Consistent with the strong federal policy favoring the enforcement of arbitration agreements, the United States Supreme Court recently held that when parties agree to arbitrate all questions arising under a contract, the Federal Arbitration Act (“FAA”) supersedes state laws lodging primary jurisdiction in another forum.  See Preston v. Ferrer, No. 06-1463 (U.S. Feb. 20, 2008).

Alex E. Ferrer, who appears as “Judge Alex” on a television show, entered into a contract with Arnold Preston, an attorney who provides services for people in the entertainment industry.  The contract contained a provision providing that “any dispute…relating to the terms of [the contract] or the breach, validity, or legality thereof” shall be referred to arbitration in accordance with the rules of the American Arbitration Association.  After a dispute arose between the parties involving the contract, Preston demanded arbitration.

Ferrer opposed arbitration and commenced proceedings before an administrative agency, the California Labor Commissioner, alleging that the contract was invalid and unenforceable under the California Talent Agencies Act (“TAA”) because Preston acted as a talent agent without the required license.  Ferrer also sought to have the arbitration stayed.

The Labor Commissioner’s hearing officer determined that the dispute fell within the scope of that office’s jurisdiction under California law, but denied Ferrer’s motion to stay the arbitration on the grounds that it lacked authority to order such relief.  Ferrer filed suit in state court to enjoin the arbitration and Preston moved to compel arbitration.  The court denied Preston’s motion to compel and enjoined him from proceeding in arbitration unless or until the Labor Commissioner determined that it lacked jurisdiction over the dispute between Preston and Ferrer.  During the pendency of Preston’s appeal of the court’s decision, the United States Supreme Court held in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006) that challenges to the validity of a contract providing for arbitration ordinarily should be considered by an arbitrator, not a court.

The California Court of Appeal affirmed the lower court’s decision, holding that the TAA vested the Labor Commissioner with exclusive original jurisdiction over the parties’ dispute and finding Buckeye inapposite because that case involved whether a court, and not an administrative agency, had jurisdiction over a dispute that otherwise fell within the scope of an arbitration clause.  The California Supreme Court denied Preston’s petition for review, but the U.S. Supreme Court granted certiorari to determine whether the FAA overrides a state law vesting initial adjudicatory authority in an administrative agency.  Relying on Buckeye, the Supreme Court reversed the California Court of Appeal’s decision, finding that the FAA supersedes state laws providing primary jurisdiction over a dispute in another forum, whether judicial or administrative.  Click here to review a copy of the Supreme Court’s decision.