Preston v. Ferrer
169 L. Ed. 2d 917 · Supreme Court of the United States · 2008
Facts
Petitioner Arnold M. Preston, an attorney, sought fees from respondent Alex E. Ferrer, a television judge, under a contract that included a broad arbitration clause covering disputes about its terms, breach, validity, or legality. Preston initiated arbitration to resolve the fee dispute. Ferrer countered by petitioning the California Labor Commissioner, alleging Preston acted as an unlicensed talent agent in violation of the California Talent Agencies Act (TAA), which would render the entire contract void. The Labor Commissioner's hearing officer found a "colorable basis" for jurisdiction but lacked authority to stay the arbitration. Ferrer then filed suit in Los Angeles Superior Court, seeking a declaration that the contract was not subject to arbitration and an injunction to prevent Preston from proceeding with arbitration.
Procedural history
After the Labor Commissioner's hearing officer denied a stay of arbitration, Ferrer filed suit in Los Angeles Superior Court, which denied Preston's motion to compel arbitration and enjoined him from proceeding. The California Court of Appeal affirmed, holding that the TAA vested exclusive original jurisdiction in the Labor Commissioner. The California Supreme Court denied review, leading the U.S. Supreme Court to grant certiorari to determine if the FAA overrides state law vesting initial adjudicatory authority in an administrative agency.
Issue
Does the Federal Arbitration Act (FAA) override state laws that grant primary jurisdiction over contract disputes, including questions of contract validity, to an administrative agency rather than allowing immediate arbitration as agreed by the parties?
Holding
Yes, the FAA overrides state laws that vest primary jurisdiction in an administrative agency when parties have agreed to arbitrate all questions arising under a contract.
Rule
The Federal Arbitration Act (FAA) establishes a national policy favoring arbitration, applying federal substantive law regarding arbitration in both state and federal courts. Under the FAA, challenges to the validity of an entire contract containing an arbitration clause are to be resolved by the arbitrator, not a court or administrative agency, in the first instance. This principle applies even when a state statute purports to grant exclusive original jurisdiction to an administrative agency over such disputes, as the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative. A choice-of-law clause specifying state law governs substantive rights but does not incorporate state rules that limit the authority of arbitrators, especially when the contract also incorporates arbitration rules that grant arbitrators the power to determine contract validity.
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