Preston v. Ferrer

PETITIONER: Arnold M. Preston
RESPONDENT: Alex E. Ferrer
LOCATION: U.S. Naval Base at Guantanamo Bay

DOCKET NO.: 06-1463
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: State appellate court

CITATION: 552 US 346 (2008)
GRANTED: Sep 25, 2007
ARGUED: Jan 14, 2008
DECIDED: Feb 20, 2008

ADVOCATES:
G. Eric Brunstad, Jr. - on behalf of the Respondent
Joseph D. Schleimer - on behalf of the Petitioner

Facts of the case

In 2005, the former manager for Alex Ferrer, television's Judge Alex, sued him to recover alleged unpaid commissions. The management contract at issue specifically called for all such disputes to be arbitrated out of court. Judge Alex responded by filing a complaint with California's labor commissioner charging that the management contract was illegal because the manager had actually been serving as an unlicensed talent agent in violation of California law. The commissioner, who has exclusive jurisdiction over talent agency disputes, said that he lacked authority to stop the arbitration. When Judge Alex filed suit in state court, the court stopped the arbitration.

Question

Must a contract dispute to go arbitration pursuant to the document's arbitration clause when an administrative agency has exclusive jurisdiction over the disputed issue?

Media for Preston v. Ferrer

Audio Transcription for Oral Argument - January 14, 2008 in Preston v. Ferrer

Audio Transcription for Opinion Announcement - February 20, 2008 in Preston v. Ferrer

Ruth Bader Ginsburg:

This case concerns the Federal Arbitration Act which establishes a national policy in favor of arbitration when parties contract for that mode of dispute resolution.

The parties here who chose arbitration as the means to settle disputes under their contract are respondent, Alex Ferrer, a former Florida Judge who appears on television as Judge Alex, and petitioner Arnold Preston, a lawyer who renders services to persons in the entertainment industry.

When Preston sought fees that Ferrer refused to pay, Preston demanded arbitration under the rules of the American Arbitration Association as specified in the Ferrer-Preston contract.

Ferrer responded by petitioning the California Labor Commissioner for a declaration that Preston had violated California's Talent Agencies Act by acting as a talent agent without the license California law required.

That alleged violation, Ferrer asserted, made the Ferrer-Preston contract unenforceable.

Ferrer asked the California trial court for an injunction against the arbitration, pending the Labor Commissioner's decision on the legality of the contract.

Preston opposed the injunction and asked the California Court to order immediate arbitration.

The threshold question on which this case turns, who has initial authority to decide whether Preston acted as an unlicensed talent agent, the Labor Commissioner or an arbitrator?

The California trial court held that under California law, the Labor Commissioner had primary authority and the Court of Appeals affirmed in a two-to-one decision.

The California Appeals Court acknowledged that this Court's -- this Court had clearly ruled that under the Federal Arbitration Act, questions concerning the validity of a contract with an arbitration clause ought to be decided in the first instance by an arbitrator, not by a court.

This case is different, the California Court held, because California law vests exclusive original jurisdiction in an administrative agency, the Labor Commissioner, not in a court.

For reasons detailed in our opinion, we reverse the judgment of the California Court of Appeals, and hold that when parties agree to arbitrate all questions arising under their contracts, state law lodging primary jurisdiction in another forum, whether judicial or administrative are superseded by the Federal Arbitration Act.

Ferrer urged us to hold that the provision of California's Talent Agencies Act vesting original jurisdiction in the Labor Commissioner is compatible with the Federal Arbitration Act because California's law merely postpones and does not exclude eventual arbitration.

But under Ferrer's scenario, arbitration, if it ever occurred after the Labor Commissioner's first instance decision, would likely be long delayed.

Congress designed the Federal Arbitration Act to avoid delay, parties who agreed to an arbitral forum are to be moved into that forum as quickly and easily as possible.

Ferrer also stressed that in addition to an arbitration clause, his contract with Preston contained the choice-of-law clause calling for the application of California law.

But in a prior decision, we claimed that the best way to harmonize a choice-of-law clause with an arbitration clause calling for proceedings under prescribed rules such as those of the American Arbitration Association is this, “Read the choice-of-law clause to refer to state substantive law of principles, but not to prescriptions limiting the arbitrator's authority as decision maker.”

So here, the Talent Agencies Act provides substantive law relevant to the controversy, but that law is to be applied by the arbitrator under procedures that are in the American Arbitration Association rules.

Thus, the California Court of Appeals erred in staying arbitration and in declaring the Labor Commissioner first-line decision maker.

Justice Thomas has filed a dissenting opinion.