suit for negligence, fraud, conversion, and requested the court declare the contract unenforceable as a matter of public policy pursuant to O.C.G.A. § 43-41-17. Id. After the defendants moved to compel arbitration between the parties, the Court stayed the proceeding and ordered the parties to arbitration. Id. at *2.
The Court of Appeals affirmed the trail court and stated where there is a specific challenge attacking the validity of an arbitration agreement, the court and not the arbitrator should decide whether the arbitration provision is enforceable. Id.; citing Crawford v. Great American Cash Advance, Inc., 284 Ga. App. 690, 692-693 (Ga. Ct. App. 2007). However, a challenge to the validity of the contract as a whole, and not to the arbitration clause specifically, must go to the arbitrator. Id.
Even where the judge could make a determination on the pleadings whether a contract is per se unenforceable pursuant to the legislative public policy, the determination of the unenforceable nature of an agreement is left for an arbitrator. Jhun, 2021 WL 790162 at *2.
While this case related to the public policy against unlicensed contractors and the Crawford case related to unenforceable contracts under the Georgia Payday Loan Act, the expansive view that the Court of Appeals takes in Jhun will likely apply to any public policy legislation so long as the enforceability of the entire agreement is in question. In furtherance of this expansive view, the Court also stated that the Supreme Court case Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440 (2006) applies to all cases involving the Federal Arbitration Act, regardless of whether it is in federal or state court. Id. at *3. Under Buckeye Check Cashing, Inc., any arbitration clause under the Federal Arbitration Act is severable from the remainder of the contract and unless the arbitration clause itself is under attack the question is always for an arbitrator and not a court regardless of whether it is state or federal courts.
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