Supreme Court's Term Included Arbitration Preemption Ruling
In the Supreme Court term just completed, the Court continued its support for the preemptive power of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"). In Preston v. Ferrer, 128 S.Ct. 978 (2008), the Court held that when parties agree to arbitrate all questions under a contract, the FAA preempts state laws placing primary jurisdiction in another forum, whether that forum is a court or administrative agency.
Preston involved a fee dispute between Alex Ferrer, more commonly known as TV's "Judge Alex," and Los Angeles entertainment attorney Arnold Preston. The fee contract contained a provision providing that the parties would arbitrate “any dispute ... relating to the terms of [the contract] or the breach, validity, or legality thereof ... in accordance with the rules [of the American Arbitration Association].” The Court held that this arbitration provision preempts California law to the extent that it placed primary jurisdiction for the dispute in the California Labor Commission.
Judge Alex asserted that the contract was void because Preston was acting as a "talent agent" under California law without the requisite license from the California Labor Commission. Preston responded that he was merely a "personal manager" and needed no such license. California law vests primary jurisdiction over such license disputes in the California Labor Commission. (Cal. Labor Code § 1700.44.)
The Court has consistently held, however, that "attacks on the validity of an entire contract, as distinct from attacks aimed at the arbitration clause, are within the arbitrator's ken." Analyzing the conflict between state law and the FAA, the Court held that the "procedural proscriptions" of state law "conflict with the FAA's dispute resolution regime" and were therefore preempted. The effect of preemption here was that that the arbitrator would decide the licensing issue, not the Labor Commission.
If California law placed primary jurisdiction for the dispute in state court, there would be little doubt that under the Court's prior rulings, the FAA would preempt. The news from Preston is that the same result obtains where California law would vest primary jurisdiction in an administrative agency.
Preston involved a fee dispute between Alex Ferrer, more commonly known as TV's "Judge Alex," and Los Angeles entertainment attorney Arnold Preston. The fee contract contained a provision providing that the parties would arbitrate “any dispute ... relating to the terms of [the contract] or the breach, validity, or legality thereof ... in accordance with the rules [of the American Arbitration Association].” The Court held that this arbitration provision preempts California law to the extent that it placed primary jurisdiction for the dispute in the California Labor Commission.
Judge Alex asserted that the contract was void because Preston was acting as a "talent agent" under California law without the requisite license from the California Labor Commission. Preston responded that he was merely a "personal manager" and needed no such license. California law vests primary jurisdiction over such license disputes in the California Labor Commission. (Cal. Labor Code § 1700.44.)
The Court has consistently held, however, that "attacks on the validity of an entire contract, as distinct from attacks aimed at the arbitration clause, are within the arbitrator's ken." Analyzing the conflict between state law and the FAA, the Court held that the "procedural proscriptions" of state law "conflict with the FAA's dispute resolution regime" and were therefore preempted. The effect of preemption here was that that the arbitrator would decide the licensing issue, not the Labor Commission.
If California law placed primary jurisdiction for the dispute in state court, there would be little doubt that under the Court's prior rulings, the FAA would preempt. The news from Preston is that the same result obtains where California law would vest primary jurisdiction in an administrative agency.
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