Supreme Court Hears Argument on Preemption Issue Involving State Agency

Article excerpt

The U.S. Supreme Court engaged in a wide-ranging debate with the parties' attorneys over whether a California licensing law, which grants the Labor Commissioner initial jurisdiction over talent agency disputes (the Talent Agency Act or TAA), precludes enforcing the parties' arbitration agreement. The issue was debated on Jan. 14 in Arnold M. Preston v. Alex Ferrer (No. 06-1463). The California Court of Appeal ruling under review held that the Labor Commissioner should hear the dispute, rather than an arbitrator.

Preston, the petitioner in the case, argued that the FAA preempts the TAA and that the separability doctrine announced in Prima Paint Corp. v. Flood & Conklin Mfg. Co. (388 U.S. 395, 1967) and extended by Buckeye Check Issue 395, 1967) and extended by Buckeye Check Cashing v. John Cardegna (546 U.S. 440, 2006) should apply. Under the separability doctrine, all claims of fraud in the inducement of a contract containing an arbitration clause are for an arbitrator to decide, while claims of fraud relating to the arbitration clause are for courts to determine. Under Buckeye, the separability doctrine applies to all challenges to a contract containing an arbitration clause.

Ferrer argued that the TAA does not preclude arbitration but only delays it until after the Labor Commissioner has ruled on the dispute.

But Preston argued that arbitration is not the next venue because after the Labor Commissioner decides the dispute, the TAA calls for a de novo appeal to the superior court. "If left standing, the decision in this case could result in a multiplicity of state law decisions and statutes eliminating arbitration in entire classes of cases through the mere expediency of having it go to an administrative agency," Joseph D. Schleimer, Preston's counsel, argued at the hearing.

Associate Justice David Souter asked whether, by designating California law to apply, the parties "in effect" implicitly agreed to go to the Labor Commissioner first and then go to arbitration. …