February 22, 2008
Supreme Court: Arbitration Clause Trumps State Law
Law professors keep writing about the problems with pre-dispute arbitration clauses and their possible interference with important public interests. Meanwhile, the U.S. Supreme Court keeps ignoring all that advice. Latest win for the pro-arbitration forces is Justice Ruth Bader Ginsburg's 8-1 decision in Preston v. Ferrer, No. 06-1463 (U.S. Feb. 20, 2008), which holds that the question of whether a contract is unenforceable under California's Talent Agencies Act is one that must be decided by an arbitrator, not by a court.
California law puts certain restrictions on talent agents, and vests exclusive jurisdiction over their contracts in the state's Labor Commissioner. Television's "Judge Alex" Ferrer (left) got into a dispute with entertainment lawyer Arnold Preston (right). Preston claimed certain fees under a contract with The Judge, and invoked arbitration, as provided in the contract. Ferrer countered by claiming that the contract with Preston was invalid because it was in violation of the TAA. The state Court of Appeals held that arbitration had to be stayed while the Commissioner reviewed the contract.
This was error, wrote Ginsburg, since when the parties have an arbitration clause the Federal Arbitration Act supersedes state laws that provide for a specific forum. It is for the arbitrator, not the Commissioner, to determine whether the contract violates the state's TAA.
Justice Thomas dissented on the ground that the Federal Arbitration Act does not apply in state court proceedings.
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