Arbitration: Supreme Court, Deciding the Judge Alex Case, Backs FAA Over State Admin (Web)

The U.S. Supreme Court today set aside a claim that California law requires the state’s labor commissioner to hear a case before it was arbitrated. 

The ruling in Preston v. Ferrer, No. 06-1463 (available at http://www.scotusblog.com/wp/wp-content/uploads/2008/02/06-1463.pdf), is a strong boost for the Federal Arbitration Act, 9 U.S.C. § 1, et seq., and a loss for Fox Television star Alex Ferrer, who decides cases on his daily Judge Alex show. 

The case was about a broken business relationship between Ferrer and petitioner Arnold Preston, an attorney turned Hollywood agent. Preston filed for arbitration under their contract to collect fees.

But Ferrer, who is a former Florida state court judge, argued that Preston was his manager, not his agent, and asked the California Labor Commissioner to declare the contract invalid under the California Talent Agencies Act, attempting to postpone the arbitration.

While a California appeals court decided to stay the arbitration until the state labor commissioner could rule, the U.S. Supreme Court decided Buckeye Check Cashing Inc. v. Cardegna, 126 S.Ct. 1204 (2006), firmly asserting that arbitrability questions challenging a contract’s validity go to an arbitrator, while challenges directed at an arbitration clause’s validity go to courts.

Buckeye, at the heart of the Court’s decision today, didn’t discuss FAA preemption over state schemes. The Court took the case to deal with the preemption issue. It agreed to hear the case in the final week of the 2006-07 term, last September, granting a certiorari petition based on two lower-court unpublished decisions. 

“Buckeye largely, if not entirely, resolves the dispute before us,” writes Associate Justice Ruth Bader Ginsburg for the 8-1 Court. Rejecting Judge Alex’s contention that the Talent Agencies Act didn’t conflict with the FAA because it requires exhaustion of administrative processes before arbitration, Ginsburg notes that the California law’s procedure gives the state Labor Commissioner “exclusive jurisdiction to decide an issue that the parties agreed to arbitrate.” The opinion also points out that the California law imposes prerequisites to arbitration contract enforcement. 

“Requiring initial reference of the parties’ dispute to the Labor Commissioner would, at the least, hinder speedy resolution of the controversy,” Ginsburg writes.

The opinion holds, “[W]e disapprove the distinction between judicial and administrative proceedings drawn by Ferrer and adopted by the appeals court. When parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative.”

The opinion also finds that by adopting American Arbitration Association rules to govern their dispute, the parties modified their reliance on California law in the agreement. The opinion follows Mastrobuono v. Shearson Lehman Hutton Inc., 514 U.S. 52 (1995), noting that the “‘best way to harmonize’ the parties’ adoption of the AAA rules and their selection of California law is to read the latter to encompass prescriptions governing the substantive rights and obligations of the parties, but not the State’s ‘special rules limiting the authority of arbitrators.’” Mastrobuono, at 63-64.

Associate Justice Clarence Thomas repeated his customary arbitration dissent, stating that he believes that the FAA doesn’t apply to cases originating in state courts.

Russ Bleemer, Editor, Alternatives