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1-1-2008 Does the FAA California's Authority to Determine the Validity of a Performer's Personal Management Contract? Jay E. Grenig Marquette University Law School, [email protected]

Follow this and additional works at: http://scholarship.law.marquette.edu/facpub Part of the Law Commons Publication Information Jay E. Grenig, Does the FAA Preempt California's Authority to Determine the Validity of a Performer's Personal Management Contract?, 35 Preview U.S. Sup. Ct. Cas. 180 (2008). © 2008 American Bar Association. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Repository Citation Grenig, Jay E., "Does the FAA Preempt California's Authority to Determine the Validity of a Performer's Personal Management Contract?" (2008). Faculty Publications. Paper 358. http://scholarship.law.marquette.edu/facpub/358

This Article is brought to you for free and open access by the Faculty Scholarship at Marquette Law Scholarly Commons. It has been accepted for inclusion in Faculty Publications by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contact [email protected]. ARBITRATION Case Does the FAA Preempt California’s Case Authority to Determine the Validity of a atat aa Performer’s Personal Management Contract? by Jay E. Grenig GlanceGlance PREVIEW of United States Supreme Court Cases, pages 180–185. © 2008 American Bar Association. Ferrer, the management agreement Jay E. Grenig is a professor of law was shown to Ferrer hours before a at Marquette University Law meeting between Ferrer and several School in Milwaukee, Wisconsin. television network executives and Professor Grenig is author of producers. The agreement also enti- tled Preston to a sizable commission In this case, the Supreme Alternative Dispute Resolution, 3d edition. He can be reached at stemming from any employment Court is asked to [email protected] or Ferrer obtained as a result of the determine whether the (262) 646-3324. meeting. Although Ferrer did not Federal Arbitration Act obtain employment as a result of the meeting, he was later employed the California in the television industry working Labor Commissioner’s with two of the producers he had jurisdiction to conduct an met at the meeting. administrative hearing ISSUE Does the Federal Arbitration Act The management agreement includ- and determine whether preempt the California Supreme ed a standard American Arbitration an individual has violated Court’s decision holding that the Association (AAA) provision calling the California Talent California Talent Agencies Act pre- for arbitration of disputes. The arbi- Agencies Act. cluded a manager from requiring a tration clause specifically provided performer to arbitrate a dispute that disputes about the “validity” with a performer with respect to the and “legality” of the contract would performer’s personal management be decided by arbitration. Ferrer contract? resides in Florida and tapes the Judge Alex television program in FACTS Texas. Preston had his office in California. Ferrer was in Nevada Respondent Alex Ferrer is a former when he signed the management Florida judge who is the star of agreement. Judge Alex, a syndicated television program, in which Ferrer arbitrates When Judge Alex went on the air, minor civil disputes as a form of Ferrer allegedly refused to pay entertainment. Petitioner Arnold M. Preston is an attorney who provides services as a personal manager, advising and counseling artistic per- sonnel in the motion picture and PRESTON V. FERRER television industry. He has never DOCKET NO. 06-1463 been a licensed talent agent. ARGUMENT DATE: In March 2002, Preston and Ferrer JANUARY 14, 2008 entered into a written management FROM: SUPREME COURT agreement providing for payment of OF CALIFORNIA a fee based on Ferrer’s earnings from Judge Alex. According to

180 Preston the management fee provid- labor commissioner, not the arbitra- tinguished Buckeye on the grounds ed by the management agreement. tor. The Superior Court determined that the Talent Agencies Act vests On June 4, 2005, Preston filed a that under the Talent Agencies Act, initial jurisdiction in an administra- demand for arbitration with the the labor commissioner could pro- tive agency, whereas Buckeye AAA in Los Angeles, California. ceed with the commissioner’s involved an attempt to avoid arbi- Ferrer responded on July 5, 2005, inquiry before the parties litigate or tration by filing a lawsuit in a court. by filing an action with the arbitrate their dispute. California Labor Commissioner, The California Supreme Court challenging the legality of the entire In a 2-1 decision, the California denied review on February 14, management contract under the Court of Appeal affirmed the 2007. Preston’s request for review California Talent Agencies Act. Superior Court’s decision. Ferrer v. by the U.S. Supreme Court was Among other things, Ferrer asked Preston, 145 Cal.App.4th 440 granted on September 25, 2007. 128 for a declaration that the manage- (2006). Relying on California Labor S.Ct. 31 (2007). ment agreement was , and for Code § 1700.44(a), the court held an order staying the arbitration. the labor commissioner had exclu- CASE ANALYSIS sive jurisdiction to hear disputes Arbitration is a method of dispute Under the Talent Agencies Act, any- under the Talent Agencies Act. resolution in which the parties sub- one who procures or attempts to Acknowledging that the parties’ con- mit a dispute to an impartial person procure employment for an artist in tract included a standard AAA arbi- selected by the parties. The arbitra- the television, stage, or motion pic- tration clause, including a stipula- tion procedure is generally less for- ture industry is a “talent agency” tion that the parties are to arbitrate mal than a judicial trial. The arbi- and must be licensed by the any attack on the “validity or trator’s decision is final and binding California labor commissioner. legality” of the contract, the court on the parties. Ferrer claims that Preston is not a said that California Labor Code licensed talent agent and, moreover, § 1700.44(a) nonetheless vests Traditionally, courts refused to that the contract Preston presented exclusive original jurisdiction in the enforce agreements to arbitrate. to Ferrer had not been approved by labor commissioner to resolve issues The Federal Arbitration Act of 1925 the labor commissioner as required arising under the act. (FAA) changed that common-law by the Talent Agencies Act. rule and made a written agreement The dissenting opinion contended to arbitrate specifically enforceable The labor commissioner’s hearing that the Federal Arbitration Act and in the federal courts—if the agree- officer determined that the Ferrer Buckeye Check Cashing, Inc. v. ment is connected with a maritime petition asserted a “colorable basis Cardegna, 546 U.S. 440 (2006), transaction or evidences a transac- for exercise of the Labor preempted the majority decision, tion involving foreign or interstate Commissioner’s jurisdiction.” stating: commerce. According to the However, the hearing officer also Supreme Court, in enacting the determined she lacked the authority Because it is undisputed (correct- FAA, Congress intended to create a to stay the arbitration. ly) that the contract before us is new body of federal substantive law governed by the FAA … it follows affecting the validity and interpreta- The arbitrator set a hearing on the necessarily that the arbitrator tion of arbitration agreements and merits for January 26, 2006. On and not the court must deter- to exercise as much of its constitu- November 2, 2005, Ferrer filed suit mine the gateway issues. My tional power under the Commerce in the Los Angeles Superior Court, colleagues’ contrary conclusion Clause as it could in order to make seeking an injunction against the —based on the fact that the the FAA as widely effective as possi- arbitration. Preston responded by Buckeye court did not consider ble. See Southland Corp. v. filing a Motion to Compel whether the issue should go Keating, 465 U.S. 1 (1984). The Arbitration in the Superior Court. first to a state administrative FAA applies in state courts as well On December 7, 2005, the Superior agency—ignores Buckeye’s hold- as in federal courts. Court denied Preston’s Motion to ing that its rules conflict- Compel Arbitration, issued the ing state procedures. The Supreme Court has determined injunction against the arbitration, that in enacting the FAA, Congress and ordered that the legality of the The majority of the Court of Appeal declared a national policy favoring entire contract under the Talent did not dispute the applicability of arbitration and withdrawing the Agencies Act be decided by the the Federal Arbitration Act, but dis- (Continued on Page 182)

American Bar Association 181 power of the states to require a judi- arbitration clause is valid and commissioner’s review is informal, cial forum for the resolution of applicable, the parties may proceed expeditious, and subject to com- claims that the contracting parties to arbitration if either is dissatisfied plete de novo r eview, Ferrer says it have agreed to resolve by arbitra- with the commissioner’s determina- does not tie the hands of the arbi- tion. Doctor’s Associates, Inc. v. tion. If so, Ferrer says an arbitrator, trator, who is left, as between the Casarotto, 517 U.S. 681, 687 rather than a court, will resolve the parties, to fashion the ultimate rem- (1996). According to the Supreme controversy. edy. At the same time, as between Court, there is a strong federal poli- the parties and the state of cy favoring arbitration of statutory It is Preston’s position that the fact California, Ferrer contends the claims. Green Tree Financial Corp.- that Ferrer was the petitioner in the Talent Agencies Act procedure per- Alabama v. Randolph, 531 U.S. 79, labor commissioner proceeding and mits the commissioner to exercise 89-90 (2000). a plaintiff in the Superior Court her administrative, regulatory action distinguishes this case from authority to conduct an investiga- The Supreme Court has held that a Equal Employment Opportunity tion, make an initial determination court’s duty to enforce an arbitra- Commission v. Waffle House, Inc., whether the act has been violated, tion agreement is not diminished 534 U.S. 279 (2002), in which the and take appropriate administrative when a party bound by an agree- court held that an agreement action—an authority that private ment raises a claim based on statu- between an employer and an parties are powerless to negate by tory rights. Gilmer v. Interstate/ employee to arbitrate employment- contract. Johnson Lane Corp., 500 U.S. 20 related disputes does not bar the (1991). By agreeing to arbitrate a EEOC from pursuing victim-specific Preston contends the express intent statutory claim, the Supreme Court judicial relief, such as back pay, of the parties in the present case reasoned, a party does not forgo the reinstatement, and damages, in an was that the arbitrator shall decide substantive rights afforded by the Americans with Disabilities Act the validity of the entire contract. statute; it only submits to their res- enforcement action. Preston points out that the manage- olution in an arbitral, rather than a ment agreement expressly states judicial, forum. In Waffle House, Preston notes, the that the “validity or legality” of the EEOC filed an enforcement action contract is subject to arbitration. Preston asserts that, under the FAA, in its own name. According to Even if the “validity or legality” lan- the arbitrator decides issues con- Preston, the decision in Waffle guage was not present, Preston cerning the legality of the entire House clearly turned on the identity argues that the management agree- contract. He argues that, because of the EEOC as the named plaintiff ment incorporates the AAA rules. It only attacks on the arbitration and its status as a nonsignatory to notes those rules contain an express agreement itself are decided by the the arbitration agreement. Preston agreement to arbitrate issues of the judiciary, allegations that the entire submits that Waffle House ultimate- “validity” of the contract. contract is void or illegal are decid- ly hinges on the exercise of discre- ed by the arbitrator. According to tion by the administrative enforce- Pointing out that California has long Preston, state law abrogation of the ment agency. Preston asserts that in been recognized as “the center of right to arbitrate is subject to FAA his case, by contrast, the labor com- the entertainment industry,” Ferrer preemption. Preston reasons that, missioner did not file an action in asserts that the state has a strong on its face, Ferrer’s petition to the her own name. Based on Ferrer’s interest in regulating relations labor commissioner is nothing more pleading, the hearing officer merely between artists and those who pro- than a private, civil pleading that found there was a “colorable” case cure or attempt to procure employ- seeks an adjudication that the based on Ferrer’s pleadings. There ment for them. Ferrer claims that entire contract is invalid. was never any evaluation of evi- employing the expert office of the dence, much less any decision by California labor commissioner to Ferrer responds that the FAA does the labor commissioner to file a law- monitor and adjust relations not preempt state procedural laws suit in her own name. between agents and artists furthers that the parties expressly incorpo- important state interests. rate into their contracts. It is Ferrer disagrees, asserting that the Ferrer’s position that the principal FAA does not preempt the Preston concludes that, if Ferrer purpose of the FAA is to enforce the California procedural rules that had honored his promise to arbi- parties’ contract in accordance with merely postpone arbitration. Ferrer trate, including the specific promise its terms. Ferrer argues that, if the suggests that, because the labor to arbitrate the “validity or legality”

182 Issue No. 4 Volume 35 of the contract, this case would that the agreement violated various disputes to be settled by arbitration. have been expeditiously and eco- Florida laws, making it criminal on After an employee suffered a seizure nomically resolved at a two-day its face. and was fired by Waffle House, he hearing on January 26 and 27, filed a timely discrimination charge 2006. Instead, Preston says the mat- The trial court denied Buckeye’s with the Equal Employment ter has been contested before the motion to compel arbitration, hold- Opportunity Commission alleging his arbitrator, the labor commissioner, ing that a court rather than an arbi- discharge violated Title I of the the Los Angeles Superior Court, the trator should resolve a claim that a Americans with Disabilities Act. The California Court of Appeal, the contract is illegal and void from the EEOC filed an enforcement suit, to California Supreme Court, and now beginning. A state appellate court which the employee was not a party, before the highest Court in the land. reversed, but was in turn reversed alleging the employment practices of by the Florida Supreme Court, Waffle House, including the employ- Noting that the management agree- which reasoned that enforcing an ee’s discharge “because of his disabil- ment specifically provides that it is arbitration agreement in a contract ity,” violated the ADA, and that the governed by the laws of California, challenged as unlawful would violate violation was intentional and done Ferrer contends that Preston agreed state public policy and contract law. with malice or reckless indifference. to be bound by the Talent Agencies The complaint requested injunctive Act procedure. Accordingly, Ferrer The U.S. Supreme Court reversed relief to eradicate the effects of says that Preston should be bound the Florida Supreme Court, holding Waffle House’s past and present by that agreement. that, regardless of whether it is unlawful employment practices. brought in federal or state court, a Ferrer also suggests the Supreme challenge to the validity of a con- Waffle House petitioned under the Court should consider overruling its tract as a whole, and not specifically FAA to stay the EEOC’s suit and to decision in Southland v. Keating, to the arbitration clause within it, compel arbitration, or to dismiss the 45 U.S. 1 (1984), and hold that the must go to the arbitrator, not the action. The district court denied FAA does not preempt state statutes court. The Court explained that, as relief. The Fourth Circuit concluded exempting certain state law contro- a matter of substantive federal arbi- that the arbitration agreement versies from arbitration. tration law, an arbitration provision between Baker and Waffle House did is severable from the remainder of not foreclose the enforcement This proceeding implicates four the contract. Unless the challenge is action because the EEOC was not a Supreme Court decisions: (1) to the arbitration clause itself, the party to the contract, but had inde- Buckeye Check Cashing, Inc. v. Court said the issue of the con- pendent statutory authority to bring Cardegna, 546 U.S. 440 (2006); (2) tract’s validity is considered by the suit in any federal district court EEOC v. Waffle House, Inc., 534 arbitrator in the first instance. where venue was proper. U.S. 279 (2002); (3) Gilmer v. Finally, the Court held that this Nevertheless, the court held that Interstate/Johnson Lane Corp., 500 arbitration law applies in state as the EEOC was limited to injunctive U.S. 20 (1991); and (4) Southland well as in federal courts. relief and precluded from seeking v. Keating, 45 U.S. 1 (1984). victim-specific relief because the The Court rejected the borrowers’ FAA policy favoring enforcement of In Buckeye Check Cashing, Inc. v. claim that the agreement as a whole private arbitration agreements out- Cardegna, borrowers brought a (including its arbitration provision) weighs the EEOC’s right to proceed class-action lawsuit against Buckeye was rendered invalid by the usuri- in federal court when it seeks pri- Check Cashing, alleging Buckeye ous finance charge. Because the marily to vindicate private, rather had made illegal usurious loans dis- borrowers challenged the entire than public, interests. guised as check cashing transac- agreement, and not specifically its tions in violation of various state arbitration provisions, the Court The Supreme Court held an agree- statutes. For each deferred-payment ruled the arbitration provisions ment between an employer and an transaction the borrowers entered were enforceable apart from the employee to arbitrate employment- into with Buckeye, they signed an remainder of the contract, and that related disputes does not bar the agreement containing provisions the challenge should be considered EEOC from pursuing victim-specific that required binding arbitration to by an arbitrator, not a court. judicial relief, such as back pay, resolve disputes arising out of the reinstatement, and damages, in an agreement. The borrowers sued in In the Waffle House case, Waffle ADA enforcement action. The Court Florida state court, alleging Buckeye House employees had to sign an reasoned that neither statutes nor charged usurious interest rates and agreement requiring employment (Continued on Page 184)

American Bar Association 183 the Court’s decisions suggest that Interstate/Johnson terminated improperly deprive claimants of the the existence of an arbitration Gilmer’s employment at age 62. judicial forum provided by the agreement between private parties Gilmer filed a charge with the ADEA. materially changes the EEOC’s EEOC and brought suit in the dis- statutory function or the remedies trict court, alleging that he had been In Southland, the Supreme Court otherwise available. Despite the FAA discharged in violation of the Age held that, in enacting § 2 of the policy favoring arbitration agree- Discrimination in Employment Act. FAA, Congress declared a national ments, the Court said nothing in the Interstate/Johnson moved to compel policy favoring arbitration and with- FAA authorizes a court to compel arbitration, relying on the agree- drew the power of a state to require arbitration of any issues, or by any ment in Gilmer’s registration appli- a judicial forum for the resolution of parties, that are not already covered cation and the FAA. The court claims that the contracting parties in the agreement. The Court said denied the motion, based on agreed to resolve by arbitration. The the FAA does not mention enforce- Alexander v. Gardner-Denver Co., Supreme Court declared that the ment by public agencies; it ensures 415 U.S. 36 (1974), which held that FAA, resting on Congress’s authority the enforceability of private agree- an employee’s suit under Title VII of under the Commerce Clause, cre- ments to arbitrate, but otherwise the Civil Rights Act of 1964 is not ates a body of federal substantive does not purport to place any foreclosed by the prior submission law that is applicable in both state restriction on a nonparty’s choice of of his claim to arbitration under the and federal courts. If Congress, in a judicial forum. terms of a collective-bargaining enacting FAA, had intended to cre- agreement. The court of appeals ate a procedural rule applicable Because the EEOC was not a party reversed. only in federal courts, the Supreme to the contract and had not agreed Court said it would not have limited to arbitrate its claims, Court ruled The Supreme Court held that an the act to contracts “involving the FAA’s pro-arbitration policy ADEA claim can be subjected to commerce.” goals do not require the EEOC to compulsory arbitration. Since nei- relinquish its statutory authority to ther the text nor the legislative his- SIGNIFICANCE pursue victim-specific relief, regard- tory of the ADEA explicitly pre- The Supreme Court now has the less of the forum that the employer cludes arbitration, Gilmer was opportunity to clarify whether in and employee have chosen to bound by his agreement to arbitrate light of these cases the FAA pre- resolve their disputes. Although an unless he could show an inherent empts a state law mandating that a employee’s conduct may effectively conflict between arbitration and the matter be submitted to an adminis- limit the relief the EEOC can obtain ADEA’s underlying purposes. The trative agency before a complainant in court if, for example, the employ- Court determined there was no who has agreed to arbitration may ee fails to mitigate damages or inconsistency between the impor- seek judicial resolution or have the accepts a monetary settlement, the tant social policies furthered by the matter submitted to arbitration. Court noted that the Waffle House ADEA and the policy of enforcing employee had not sought arbitra- agreements to arbitrate age discrim- This is an important case with tion, and there was no indication he ination claims. respect to defining the nature of dis- had entered into settlement negotia- putes that can be submitted to arbi- tions with Waffle House. The Court held that arbitration tration. A decision in favor of the would not undermine the EEOC’s petitioner will demonstrate the In Gilmer v. Interstate/Johnson role in ADEA enforcement. It noted Supreme Court’s continued policy of Lane Corp., 500 U.S. 20 (1991), that an ADEA claimant is free to file encouraging arbitration of all dis- Gilmer was required by an EEOC charge even if he is pre- putes. It would limit the ability of Interstate/Johnson, his employer, to cluded from instituting suit; the states to require that disputes be register as a securities representa- EEOC has independent authority to submitted to state administrative tive with, among others, the New investigate age discrimination; the agencies for resolution. York Stock Exchange. His registra- ADEA does not indicate that tion application contained an agree- Congress intended that the EEOC A decision in favor of the respon- ment to arbitrate when required to be involved in all disputes; and an dent would limit the applicability of by NYSE rules. NYSE Rule 347 pro- administrative agency’s mere the FAA to state courts. It would vides for arbitration of any contro- involvement in a statute’s enforce- permit states, in some situations, to versy arising out of a registered rep- ment is insufficient to preclude arbi- require that certain matters be sub- resentative’s employment or termi- tration. Moreover, the Court said mitted to state administrative agen- nation of employment. compulsory arbitration does not

184 Issue No. 4 Volume 35 cies before they can be submitted to the courts or to arbitration. Moreover, the respondent has also invited the Supreme Court to con- sider overruling its decision in Southland, holding that the FAA is a substantive statute.

ATTORNEYS FOR THE PARTIES For Petitioner Arnold M. Preston (Joseph D. Schleimer, Schleimer & Freundlich, LLP (310) 273-9807)

For Respondent Alex E. Ferrer (G. Eric Brunstad, Jr., Bingham McCutchen LLP (860) 240-2700)

AMICUS BRIEFS In Support of Petitioner Arnold M. Preston Chamber of Commerce of the United States of America (Andrew J. Pincus (202) 263-3000) CTIA—the Wireless Association (Glen D. Nager (202) 879-3939) Macy’s Group Inc. (Glen D. Nager (202) 879-3939) Pacific Legal Foundation (Timothy Sandefur (916) 419-7111)

In Support of Respondent Alex E. Ferrer Actors Guild, Inc., et al. (Duncan Crabtree-Ireland (323) 549-6043) William Morris Agency (David J. Bederman (404) 727-6822)

American Bar Association 185