The question at issue in Preston v. Ferrer, 552 U.S. ___ (February 20, 2008), was whether the Federal Arbitration Act (FAA) preempts state statutes that create primary jurisdiction in a state administrative agency for a dispute arising among parties who have a private arbitration agreement. The Court held, in an unsurprising 8-1 decision, that the FAA overrides state laws which attempt to send disputes to an administrative agency before arbitration.
The Preston case raised the question whether the FAA preempts the California Talent Agencies Act. Preston involved a dispute between a purported talent agent and his client, Alex Ferrer, over fees. “Judge Alex”, as he is known from his television show, wanted to avoid the arbitration agreement contained in his contract with Preston and take his case to the California Labor Commissioner (who oversees talent agent/client disputes). The California statute which authorizes parties to take their disputes to the Commissioner also permits de novo review of the Commissioner’s decision in California Superior Court.
Preston disagreed, contending that he was Ferrer’s personal manager, not his talent agent. As a result, Preston asserted, the California Talent Agencies Act didn’t even cover this dispute – instead, the parties’ arbitration agreement conferred on an arbitrator the authority to decide this question.
The Court unequivocally agreed with Preston, stating that in Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440 (2006), the Court gave the arbitrator the ability to answer questions about the validity of the overall contract between the parties, even when one of the parties contended that the parties’ agreement was void. Moreover, the Court rejected Ferrer’s argument that the Labor Commissioner should decide questions about whether Preston was a talent agent. Allowing the Commissioner to address the question interferes with the parties’ ability to enforce their arbitration agreement, a result the FAA does not permit. The Court also rejected Ferrer’s argument that the California statute only delays arbitration, it does not prevent it (and that the delay is a distinguishing factor that should result in avoiding preemption). According to the Court, the delay, which could be quite lengthy, is inconsistent with Congress’s goal of expeditious resolution of disputes in arbitration. Thus, the FAA preempts the state statute.
The Court also rejected Ferrer’s reliance on Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468 (1989). Volt permitted parties to stay arbitration pending the outcome of litigation between one of the parties to arbitration and a non-party. The Court distinguished Volt on the ground that Preston involves only arbitration parties (not any non-parties) and is, therefore, different because there is no risk of inconsistent rulings in litigation involving non-parties.
The Preston decision offers no surprises. It seemed clear from the outset, and certainly after the oral argument, that the Court would hold that the FAA preempted a state statute that placed primary jurisdiction over a dispute in a state administrative agency instead of in arbitration, when the parties had agreed to arbitrate. The Court’s decision is consistent with its longstanding view that the FAA preempts state statutes that interfere with the FAA’s underlying goals of ensuring efficient enforcement of private arbitration agreements.