2008 First Quarter Case Law Review – U.S. Supreme Court

Several judicial decisions in the first few months of this year are worthy of some discussion. Three are from the U.S. Supreme Court.

In Preston v. Ferrer. 128 S.Ct. 978 (2008), Judge “Alex” of TV fame got into a bit of a tiff with his attorney, who, seeking recovery of fees allegedly owed, initiated arbitration under the terms of their contract. Judge Alex petitioned the California Labor Commissioner for a determination that the contract was invalid and unenforceable under California's Talent Agencies Act (TAA) because the attorney had acted as a talent agent without the required license. After the Labor Commissioner's hearing officer denied his motion to stay the arbitration, Judge Alex filed suit in state court seeking to enjoin arbitration. The attorney then moved to compel arbitration. The court denied the motion and enjoined him from proceeding before the arbitrator unless and until the Labor Commissioner determined she lacked jurisdiction over the dispute. While the attorney's appeal was pending, the U.S. Supreme Court held, in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446, 126 S.Ct. 1204, 163 L.Ed.2d 1038, that challenges to the validity of a contract requiring arbitration of disputes ordinarily “should ... be considered by an arbitrator, not a court.” Nevertheless, the California Court of Appeal held that the TAA vested the Labor Commissioner with exclusive original jurisdiction over the dispute, and that Buckeye was inapposite because it did not involve an administrative agency with exclusive jurisdiction over a disputed issue. Reversing, the Supreme Court held that when parties agree to arbitrate all questions arising under contract, the Federal Arbitration Act (FAA) supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative. Procedural prescriptions of the TAA thus conflict with the FAA's dispute resolution regime in two basic respects: First, the TAA, in s 1700.44(a), grants the Labor Commissioner exclusive jurisdiction to decide an issue that the parties agreed to arbitrate, see Buckeye, 546 U.S., at 446, 126 S.Ct. 1204; second, the TAA, in s 1700.45, imposes prerequisites to enforcement of an arbitration agreement that are not applicable to contracts generally, see Doctor's Associates, Inc., 517 U.S., at 687, 116 S.Ct. 1652. The Court distinguished EEOC and Waffle House because the EEOC had prosecutorial rather than adjudicative powers.

While we’re in California with the US Supreme Court, here’s a trend to watch: On March 31, the U.S. Supreme Court let stand a California Supreme Court decision that employment arbitration agreements prohibiting classwide relief are unenforceable if class arbitration would be a significantly more effective way of vindicating employees' rights than individual arbitrations (Circuit City Stores Inc. v. Gentry, U.S., No. 07-998, cert. denied 3/31/08).

In Hall Street Associates, L.L.C. v. Mattel, Inc. --- S.Ct. ----, 2008 WL 762537 (U.S. 2008), the Court resolved the split in the lower courts by holding that the FAA’s grounds for modification and vacatur under §10 and §11 are exclusive; therefore, parties cannot expand the scope of judicial review through their arbitration agreement. The federal courts had been split over this issue.

The Court noted that Amicus for one side argued that if the Court upheld expanded review, everyone would flee the courts. Perhaps. But if they did so because of the possibility of expanded review, the courts would then find themselves still dealing with the same cases at the end of the day. Likewise, if the Court denies expanded review and the reverse might be true as argued by Amicus for the other side, parties will flee arbitration, then all those cases end up in the courts. This all related to my long held belief that the courts consciously or not have favored arbitration as much for its ability to relieve the courts of what would have been by now a completely overwhelming caseload in employment and consumer cases among others as for any other virtues or rationales supporting the process.

This case is particularly interesting for what wasn’t decided. The arbitration agreement was entered into during litigation, was submitted to the District Court as a request to deviate from the standard sequence of litigation procedure, and was adopted by the court as an order, leaving some question whether it should be treated as an exercise of the District Court's authority to manage its cases under Federal Rule of Civil Procedure 16. The Court hints at the possibility of expanded judicial review if the FAA isn’t implicated and remanded for consideration of independent issues. Interesting…