Reply Brief — Preston v. Ferrer

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$1365

Y2e DEC 2 5°17

IN THE

Supreme Court of the United States

ARNOLD M. PRESTON,

Petitioner,

ALEX E. FERRER,

Respondent.

ON WRIT OF CERTIORARI TO THE

SUPREME COURT OF CALIFORNIA

REPLY BRIEF FOR THE PETITIONER

Joseph D. Schleimer

Counsel of Record

Kenneth D. Freundlich

SCHLEIMER & FREUNDLICH, LLP

9100 Wilshire Boulevard

Suite 615 - East Tower

Beverly Hills, CA 90212

(310) 273-9807

Counsel for Petitioner

December 23, 2007

TABLE OF CONTENTS

Page

RE GT i isecvcicrcccccccscccscnsscnsnsi i

TABLE OF AUTHORITIEG......................... li

EET EN a 1

A. Labor Commissioner Proceedings

are Not “Expeditious”................:ccecee 3

B. De Novo Hearings are Conducted

by the Superior Court......................0. 6

C. Arbitration Will Adequately

Protect Those Covered by the

Talent Agencies Act..................:00:000004 12

D. The Court of Appeal’s Circular

Reasoning is Preempted..................... 20

E. Volt and Mastrobuono..............ccccceeeeee 25

F. Express Preemption of State

Law Under 9 U.S.C. §2...........ccccccsseees 29

G. Southland Corporation v. Keating..... 31

aI inchs tbiaselipcenibehdelniidipbiiabcinine 35

TABLE OF AUTHORITIES

CASES

Page(s)

Adickes v. S.H. Kress & Co.,

RPE nn 2

Allied-Bruce Terminix Companies, Inc. v.

Dobson, 513 U.S. 265 (1998).......... 24, 29, 31, 32, 34

Arkansas Dept. of Health and Human Services

v. Ahlborn, 547 U.S. 268 (2006)................. 2

Buchwald v. Katz, 8 Cal.3d 493 (1972)......... 9

Buchwald v. Superior Court,

254 Cal.App.2d 347 (1967)........s.cccssessseeeee 9, 23

Buckeye Check Cashing, Inc. v. Cardegna,

546 U.S. 440 (2006).e.ccccseccccsccsssessecsessesseeene 21, 33, 34

Circuit City Stores, Inc. v. Adams,

ree 32, 34

Corso v. Creighton University,

731 F.2d 529 (8™ Cir. 1984)............:ccsee 27

Cotton v. Slone, 4 F.3d 176 (2™ Cir. 1993).... 9

Cronus Investments, Inc. v. Concierge Services,

I ni cicriattadletutsiaiate 25

Crosby v. National Foreign Trade Council,

I a caarcemiantniceind 29

Doctor’s Associates, Inc. v. Casarotto,

a a ictipicanente 24, 29

Dore v. Arnold Worldwide, Inc.,

SD Cal. 6tte SB4 (BO0G)........ccccccccccccscccccccscsscess 27

E.E.O.C. v. Cosmair, Inc., 821 F.2d 1085

gg nT 12

E.E.O.C. v. Waffle House, Inc.,

i ee 12

Erie Railroad Co. v. Tompkins,

304 U.S. 64, 74—75 (1938).................c.c0000000. 35

Federal Election Commission v. Wisconsin

Right To Life, Inc.,__. U.S. ___,

127 S.Ct. 2652, 2686 (2007)................000000e- 34

Fidelity Federal Savings and Loan Association

v. de la Cuesta, 458 U.S. 141 (1982).......... 29

First Options of Chicago, Inc. v. Kaplan,

| en 10

Geier v. American Honda Motor Co., Inc.,

EE Le 29

Gilmer v. Interstate/ Johnson Lane

Corporation, 500 U.S. 20 (1991)................... 12

Green Tree Financial Corp. v. Bazzle,

| LTTE Cv ea 23

Higgins v. Superior Court, 140 Cal.App.4th

ERSTE a 1

Hilton v. South Carolina Public Railways

Commission, 502 U.S. 197 (1991)................ 33

Lincoln Electric Company v. St. Paul Fire

and Marine Insurance Company,

210 F.3d 672 (6™ Cir. 2000)...........:.0c0ccccceee 26

Marathon Entertainment v. Blasi,

45 Cal. Rptr.3d 158 (2006)... eee eeeee 4,5

Mastrobuono v. Shearson Lehman Hutton,

ey kf GS Een aeneeN 25, 28

MBIA Ins. Corp. v. Royal Indem. Co.,

426 F.3d 204 (3° Cir. 2005).............:ccsesceseees 27

Moses H. Cone Memorial Hospital v. Mercury

Construction Corporation,

I sais ccicrientcientiddicansiiibiinadanes 3, 27.

New Haven Inclusion Cases, 399 U.S. 392

i i ca 2

Payne v. Tennessee, 501 U.S. 808 (1991).......... 34

-lll-

Perry v. Thomas, 482 U.S. 483 (1987)............... 30

Prima Paint Corporation v. Flood & Conklin

Mfg. Co., 388 U.S. 395 (1967).................0000000008 30, 32

REO Broadcasting Consultants v.

Martin, 69 Cal.App.4th 489 (1999)................ 8

Robert Lawrence Co. v. Devonshire Fabrics,

Inc., 271 F.2d 402 (2™ Cir. 1959)...........0000+ 30

San Francisco Newspaper Printing Co. v.

Superior Court, 170 Cal.App.3d 438

EEG REESE ASE i RS ae 1

Scherk v. Alberto-Culver Co.,

Sr I csc icnsntecnstsneusstsccnscepsoens 24

Sinnamon v. McKay,

142 Cal. App.3d 847 (1983)...................sesseseeeee 9

Southland Corporation v. Keating,

Le RSE See pe 12, 30—34

Styne v. Stevens, 26 Cal.4th 42 (2001)........ 5, 10, 13, 22

Volt Information Sciences, Inc. v. Board of

Trustees of Leland Stanford Junior

University, 489 U.S. 468 (1989).................... 25-28

Waisbren v. Peppercorn Productions, Inc.,

41 Cal. App.4th 246 (1995)...........ceeeeeees 13, 15

Witters v. Washington Dep't of Servs. for the

Blind, 474 U.S. 481 (1986)...............ccc0ceeeeeees 2

ADMINISTRATIVE DECISIONS

James v. Thompson Management,

I 4

Kilcher v. Vainshtein, TAC 02-99 ................0 4

Padilla v. Clymer, TAC 60-94 0.00.0... eeeeeeee 4

Patterson v. Black Orchid Entertainment,

snes 4

Smith v. Harris, TAC 58-06................c.cccs.sccsee 4

-]V-

Thomas Haden Church v. Ross Brown,

EE A TD vinincisersnicntatnitniiciinniaitlinciisiniiicaniiie 4

Tyler v. Laugh Factory Management,

CIE simrerisratsnsisnieaniditndiuiianatiiipiabiidai 4

William Morris Agency, LLC v. O’Shannon,

ee I ccvsesicticionintesaiutitteiiliouilinsindenainilipapadiaadtiitas 4

STATUTES

IG Eicatcnsicescuiinnsinnnebicbniathiitinieinasanmalla 29

fk ese 32

BG cisssnscdccsennncsectinindeemetadenainaiiiinal 9

i ienidncissatnnincsntsiccmnensnsiniaintiindiedialll 32

BP ino csxicrniastinsvimicmmcindticminenduniiiiebiaida 32

California Civil Code §1638...................::cc.c0s 27

California Civil Code §1639..............cecceeeeeeee 27

California Code of Civil Procedure §1008(a).... 9

California Code of Civil Procedure §1008(b).... 9

California Code of Civil Procedure §1008(d).... 9

California Code of Civil Procedure §1281.2(c).. 25

California Code of Civil Procedure §1294(a).... 9

California Code of Civil Procedure §1856(a).... 27

California Labor Code §98.2..................::ssseeeees 8

California Labor Code §1700 et. seq................ 13

California Labor Code §1700.4....................000 13, 14

California Labor Code §1700.5...................::008 15

California Labor Code §1700.22....................... 15

California Labor Code §1700.44....................... 8,9, 21

California Labor Code §1700.45..................... 20, 21,22

Calif. Stats. 1978, Ch. 1382, §6...................0000 14

le,

TREATISES & ARTICLES

Frutkin, Agents of Change, Media Week

(USA), March 22, 1999

(1999 WLINR 7803870).............ccccccccccsssecessserens 20

Hofmeister, Company Town: For CAA and

Television, It’s One Step Forward and

Two Steps Back, Los Angeles Times,

November 7, 1995 (1995 WLNR 484721})..... 19

Horn, TV Package Deals Leave Agencies Awash

in Riches, Chicago Tribune, September 26,

1989 (1989 WLNR 2533775)..................cc0s0000 19

Williston on Contracts (4 Ed, 1999).................. 27

Zelenski, Note, Talent Agents, Personal

Managers,and Their Conflicts in the

New Hollywood, 76 Southern California

Law Review 979 (2003)...............ccecseeseeeeeees 18

-Vi-

INTRODUCTION

Respondent and his amicus, William Morris

Agency, have made a number of factual allegations

without citation to the record. Since Judge Ferrer

failed to introduce any evidence during the Superior

Court proceedings, if his counsel had provided

citations, it would have underscored the fact that none

of his averments are based on evidence.

In her dissent, Justice Miriam Vogel commented

on the total lack of evidence to support Judge Ferrer’s

case, stating:

There is yet another reason to reverse.

Ferrer established his “colorable” defense

under the Talent Agencies Act by

argument, not by evidence, and the trial

court then relied on the existence of this

defense to support its decision to issue a

preliminary injunction staying the

arbitration proceedings. Put another way,

there is no evidence at all to support

issuance of the preliminary injunction,

and this fact alone requires reversal.

(San Francisco Newspaper Printing Co. v.

Superior Court (1985) 170 Cal.App.3d

438, 441-442) [a preliminary injunction

must be supported by evidence

establishing the moving party’s

probability of success on the merits];

Higgins v. Superior Court, supra, 140

Cal.App.4th at p. 1249 [the party

opposing a petition to compel arbitration

bears the burden of proving by a

preponderance of evidence any facts

necessary to his defense].)

Petitioner's Appendix (“Pet. App.”) 17a, n.8 (Emphasis

added)

The legal issue presented to this Court is FAA

preemption, and the specific question is whether

Respondent must present his allegations to an

arbitrator. In this context, the ipse dimt allegations by

Respondent and his amicus, including facts asserted

for the first time in the Supreme Court, should be

disregarded, or stricken. Arkansas Dept. of Health and

Human Services v. Ahlborn, 547 U.S. 268, 287 (2006)

(“aspersions” unsupported by the record); Witters v.

Washington Dep't of Servs. for the Blind, 474 U.S. 481,

486 n.3 (1986) (argument unsupported by the record

and not presented to state court); New Haven Inclusion

Cases, 399 U.S. 392, 450 n.66 (1970) ("None of this is

record evidence, and we do not consider it."); Adickes v.

S.H. Kress & Co., 398 U.S. 144, 157 n.16 (1970)

("Manifestly, it [an unsworn statement of a witness not

in the record of the proceedings below] cannot be

properly considered by us in the disposition of the

case.")

This case arises from a hearing on Petitioner

Arnold M. Preston’s Motion to Compel Arbitration and

Respondent Alex E. Ferrer’s Motion for a Preliminary

Injunction. The factual presentation in the Superior

Court was limited and tightly focused on whether

Petitioner “solicited” or attempted to “procure” work

for Judge Ferrer on television, acts which require a

license under the California Talent Agencies Act

(“TAA”). See, Appellant’s Appendix before the Court of

-2-

Appeal (“A.A.”) 1-253.

On the factual issue of “solicitation or

procurement,” Mr. Preston submitted a sworn

declaration, denying the allegation. A.A. 103-105.

Judge Ferrer submitted no evidence to support the

allegation. Thus, it is misleading for Respondent’s

Brief to assert that certain matters are “undisputed,”

and then state that Mr. Preston “clearly and

repeatedly sought to procure employment for Ferrer in

the television industry. ...” Respondent’s Brief (“R.B.”)

1Z. Actually, the allegation was refuted by Mr.

Preston’s declaration, so it was Mr. Preston’s sworn

denial which was effectively “undisputed” in the courts —

below.

A. Labor Commissioner Proceedings

are Not “Expeditious”

The primary reason why private parties enter

into arbitration agreements is to provide an

expeditious and economical means of dispute

resolution. For that reason, this Court stated, in Moses

H. Cone Memorial Hospital v. Mercury Construction

Corporation, 460 U.S. 1, 22 (1983):

Congress's clear intent, in the Arbitration

Act, [was] to move the parties to an

arbitrable dispute out of court and into

arbitration as quickly and as easily as

possible. (Emphasis added)

Respondent repeatedly asserts, ipse dixit, that

proceedings before the California Labor Commissioner

-3-

are “expeditious.” R.B. 6, 15, 24, 34. Indeed, Judge

Ferrer goes so far as to dispute the time estimate of

the dissent (R.B. 34, n.7), where Justice Vogel

criticized the majority for allowing Respondent “to

cause a delay of years and triple or quadruple the

parties’ expenditures.” Pet. App. 17a (emphasis

added).

Labor Commissioner proceedings under the TAA

are not “expeditious.” Quite the contrary, they can, and

often do, take several years to reach a determination at

the administrative level. See, e.g., James v. Thompson

Management, TAC 17-03 (36 months from filing to

~ administrative decision); Padilla v. Clymer, TAC 60-94

(41 months); Thomas Haden Church v. Ross Brown,

TAC No. 52-92 (24 months); William Morris Agency,

LLC v. O’Shannon, TAC 06-05 (31 months); Kilcher v.

Vainshtein, TAC 02-99 (28 months); Patterson v. Black

Orchid Entertainment, TAC 39-05 (17 months); Smith

v. Harris, TAC 53-05 (21 months); Tyler v. Laugh

Factory Management, TAC 31-01 (51 months). The

Labor Commissioner selectively publishes decisions at

Administrative proceedings under the TAA are

merely a prelude to protracted and costly litigation in

the courts. A good case in point is Marathon

Entertainment v. Blasi, 45 Cal.Rptr.3d 158 (2006), ir

which the manager sued for fees on February 21, 2003.

The defendant filed the inevitable Labor Commissioner

petition, so there was an administrative hearing,

which was followed by a de novo proceeding in the

Superior Court, then a review in the Court of Appeal,

followed by a review in the California Supreme Court.

-4-

The California Supreme Court heard oral argument on

November 6, 2007, which means, as of this writing,

that the case is now 4 years, 10 months old — and it is

still not final. http://appellatecases.courtinfo.ca.gov

(No. $145428)

If the California Supreme Court affirms the

Court of Appeal in Marathon, the case will then be

remanded to the Labor Commissioner for a new

administrative hearing, followed by another de novo

trial, and then another appeal. Hence, the aptly-named

“Marathon” case may yet drag on for 10 years, or more,

before reaching finality.

Compare that with arbitration. If Judge Ferrer

had honored his promise to arbitrate, the hearing on

the merits (including the TAA issue) would have taken

place on January 26, 2006, less than eight months after

Petitioner’s June 4, 2005 arbitration demand. Joint

Appendix (“J.A.”) 7, 30.

The procedure established by the Court of

Appeal in this case actually managed to make

arbitration take longer, and cost more, than a court

trial. The reason for that is, when an artist’s manager

files a lawsuit, the Superior Court will hear the breach

of contract claim simultaneously with a de novo

hearing of the TAA defense. Styne v. Stevens, 26

Cal.4th 42, 62 n.14 (2001)(“Any appeal de novo from

the Commissioner's decision. . .may, of course, be

consolidated with the pending superior court contract

action.”)

Here, pursuant to the Court of Appeal’s holding,

-5-

the parties must first go through an administrative

procedure, followed by a de novo trial in the Superior

Court, no doubt followed by another trek through the

appellate courts, and then, once a final decision is

rendered in the courts, the parties may be allowed to

finally arbitrate. Unless, of course, there is a remand

from the appellate courts, at which point the process

will start all over again.

As Justice Vogel put it, in her dissent, “that is

not how it is supposed te work.”

B. De Novo Hearings are Conducted

by the Superior Court

As part of his “expeditious” theme, Respondent

repeatedly urges that the arbitrator in this case would

have somehow regained his jurisdiction, conducted the

de novo hearing, and made the final decision on the

“validity or legality” of the contract. R.B. 2-6, 13-15,

24, 30-35, 44, 51.

In the courts below, Judge Ferrer took the

opposite position, by consistently, vigorously and

repeatedly urging that the Superior Court would hear

the de novo appeal, and the arbitrator should never be

allowed to rule on any issue.

In his Complaint in the Superior Court, filed

November 2, 2005, Judge Ferrer prayed:

That the court determine and declare

that the existing controversy between

Plaintiff [Ferrer] and Defendant

6-

[Preston] arising from the Contract,

including in particular the issue of the

validity of the Contract, is not subject to

arbitration. ...

J.A. at 29 (Emphasis added)

Likewise, in opposing Petitioner's Motion to

Compel Arbitration, Judge Ferrer argued that the de

novo hearing would be conducted by the Superior

Court, not the arbitrator:

[I]}f, after conducting the forthcoming

evidentiary hearing, the Commissioner

rules that the Contract is void, Preston

may appeal that ruling and have a

hearing de novo before this Court on that

issue....{U}]nder the Act, this Court would

acquire jurisdiction over the parties’

dispute as to the validity of the Contract

only after the Labor Commissioner has

heard and decided that dispute and the

losing party has appealed within 10 days

after the determination.

[I}f the losing party chooses to appeal the

Commissioner’s decision entered after

that hearing, he has the right to appeal to

this Court, which will hear and decide the

issue de novo, at which time Preston may

again present evidence in support of his

assertions going to the merits of Ferrer’s

contract invalidity argument.

A.A. at 157 n.1, 163-164 (Emphasis added).

Under the Court of Appeal’s ruling, the chance

the de novo hearing will be conducted by the arbitrator

is nil. For one thing, California iaw expressly provides

that the Superior Court conducts the de novo hearings,

after a determination by the Labor Commissioner. As

stated in Labor Code §1700.44(a):

In cases of controversy arising under this

chapter, the parties involved shall refer

the matters in dispute to the Labor

Commissioner, who shall hear and

determine the same, subject to an appeal

within 10 days after determination, to the

superior court where the same shall be

heard de novo.” (Emphasis added)

Since the Court of Appeal ruled on jurisdictional

grounds, and cited Labor Code §1700.44 as giving the

Labor Commissioner “exclusive” jurisdiction to hear

TAA issues (Pet. App. 5a—6a), and since Labor Code

§1700.44 also vests jurisdiction in the Superior Court

to conduct the de novo hearing, it is perfectly clear that

the Court of Appeal’s decision diverted this case from

the arbitrator onto a circuitous “track” which led, via

the Labor Commissioner, right back into the court

system.

Moreover, the 10-day appeal period in Labor

Code §1700.44 is jurisdictional. If the losing party fails

to file a notice of appeal in the Superior Court within

10 days, the Labor Commissioner’s determination

becomes a binding judgment. Labor Code §§ 98.2(d),

-8-

1700.44(a); REO Broadcasting Consultants v. Martin,

69 Cal.App.4th 489, 495 (1999); Sinnamon v. McKay,

142 Cal.App.3d 847 (1983). See, also, Buchwald uv.

Superior Court, 254 Cal.App.2d 347 (1967), sub nomine

Buchwald v. Katz, 8 Cal.3d 493 (1972)(arbitrator

enjoined; hearing de novo under Labor Code §1700.44

to be conducted by the Superior Court).

If Mr. Preston had not appealed, and chose

instead to defend before the Labor Commissioner, the

arbitrability issue would have been waived, because an

order denying arbitration is immediately appealable.

See, California Code of Civil Procedure §1294(a); 9

U.S.C. §16(a); Cotton v. Slone, 4 F.3d 176, 179-80 (2"°

Cir. 1993)(failure to timely appeal denial of motion to

compel arbitration, together with active litigation

activity, waived right to appeal denial of arbitration).

Moreover, if the U.S. Supreme Court had not

granted certiorari, the anti-arbitration holding of the

Court of Appeal would have been not just the Law of

the Case, but controlling law in California.

(Even without a Law of the Case problem, there

was never going to be a second Motion to Compel

Arbitration, because California imposes severe

sanctions, including contempt of court, on attorneys

who try for “a second bite at the apple” without a

showing of “new or different facts.” California Code of

Civil Procedure §§ 1008(a), (b), (d).)

Judge Ferrer’s new position, that the Labor

Commissioner proceeding would have (or might have)

been followed by an immediate arbitration, is further

-9-

belied by his procedural maneuvering in the courts

below, leading up to the events of December 6, 2005

and December 7, 2005:

On October 12, 2005, the arbitrator denied

Judge Ferrer’s motion for a stay and held that he had

jurisdiction to arbitrate the validity or legality of the

contract under the TAA. J.A. 24-25. In his written

opinion, the arbitrator specifically cited Labor Code

§1700.45 and Styne v. Stevens, 26 Cal.4th 42, 58 n.9 as

allowing the parties to arbitrate contract-legality

issues under the TAA. Id.

Pursuant to First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938 (1995), the jurisdictional dispute

should have ended right there. Simply put, under the

FAA, the arbitrator had jurisdiction to decide

arbitrability, he made his ruling, and the next step

should have been an arbitration on the merits.

Instead, on November 2, 2005, Judge Ferrer

filed this lawsuit, seeking an injunction against the

arbitration. As quoted above, his Complaint sought a

declaration by the Superior Court that the entire

contract was void, and based thereor, he sought to

enjoin the arbitrator who had already ruled against

him. J.A. 26—29. ;

The hearing on Judge Ferrer’s injunction motion

was set for December 7, 2005. One day before the

injunction hearing, on December 6, 2005, Respondent

brought a reconsideration motion to the arbitrator.

With the injunction looming the next day, the

arbitrator reconsidered and stayed his own arbitration

-10-

proceeding, noting that “it is not cost effective to have

parallel proceedings simultaneously pending. . . .”

J.A. 38.

The reconsideration reaffirmed the arbitrator’s

own jurisdiction, but stated that he would wait for the

Labor Commissioner to make what would have been,

in substance and practical effect, an advisory ruling.

J.A. 38.

On December 6, 2005, after the arbitrator's

reconsideration order, Judge Ferrer could have

withdrawn his injunction motion, proceeded to the

Labor® Commissioner for an advisory ruling, then

returned to the arbitrator for a final decision. Instead,

the next day, December 7, 2005, Judge Ferrer

proceeded with his injunction motion, and obtained the

anti-arbitration injunction which is now before this

Court.

Judge Ferrer’s strategy was to file collateral

attacks against the arbitration, and use the injunction

to cause years of delay. He achieved his goal, and

would have vigorously opposed any attempt to

reinstate the arbitration.

The purpose of an arbitration agreement is to

provide an expeditious, economical, and efficient

means for adjudicating disputes. The moment he filed

this lawsuit, Judge Ferrer dishonored his contractual

promise to arbitrate and deprived Mr. Preston of the

“benefit of the bargain.”

As this Court has noted, allowing one party to

o}j.-

ignore the contract and resort to the courts “could lead

to prolonged litigation, one of the very risks the

parties, by contracting for arbitration, sought to

eliminate.” Southland Corp. v. Keating, 465 U.S. 1, 7

(1984).

C. Arbitration Will Adequately

Protect Those Covered by the

Talent Agencies Act

Much of the presentation by Respondent and his

amici centers on a public policy argument, that the

TAA supposedly protects “vulnerable individuals” who

need special protection, and they will supposedly not

get it if required to arbitrate.

This Court has considered this argument before,

and found that arbitration is an adequate method for

resolving civil claims based on statutes, since the

aggrieved party still has the right to file a grievance

with the applicable government agency. Gilmer v.

Interstate/Johnson Lane Corporation, 500 U.S. 20,

27—28 (1991)(aggrieved party may file a grievance with

the EEOC, but must arbitrate any monetary claim

against an employer because “[w]e do not perceive any

inherent inconsistency between those [public] policies

.. and enforcing agreements to arbitrate....”); E.£.0.C.

v. Waffle House, Inc., 534 U.S. 279 (2002)(government

agency may file action in its own name,

notwithstanding private agreement to arbitrate). See,

also, E.E.0.C. v. Cosmair, Inc., 821 F.2d 1085,

1089-1090 (5 Cir. 1987) (employee retains right to

file a grievance with the EEOC, even after signing a

release.).

12.

Another problem with Respondent’s public

policy argument is, California repealed the licensing

requirement for “artist's managers” in 1978. Since

then, only “talent agents” (who collect and handle large

sums for their clients) are required to get licenses.

TAA, Labor Code §1700, et. seq. Thus, for almost 30

years, artist's managers like Mr. Preston have not

needed a license in California. Waisbren v. Peppercorn

Productions, Inc., 41 Cal.App.4th 246, 252

(1995)(“Unlike a talent agent, a ‘personal manager’ is

not covered by the Act or any other statutory licensing

scheme.”)

In 2001, the California Supreme Court

explained the difference between talent agents (who

must have licenses) and managers (who are not

required to have licenses) in Styne v Stevens, 26

Cal.4th 42, 50-51 (2001):

[The Talent Agencies] Act's definition of

a talent agency is narrowly focused on

efforts to secure professional

‘employment or engagements’ for an

‘artist or artists.’ (§1700.4, subd. (a).)

Thus, it does not cover other services for

which artists often contract, such as

personal and career management (i.e.,

advice, direction, coordination, and

oversight with respect to an artist's

career or personal or financial affairs)

. .nor does it govern assistance in an

artist's business transactions other than

professional employment. (Emphasis in

-13-

original)

Prior to 1978, “artist's managers” required

licenses in California, but in 1978, the California

Legislature de-regulated artist managers, exempting

them from the licensing requirement. Calif. Stats.

1978, Ch. 1382, §6, amending Labor Code §1700.4(a).

Prior to the 1978 legislation, the statute was titled the

“Artist’s Managers Act,” and managers were required

to have licenses. The1978 amendment renamed it the

“Talent Agencies Act,” and for the past 30 years, only

talent agents have been required to have licenses.

Four years after the deregulation, in 1982, the

Legislature assigned the California Entertainment

Commission (“CEC”) the task of studying the de-

regulation, and the CEC reported on December 2, 1985

that the de-regulation of artist's managers was a

success. In its report, the CEC specifically

recommended against reinstating the license

requirement for artist’s managers:

There is no need to license personal

managers. . .[and] [t]here is no rationale

or practical justification for the

enactment of a law requiring the

licensing of personal managers. .. .

{There is no justification for licensing

personal managers. It is not, in fact, the

person who is being licensed by the

Talent Agencies Act; rather, it is the

activity of procuring employment.

Entertainment Industry Commission Report of

-14-

December 2, 1985, at 30-31 (A.A. 145, 151-152).

Talent agents (also known as “booking” agents)

usually have a long client list and many of them have

minimal client contact. Except for the elite talent

agents, they tend to operate a volume business,

sending large numbers of clients out on auditions,

collecting the clients’ salaries, taking their

commissions, and offering little in the way of career

guidance. Since the talent agencies handle a lot of

client money, they are required to maintain trust

accounts, and to obtain a license they must provide

fingerprints, character references, and a $50,000 bond.

Labor Code §§ 1700.5 — 1700.22.

By contrast, artist’s managers (also known as

“personal” managers) do not “book” engagements and

they normally do not collect and handle client money.

(See, Mr. Preston’s management contract, which

provides that client funds will be handled by a third-

party business manager. J.A. 14-15.) Most managers

have only a handful of clients, and sometimes they

have only one client. Managers are “full service” client

advisors, providing consultation, career advice,

guidance, counseling and administration. No license is

required to perform these advisory functions.

Artist’s Managers work hard for their fees by

assisting in the selection, firing and supervising of

talent agents, business managers, and lawyers;

“coaching” clients on how to dress, behave, interview,

audition, and interact with producers, directors, and

journalists; and helping clients make critical, strategic

career decisions, such as which roles to accept and

-15-

which acting jobs to turn down. Waisbren, supra, 41

Cal.4th at 252-253.

Managers also help protect their clients from the

“dark side” of Hollywood, including stalkers,

extortionists, and embezzlers, and often serve in loco

parentis, making sure the client makes it to the set on

time, steering troubled clients into rehabilitation,

organizing “drug interventions” for the ones who won't

get treatment willingly, and keeping (or bailing) their

troubled clients out of jail.

Contrary to the assertion in Respondent’s Brief,

artist's managers are allowed to negotiate artist

contracts, if they have the consent of the talent agent.

Labor Code §1700.44(d). Additionally, a lot of artist’s

managers, including Petitioner Arnold M. Preston, are

also attorneys, who can negotiate on behalf of clients in

their capacity as duly-licensed members of the bar.

In a case, like this one, which involves the

William Morris Agency (“WMA”), the largest talent

agency in the world, the most important function the

lawyer-manager performs is to provide independent

counsel to the client. To fully appreciate the need for

this service, the Court should be familiar with two

terms of art in the television industry: the “packaging

fee” and the “hip pocket client.”

WMA discloses, in its amicus brief, that it

collects a “packaging fee” from the producers of the

Judge Alex television show, consisting of 5% of gross

revenues. Amicus Brief of William Morris Agency

(“W.M.A. Brief’) 5. Obligingly, WMA also provides this

-16-

explanation of what that is:

WMA “packages” the different elements

and constituents for successful television

programming and content: actors,

directors, producers, writers and show

concepts. .. .{WMA receives a “series

packaging “fee” for this television

program, consisting of 5% of gross

receipts, which is the standard

commission on first run syndication.

W.M.A. Brief 4-5

Curiously, WMA’s brief then goes on to make

the assertion that “Judge Alex Ferrer was never a

William Morris client.” W.M.A. Brief 5. This peculiar,

uncited averment (which Petitioner disputes) poses an

important question: Since Judge Alex is a generie “TV

judge” format, and the personality of the Hon. Alex E.

Ferrer was the only bona fide “element,” if WMA did

not “represent” Judge Ferrer, how did it wangle a

lucrative packaging fee on his syndicated television

program?

The answer is, Respondent was a “hip pocket”

client of the agency, an ambiguous status where a

talent agency books the client for an audition or

interview, but refrains from executing a written

agency agreement. Under this “hip pocket”

arrangement, it was WMA which “solicited and

procured” Respondent’s engagement on Judge Alex,

and that gave WMA control over the key “element,”

i.e., they had Respondent in their “hip pocket.” It was

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this control over the submission of Respondent to the

producers which gave WMA the leverage to exact a

multi-million dollar “package fee,” an arrangement

which will last for the life of the program, and is very

likely to yield more income to WMA than Judge Ferrer

makes in salary.

Savvy artists who find themselves in “hip

pocket” status quickly realize they need independent

counsel, so they hire a lawyer, or a manager. In the

case of Judge Ferrer, who is one of the more savvy

“artists” to migrate to Hollywood in a long time, he

hired Arnold M. Preston, Esq., whom he knew was

both a lawyer and a manager. (Contrary to Judge

Ferrer’s unsworn allegation, when he found out that

Mr. Preston was leaving the William Morris Agency,

he asked Petitioner to manage him, and he was not

pressured to sign the contract.)

“Package fees” have been sharply criticized. As

explained in D. Zelenski, Note, Talent Agents, Personal

Managers, and Their Conflicts in the New Hollywood,

76 Southern California Law Review 979, 999—1000

(2003):

[Blecause packaging agents effectively

act as producers, they necessarily face a

conflict of interest.

Agents function as packagers when they

put together teams of clients — for

example, writers, directors, and actors —

and sell those teams to employers for

percentage fees instead of commissioning

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each separate client's deal individually

. . . . Agents can charge such high

amounts because, as described above,

franchise agreements only restrict

amounts that clients can be charged, not

amounts that employers can be charged.

This conflict of interest effectively goes

unremedied under the traditional

regulatory scheme. Aggrieved clients can

attempt to have their representation

contracts rescinded on the ground that

their agents have violated some type of

fiduciary duty, but as discussed above,

most would choose not to, presumably out

of a concern that if they did speak out,

they would brand themselves as

troublemakers and so make it difficult to

obtain future representation.

The amount of money involved in “packaging

fees” explains why the talent agents are eager to self-

deal — and why they are not eager to have their “hip

pocket” clients retain independent counsel. For

example, WMA reportedly made “packaging” fees on

the Cosby show in excess of $100,009.900, merely by

introducing Bill Cosby to the producers. J. Horn, 7V

Package Deals Leave Agencies Awash in Riches,

Chicago Tribune, September 26, 1989 (1989 WLNR

2533775). Likewise, WMA and the other “major” talent

agencies have reportedly made “packaging” fees in the

eight-figure range on such programs as Friends

($50,000,000), Roseanne ($25,000,000), and Murphy

Brown ($25,000,000). See, S. Hofmeister, Company

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Town: For CAA and Television, It’s One Step Forward

ar.” Two Steps Back, Los Angeles Times, November 7,

1995 (1995 WLNR 4847211); A. Frutkin, Agents of

Change, Media Week (USA), March 22, 1999 (1999

WLNR 7803870).

This is the context in which Judge Ferrer, and

his amici, argue that “vulnerable individuals” need

special protection against the perils of arbitrating with

their personal managers. Suffice it to say, there was a

very good reason why the California Legislature

deregulated the personal managers 30 years ago, but

to this day California law still requires the talent

agents to be bonded, licensed, and fingerprinted.

D. The Court of Appeal’s Circular

Reasoning is Preempted

The Court of Appeal’s “exhaustion” requirement

imposed a condition precedent to arbitration which is

purely a judge-created rule, because the TAA

specifically exempts arbitration from the exhaustion

requirement. Labor Code §1700.45 states, in relevant

part:

If there is an arbitration provision in a

contract, the contract need not provide

that the talent agency agrees to refer any

controversy between the applicant and

the talent agency regarding the terms of

the contract to the Labor Commissioner

for adjustment, and Section 1700.44 shall

not apply to controversies pertaining to

the contract.

Thus, while Respondent and the Court of Appeal

speak in terms of Petitioner’s obligation to “exhaust”

administrative remedies, Mr. Preston never had any

such. obligation; the sole issue referred to the

Commissioner was a defense, asserted by Respondent.

J.A. 20-23, 26-29. And that defense consisted of an

assertion that the entire contract was void, under the

TAA. J.A. 20-23, 26-29. And that is why the issue now

comes before this Court, because under the FAA,

arbitration agreements are severable, and Judge

Ferrer’s attack on the entire contract is arbitrable.

Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.

440 (2006).

Respondeut makes an extensive argument about

the details of the anti-arbitration statute, but the

Court of Appeal’s interpretation of a California statute

is not at issue here. What is before this Court is the

fact that the strained statutory reasoning of the lower

court gave effect to a lingering judicial bias against

arbitration. To divert the “validity and legality” issue

away from the arbitrator, the Court of Appeal held, as

its primary reason, that Labor Code §1700.44 grants

exclusive jurisdiction to the Labor Commissioner. The

Court of Appeal then construed the above-quoted

“saving” clause, Labor Code §1700.45, a provision

which, by its terms, only applies to talent agents, as

not applying to artist’s managers. (As part of the 1978

de-regulation of artist managers, Labor Code §1700.45

was amended and the term “artist’s managers” was

deleted and replaced with the term “talent agency.”

West’s Annotated Code, Labor Code §1700.45.)

To achieve the desired result, the Court of

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Appeal employed a roundabout theory that Petitioner,

although an artist’s manager and not subject to Labor

Code §1700.45, has been accused of violating the TAA,

and that accusation triggers the TAA because he may

have been a de facto talent agent, but Mr. Preston does

not benefit from the “saving” clause because he is not

a talent agent, and therefore he cannot arbitrate the

issue of whether, in fact, he acted unlawfully as a de

facto talent agent.

In her dissent, Justice Vogel criticized this

reasoning as circular:

[In] Styne v. Stevens, [26 Cal.4th 42, 54-

56, n.9 (2001)] the [California] Supreme

Court expressly rejected an argument

that its holding would undermine...

arbitration. . .noting that “[nJothing in

[its] reasoning restricts” the parties’ right

to provide in their contract that their

disputes shall be resolved by private

arbitration rather than by _ the

Commissioner. (Jd. at p. 59, fn. 9.)

My colleagues, assuming their own

conclusion, dismiss this language on the

ground that the arbitration provision

before us does not conform to the Talent

Agencies Act’s requirements as set out in

Labor Code section 1700.45. (Maj. opn.,

p. 6, fn. 2.) Their approach ignores the

fact that the parties signed a “Personal

Management Contract,” not a Talent

Agent’s Contract, and the only reason the

-22.

Talent Agencies Act is relevant is that

Ferrer claims the agreement is not what

it appears to be and that Preston was in

fact acting as an unlicensed talent agent.

Based on the parties’ agreement, this

threshold issue -- which quite plainly has

to do with the “validity” and “legality” of

the contract -- must be decided by the

arbitrator, not the Commissioner or the

trial court. (Cf. Buckeye Check Cashing,

Inc. v. Cardegna (2006) [546 U.S. 440 };

Green Tree Financial Corp. v. Bazzle

(2003) 539 U.S. 444.)

Pet. App. 15a (Emphasis added)

Since virtually every effort by an artist’s

manager to collect fees in California is greeted by a

TAA defense, the practical effect of the Court of

Appeal’s ruling is that the entire profession of artist’s

managers has effectively lost the right to arbitrate.

Moreover, the Court of Appeal has implemented

a per se rule, because there was no evidence before the

Superior Court to support the allegation Petitioner had

violated the TAA. Indeed, the only evidence before the

lower courts was the uncontradicted Declaration of

Arnold M. Preston, who attested that he did not violate

the statute. A.A. 103-105. In other words, pursuant to

the holding of the Court of Appeal, the manager loses

the right to arbitrate as soon as a “colorable”

accusation of a TAA violation is made, and it makes no

difference whether the allegation is supported by

evidence, nor does it make any difference if the

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manager proves, as part of a motion to compel

arbitration, that the allegation is false.

Petitioner submits that the Court of Appeal’s

holding is preempted by the FAA. As stated in Doctor’s

Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996):

Courts may not. . .invalidate arbitration

agreements under state laws applicable

only to arbitration provisions. See Allied-

Bruce, 513 U.S., at 281, 115 S.Ct., at 843;

Perry, 482 U.S., at 492, n. 9, 107 S.Ct., at

2527, n. 9. By enacting § 2, we have

several times said, Congress precluded

States from singling out arbitration

provisions for suspect status, requiring

instead that such provisions be placed

“upon the same footing as other

contracts.” Scherk v. Alberto-Culver Co.,

417 U.S. 506, 511, 94 S.Ct. 2449, 2453,

41 L.Ed.2d 270 (1974) (internal quotation

marks omitted). Montana's § 27-5-114(4)

directly conflicts with § 2 of the FAA

because the State's law conditions the

enforceability of arbitration agreements

on compliance with a special notice

requirement not applicable to contracts

generally. The FAA thus displaces the

Montana statute with respect to

arbitration agreements covered by the

Act. (Emphasis added)

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E. Volt and Mastrobuono

Respondent cites and relies heavily on Volt

Information Sciences, Inc. v. Board of Trustees of

Leland Stanford Junior University, 489 U.S. 468

(1989). Petitioner respectfully submits the relevant

precedent is Mastrobuono v. Shearson Lehman Hutton,

Inc., 514 U.S. 52 (1995), since Volt is inapposite, for

several reasons:

First, Volt was a multi-party litigation, in which

some of the warring factions were not bound by the

arbitration agreement. The pendency of the third party

litigation was critical in Volt, because this Court’s

affirmance was based on a theory that California Code

of Civil Procedure §1281.2(c) was incorporated into the

contract, and that Code section only applies when “[a]

party to the arbitration agreement is also a party toa

pending court action or special proceeding with a third

party, arising out of the same transaction or series of

related transactions....” (Emphasis added)

Cf., Cronus Investments, Inc. v. Concierge

Services, 35 Cal.4th 376, 383, 385, 392 (2005)(The

presence of third parties in litigation avoids

preemption under Volt. The FAA has no provision

dealing with the “multiparty dispute problem, so

there is no conflict with state law.).

Here, there are no unbound “third parties.” Both

of the collateral proceedings were filed by Judge

Ferrer, to disrupt and terminate the arbitration. Since

he is signatory to the agreement to arbitrate, filing

those collateral actions was a breach of the contract.

-25-

Volt is simply not applicable, because it only applies

when there is an intertwined and potentially

conflicting litigation with third parties who have never

agreed to arbitrate.

Second, the ratio decidendi in Volt was the

“intent of the parties” as to a subject (the power of the

court to stay pending resolution of the third-party

litigation) on which the contract was silent. After

drawing an inference from the choice-of-law clause, the

Volt decision reiterated that “Congress' principal

purpose” in enacting the FAA was “ensuring that

private arbitration agreements are enforced according

to their terms.....” Volt, 489 U.S. at 478.

Here, the contract has an express term that the

parties will arbitrate the “validity or legality” of the

contract. J.A. 18. Thus, Respondent argues that the

Court should extend Volt and infer an intent on the

part of Messrs. Preston and Ferrer to negate an express

term of the agreement to arbitrate.

This tortured reading of the contract clashes

with the fundamental principal of contract law that an

express term of a contract trumps an implied term. As

stated in Lincoln Electric Company v. St. Paul Fire and

Marine Insurance Company, 210 F.3d 672, 684 (6" Cir.

2000):

There can be no implied promises in a

contract in relation to any matter that is

specifically covered by the written terms

of the contract.

-26-

See, also, Corso v. Creighton University, 731

F.2d 529, 533 (8 Cir. 1984) (“It is also axiomatic that

where general and specific terms in a contract may

relate to the same thing, the more specific provision

should control.”).

Moreover, under the FAA “any doubts

concerning the scope of arbitrable issues is to be

resolved in favor of arbitration. . . .” Moses H. Cone

Memorial Hospital v. Mercury Construction

Corporation, 460 U.S. 1, 24-25 (1983).

Petitioner submits that the proposed extension

of Volt to contradict an express agreement to arbitrate

“validity or legality” of the contract flies in the face of

these well-established principles. See, 11 Williston on

Contracts (4" Ed, 1999) §32:10 (“Where general and

specific clauses conflict, the specific clause governs the

meaning of the contract.”); MBIA Ins. Corp. v. Royal

Indem. Co., 426 F.3d 204, 210 (3 Cir. 2005) (ALITO,

J.)(Words in a contract should be given their ordinary

meaning and should not be “tortured” to impart

ambiguity where none exists). See, also, California

Code of Civil Procedure §1856(a); California Civil Code

§1638, 1639; Dore v. Arnold Worldwide, Inc. 39 Cal.4th

384, 389-391 (2006) (clear and unambiguous contract

language governs).

Another major difference between Volt and this

case is, Volt was strictly a question of procedural

priority, and it did not involve an attempt to divert a

particular issue away from the arbitrator and send it

to another tribunal.

-27-

In Volt, the stay was to break up a litigation log

jam, and impose “the efficient order of proceedings” in

a case where the arbitrator lacked jurisdiction to

decide the whole case. Here, by contrast, the sole

purpose of the stay was to divert a particular issue

away from the arbitrator, for a decision by other

tribunals.

Petitioner submits that Judge Ferrer’s proposed

extension of Volt is not just illogical, it is inconsistent

with Mastrobuono v. Shearson Lehman Hutton, Inc.,

514 U.S. 52, 63—64 (1995), where this Court stated:

We think the best way to harmonize the

choice-of-law provision with the

arbitration provision is to read “the laws

of the State of New York” to encompass

substantive principles that New York

courts would apply, but not to include

special rules limiting the authority of the

arbitrators. Thus, the choice-of-law

provision covers the rights and duties of

the parties, while the arbitration clause

covers arbitration; neither sentence

intrudes upon the other. In contrast,

respondents’ reading sets up the two

clauses in conflict with one another; one

foreclosing punitive damages, the other

allowing them. This interpretation is

untenable. (Emphasis added)

Respondent’s argument sets up a similar

conflict, asserting that the choice-of-law provision

impliedly negates the express agreement to arbitrate

-28-

the “validity or legality” of the contract. Even if that

was a reasonable interpretation of the choice-of-law

clause (which Petitioner disputes), under well-settled

and universal rules of contract interpretation, the

specific term should prevail over any theory of implied

intent.

F, Express Preemption of State

Law Under 9 U.S.C. §2

Federal preemption applies whenever state law

presents an obstacle to achieving the objectives of

Congress. Crosby v. National Foreign Trade Council,

530 U.S. 363, 373 (2000). State law is also preempted

when it is an impediment or frustrates the purpose of

the Federal statute. Geier v. American Honda Motor

Co., Inc., 529 U.S. 861, 873-885 (2000). See, also

Fidelity Federal Savings and Loan Association v de la

Cuesta, 458 U.S. 141, 156 (1982)(Federal regulation

displaces state law which hinders accomplishment of

the Federal goals).

Express preemption applies, because this Court

has expressly found that 9 U.S.C. §2 displaces state

laws which impede or present an obstacle to

accomplishing Congress’ goal and purpose of making

arbitration agreements enforceable according to their

terms. Doctor’s Associates, supra, 517 U.S. at 683, 687.

As this Court explained in Allied-Bruce Terminix

Companies, Inc. v. Dobson, 513 U.S. 265, 273, 275

(1995):

The Federal Arbitration Act, § 2, provides

-29.-

that a “written provision in any...

contract evidencing a_ transaction

involving commerce to settle by

arbitration. . .shall be valid, irrevocable,

and enforceable, save upon such grounds

as exist at law or in equity for the

revocation of any contract.”

[T]his Court has previously described the

Act's reach expansively as coinciding

with that of the Commerce Clause. See,

e.g., Perry v. Thomas, 482 U.S. 483, 490,

107 S.Ct. 2520, 2525-26, 96 L.Ed.2d 426

(1987) (the Act “embodies Congress’

intent to provide for the enforcement of

arbitration agreements within the full

reach of the Commerce Clause”);

Southland Corp. v. Keating, 465 U.S., at

14-15, 104 S.Ct., at 860 (the “involving

commerce” requirement is a

constitutionally “necessary qualification”

on the Act's reach, marking its

permissible outer limit); see also Prima

Paint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S., at 407, 87 S.Ct., at 1807-08

(Harlan, J., concurring) (endorsing Robert

Lawrence Co. v. Devonshire Fabrics, Inc.,

271 F.2d 402, 407 (CA2 1959) (Congress,

in enacting the FAA, “took pains to

utilize as much of its power as it could”)).

Respondent argues that California’s “police

power’ is threatened by this case, because the TAA is

a licensing statute. R.B. 38. Since, as noted above, the

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California Legislature specifically exempted artist’s

managers from the TAA almost 30 years ago, there is

no such threat.

More to the point, Petitioner is not challenging

a licensing statute, only an anti-arbitration holding

which is based on the Court of Appeal’s strained

reading of a provision in that statute. Despite

Respondent's effort to re-mold the Question Presented

as a test of whether the licensing statute is preempted,

all that is at stake here is whether Respondent will

have to adjudicate his TAA defense in the arbitral

forum he agreed to.

G. Southland Corporation v. Keating

Respondent asks this Court to overrule

Southland Corp. v. Keating, 465 U.S. 1 (1984), a

proposal which actually entails overturning a number

of this Court’s cases, to say nothing of the hundreds of —

lower court cases based on that decision. Thus,

Respondent also asks the Court to overrule its decision

in Allied-Bruce Terminix Companies, Inc. v. Dobson,

513 U.S. 265, 272 (1995), where this Court stated:

[Rlespondents, supported by 20 state

attorneys general, now ask us to overrule

Southland and thereby to permit

Alabama to apply its antiarbitration

statute. . . .Nothing significant has

changed in the 10 years subsequent to

Southland; no later cases have eroded

Southlana’s authority; and no unforeseen

-31-

practical problems have arisen.

Moreover, in the interim, private parties

have likely written contracts relying

upon Southland as authority. Further,

Congress, both before and after

Southland, has enacted legislation

extending, not retracting, the scope of

arbitretion. See, eg., 9 U.S.C. §15

(eliminating the Act of State doctrine as

a bar to arbitration); 9 U.S.C. §§ 201-208

(international arbitration). For these

reasons, we find it inappropriate to

reconsider what is by now well-

established law.

By seeking a reversal of Southland, Respondent

also asks this Court to overrule its decision in Circuit

City Stores, Inc. v. Adams, 532 U.S. 105,112 (2001),

which held:

We had occasion in Allied-Bruce, supra,

at 273-277, 115 S.Ct. 834, to consider the

significance of Congress' use of the words

“involving commerce” in § 2. The analysis

began with a reaffirmation of earlier

decisions concluding that the FAA was

enacted pursuant to Congress'

substantive power to regulate interstate

commerce and admiralty, see Prima

Paint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S. 395, 405, 87 S.Ct. 1801, 18

L.Ed.2d 1270 (1967), and that the Act

was applicable in state courts and pre-

emptive of state laws hostile to

-32-

arbitration, see Southland Corp. v.

Keating, 465 U.S. 1, 104 S.Ct. 852, 79

L.Ed.2d 1 (1984). (Emphasis added)

See, also, Buckeye Check Cashing, Inc. v.

Cardegna, 546 U.S. 440, 449 (2006):

We reaffirm today that, regardless of

whether the challenge is brought in

federal or state court, a challenge to the

validity of the contract as a whole, and

not specifically to the arbitration clause,

must go to the arbitrator.” (Emphasis

added)

Despite the 23-year history of Southland,

Respondent argues for an abrupt reversal of this well-

settled doctrine, just two years after the Court

expressly reaffirmed it by a 7-1 vote. This argument

ignores the fact that this Court has long recognized

that the doctrine of stare decisis is of fundamental

importance to the rule of law. As stated in Hilton v.

South Carolina Public Railways Commission, 502 U.S.

197, 202 (1991):

Considerations of stare decisis have

special force in the area of statutory

interpretation, for here, unlike in the

context of constitutional interpretation,

the legislative power is implicated, and

Congress remains free to alter what we

have done. . . .Congress has had almost

30 years in which it could have corrected

our decision. . .if it disagreed with it, and

-33-

has not chosen to do so.

Adherence to precedent promotes stability,

predictability, and respect for judicial authority, which

is why this Court has said that it “will not depart from

the doctrine of stare decisis without some compelling

justification. .. .” Id., 502 U.S. at 202.

“Considerations in favor of stare decisis are at

their acme in cases involving property and contract

rights, where reliance interests are involved... .”

Payne v. Tennessee, 501 U.S. 808, 828 (1991). See, also,

Federal Election Commission v. Wisconsin Right To

Life, Inc., __ US. __, 127 S.Ct. 2652, 2686

(2007)(SCALIA, J. concurring in part)(stare decisis

analysis should give consideratidn to “property or

contract rights, where reliance interests are

involved.”).

Petitioner submits that, over the past 23 years,

the business community has come to rely on

Southland, and fashioned contracts based on such

reliance. Given this Court’s reaffirmation of

Southland in Allied-Bruce, Circuit City, and Buckeye,

Respondent simply has not provided the kind of

compelling justification which would justify

overturning such a well-settled doctrine.

Finally, Petitioner respectfully submits that

overruling Southland would lead to a patchwork of

anti-arbitration doctrines among the several states,

and that, in turn, would result in differing rules of

decision, depending on whether the same case was

heard in Federal or state court. This would cause a

-34-

rush to file petitions to compel arbitration in the U.S.

District Courts, and a dramatic increase in removals of

such cases from the state courts. In addition to the

burden which this would impose on the Federal

judiciary, overruling Southland would result in an

erosion of confidence in the law, resulting from the

inevitable forum shopping, which this Court sharply

disapproved of in Erie Railroad Co. v. Tompkins, 304

U.S. 64, 74-75 (1938).

CONCLUSION

The Court of Appeal should be reversed, and the

case should be remanded with an instruction to vacate

the injunction, grant the motion to compe! arbitration,

and award costs to the Petitioner.

Respectfully submitted,

JOSEPH D. SCHLEIMER

Counsel of Record

KENNETH D. FREUNDLICH

SCHLEIMER & FREUNDLICH LLP

9100 Wilshire Boulevard

Suite 615 - East Tower

Beverly Hills, California 90212

(310) 273-9807

Counsel for Petitioner

December 23, 2007

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