Preston v Ferrer: FAA preempts California statute
February 20, 2008 by Ross Runkel at LawMemo
Preston v Ferrer (US Supreme Court, February 20, 2008).
8 to 1, US Supreme Court today holds that issues are to be decided by an arbitrator, not by the California Labor Commissioner. No surprises here.
The official syllabus:
A contract between respondent Ferrer, who appears on television as “Judge Alex,” and petitioner Preston, an entertainment industry attorney, requires arbitration of “any dispute … relating to the [contract’s] terms … or the breach, validity, or legality thereof … in accordance with [American Arbitration Association (AAA)] rules.” Preston invoked this provision to gain fees allegedly due under the contract. Ferrer thereupon petitioned the California Labor Commissioner (Labor Commissioner) for a determination that the contract was invalid and unenforceable under California’s Talent Agencies Act (TAA) because Preston had acted as a talent agent without the required license. After the Labor Commissioner’s hearing officer denied Ferrer’s motion to stay the arbitration, Ferrer filed suit in state court seeking to enjoin arbitration, and Preston moved to compel arbitration. The court denied Preston’s motion and enjoined him from proceeding before the arbitrator unless and until the Labor Commissioner determined she lacked jurisdiction over the dispute. While Preston’s appeal was pending, this Court held, in Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440 , that challenges to the validity of a contract requiring arbitration of disputes ordinarily “should … be considered by an arbitrator, not a court.” Affirming the judgment below, the California Court of Appeal held that the TAA vested the Labor Commissioner with exclusive original jurisdiction over the dispute, and that Buckeye was inapposite because it did not involve an administrative agency with exclusive jurisdiction over a disputed issue.
Held: When parties agree to arbitrate all questions arising under a contract, the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq., supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative. Pp. 4–16.
(a) The issue is not whether the FAA preempts the TAA wholesale. Instead, the question is simply who decides—the arbitrator or the Labor Commissioner—whether Preston acted as an unlicensed talent agent in violation of the TAA, as Ferrer claims, or as a personal manager not governed by the TAA, as Preston contends. P. 4.
(b) FAA §2 “declare[s] a national policy favoring arbitration” when the parties contract for that mode of dispute resolution. Southland Corp. v. Keating, 465 U. S. 1 , 10. That national policy “appli[es] in state as well as federal courts” and “foreclose[s] state legislative attempts to undercut the enforceability of arbitration agreements.” Id., at 16. The FAA’s displacement of conflicting state law has been repeatedly reaffirmed. See, e.g., Buckeye, 546 U. S., at 445–446; Allied-Bruce Terminix Cos. v. Dobson, 513 U. S. 265 . A recurring question under §2 is who should decide whether “grounds … exist at law or in equity” to invalidate an arbitration agreement. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395 , which originated in federal court, this Court held that attacks on an entire contract’s validity, as distinct from attacks on the arbitration clause alone, are within the arbitrator’s ken. Buckeye held that the same rule applies in state court. See 546 U. S., at 446.
Buckeye largely, if not entirely, resolves the present dispute. The contract at issue clearly “evidenc[ed] a transaction involving commerce” under §2, and Ferrer has never disputed that the contract’s written arbitration provision falls within §2’s purview. Ferrer sought invalidation of the contract as a whole. He made no discrete challenge to the validity of the arbitration clause, and thus sought to override that clause on a ground Buckeye requires the arbitrator to decide in the first instance. Pp. 5–6.
(c) Ferrer attempts to distinguish Buckeye, urging that the TAA merely requires exhaustion of administrative remedies before the parties proceed to arbitration. This argument is unconvincing. Pp. 6–12.
(1) Procedural prescriptions of the TAA conflict with the FAA’s dispute resolution regime in two basic respects: (1) One TAA provision grants the Labor Commissioner exclusive jurisdiction to decide an issue that the parties agreed to arbitrate, see Buckeye, 546 U. S., at 446; (2) another imposes prerequisites to enforcement of an arbitration agreement that are not applicable to contracts generally, see Doctor’s Associates, Inc. v. Casarotto, 517 U. S. 681 . Pp. 7–8.
(2) Ferrer contends that the TAA is compatible with the FAA because the TAA provision vesting exclusive jurisdiction in the Labor Commissioner merely postpones arbitration. That position is contrary to the one Ferrer took in the California courts and does not withstand examination. Arbitration, if it ever occurred following the Labor Commissioner’s decision, would likely be long delayed, in contravention of Congress’ intent “to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1 . Pp. 8–10.
(3) Ferrer contends that the conflict between the arbitration clause and the TAA should be overlooked because Labor Commissioner proceedings are administrative rather than judicial. The Court rejected a similar argument in Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20 . Pp. 10–12.
(d) Ferrer’s reliance on Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468 , is misplaced for two reasons. First, arbitration was stayed in Volt to accommodate litigation involving third parties who were strangers to the arbitration agreement. Because the contract at issue in Volt did not address the order of proceedings and included a choice-of-law clause adopting California law, the Volt Court recognized as the gap filler a California statute authorizing the state court to stay either third-party court proceedings or arbitration proceedings to avoid the possibility of conflicting rulings on a common issue. Here, in contrast, the arbitration clause speaks to the matter in controversy; both parties are bound by the arbitration agreement; the question of Preston’s status as a talent agent relates to the validity or legality of the contract; there is no risk that related litigation will yield conflicting rulings on common issues; and there is no other procedural void for the choice-of-law clause to fill. Second, the Court is guided by its decision in Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U. S. 52 . Although the Volt contract provided for arbitration in accordance with AAA rules, 489 U. S., at 470, n. 1, Volt never argued that incorporation of those rules by reference trumped the contract’s choice-of-law clause, so this Court never addressed the import of such incorporation. In Mastrobuono, the Court reached that open question, declaring that the “best way to harmonize” a New York choice-of-law clause and a clause providing for arbitration in accordance with privately promulgated arbitration rules was to read the choice-of-law clause “to encompass substantive principles that New York courts would apply, but not to include [New York’s] special rules limiting [arbitrators’] authority.” 514 U. S., at 63–64. Similarly here, the “best way to harmonize” the Ferrer-Preston contract’s adoption of the AAA rules and its selection of California law is to read the latter to encompass prescriptions governing the parties’ substantive rights and obligations, but not the State’s “special rules limiting [arbitrators’] authority.” Ibid. Pp. 12–15.
145 Cal. App. 4th 440, 51 Cal. Rptr. 3d 628, reversed and remanded.
GINSBURG, J., delivered the opinion of the Court, in which ROBERTS, C. J., and STEVENS, SCALIA, KENNEDY, SOUTER, BREYER, and ALITO, JJ., joined. THOMAS, J., filed a dissenting opinion.
Supreme Court: Can union waive individual's right to sue?
February 19, 2008 by Ross Runkel at LawMemo
US Supreme Court will hear case on union's waiver of court forum for statutory claim.
When employees sued claiming age discrimination, the employer filed a motion to compel them to take the case to arbitration. The employees were covered by a collective bargaining agreement which prohibited age discrimination and also said "All such claims shall be subject to the grievance and arbitration procedure [in the collective bargaining agreement] as the sole and exclusive remedy for violations." The trial court denied the motion to compel arbitration, and the 2nd Circuit affirmed. The 2nd Circuit held that "arbitration provisions contained in a [collective bargaining agreement], which purport to waive employees' rights to a federal forum with respect to statutory claims, are unenforceable."
See discussion of this case at Daily Developments in EEO Law and at ADR Prof Blog: Supreme Court hears third arbitration case this term: 14 Penn Plaza v. Pyett and at Workplace Prof Blog: Supreme Court Certs
A new name
February 11, 2008 by Ross Runkel at LawMemo
A new name for this blog: LawMemo Arbitration Blog.
(Was Ross' Arbitration Blog)
It's all about branding.
The brand is LawMemo.
LawMemo is the name of the company, and the domain name.
The words "Law Memo" are part of our three email products:
- Employment Law Memo
- NLRB Law Memo
- Arbitration Law Memo
What could be more exciting than that?
How not to write an arbitration clause
February 04, 2008 by Ross Runkel at LawMemo
Roberto Rodriguez sued his former employer, asserting state law claims for unpaid commissions. The employer moved to compel arbitration, but the trial court denied the motion. The Washington Court of Appeals affirmed, agreeing with the trial court that the arbitration agreement was inherently unfair and unenforceable.
Rodriguez v. Windermere Real Estate (Washington Ct App 01/28/2008).
As the court put it:
Windermere provided the contract, wrote the arbitration procedures, and selects the arbitrators. The arbitrators must be solely from current employees within the Windermere franchisee family. The arbitrators are all brokers or agents of sister franchisees, which have a continuing, mutually beneficial relationship with the franchisor. The arbitrators are expected to reflect the “Windermere Way.” The “Windermere Way” may mean that it is in the interests of Windermere Wall Street to have the commission in dispute paid to a continuing employee rather than to someone whose employment it has terminated. We conclude the potential arbitrators have a known, existing and substantial relationship with the party-franchisee. On these facts, the process does not satisfy the neutrality requirements of the arbitration statute. We affirm the trial court’s denial of the motion to compel arbitration.
No "manifest disregard" as to class "opt out" provision
February 04, 2008 by Ross Runkel at LawMemo
An arbitrator's application of AAA's "opt-out" class certification provision (rather than FLSA's "opt-in" provision) didn't constitute "manifest disregard" of the law, says the 4th Circuit.
Long John Silver's v. Cole (4th Cir 01/29/2008).
Cole and her co-workers initiated class-wide arbitration proceedings against their employer pursuant to an arbitration agreement. The employees prevailed on their Fair Labor Standards Act (FLSA) claims, and the employer petitioned the trial court for an order vacating the arbitration award. The petition was denied, and the 4th Circuit affirmed.
The arbitration agreement provided that "[a]ny arbitration will be administered by the American Arbitration Association under its commercial arbitration rules...."
The American Arbitration Association's (AAA's) Supplementary Rules for Class Arbitrations provide for "opt-out" class certification.
However, the FLSA provides for "opt-in" class certification (29 USC Section 216(b)).
The arbitrator applied the AAA's opt-out provision.
The court concluded that the arbitrator's decision to apply that provision did not constitute a "manifest disregard" of applicable law justifying vacatur of the arbitration award.
The employer argued that the FLSA's opt-in provision constitutes a substantive right not waivable under an arbitration (or any other) agreement. However, no court has held that the FLSA's opt-in provision creates a substantive, non-waivable right. The court thus concluded "[i]t is far from clear that the 'opt-in' aspect of the Section 16(b) [opt-in] provision is such a nonwaivable substantive right." Disregard of a legal principle cannot constitute "manifest disregard" unless the principle is "clearly defined and not subject to reasonable debate." Thus, the arbitrator's decision on this issue did not constitute "manifest disregard."
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