Amicus Curiae Brief — Preston v. Ferrer

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No. 06-1463

In the Supreme Court of the Anited States

ARNOLD M. PRESTON, PETITIONER

VU.

ALEX E. FERRER, RESPONDENT

ON WRIT OF CERTIORARI

TO THE COURT OF APPEAL OF CALIFORNIA,

SECOND APPELLATE DISTRICT, DIVISION ONE

BRIEF FOR THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

ROBIN S. CONRAD GENE C. SCHAERR

AMAR D. SARWAL Counsel of Record

National Chamber STEFFEN N. JOHNSON

Litigation Center, Inc. JEFFREY M. ANDERSON

1615 H Street, NW LUKE W. GOODRICH

Washington, DC 20062 Winston & Strawn LLP

(202) 463-5337 1700 K Street, NW

Washington, DC 20006

LINDA T. COBERLY (202) 282-5000

Winston & Strawn LLP

35 West Wacker Drive

Chicago, IL 60601

(312) 558-5600

Counsel for Amicus Curiae

Wiisonm-Epes Pruntine Co., Inc. — (202) 789-0096 — WAstnGTon, D. C. 20002

—

Ce EY yet

QUESTION PRESENTED

Whether the rule announced in Buckeye Check

Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), fore-

closes a plaintiffs attempt to avoid arbitration by

challenging the validity of the contract as a whole—

not the arbitration provision—in a state administra-

tive proceeding.

‘

TABLE OF CONTENTS

Page

By OO By 8. 8. yy (| ee i

ee Se IID isviicecntintcsccesncnnccsessonunonens ill

INTRODUCTION AND INTEREST OF

ERTS TEES ee ee en 1

EE a ane ee ee a 3

SUMMARY OF ARGUMENT...................ccccccceseseseseeese 5

EEA ae nea Dae aC 6

I. Under Settled Law, Challenges To The

Validity Of The Contract As A Whole Must

Be Resolved By The Arbitrator, Not An

iii cisiaieienisiainlisiinimnenninciens 6

A. Under the FAA, as construed in

Buckeye and other decisions, a

challenge to the validity of the contract

as a whole must be resolved by the

ERE eae ae ae nee ee ce 6

B. The FAA preempts any state law,

including California’s Talent Agencies

Act, that would require a_ result

LETT TT 9

II. Reversal Is Necessary To Eliminate

Remaining Judicial Hostility To

Arbitration And To Ensure That

Businesses And Others Can Enjoy The

EE 14

A. The decision below reflects continuing

judicial hostility to arbitration. ...................... 14

B. The decision below deprives both

businesses and individuals of the

substantial benefits of arbitration.................. 18

ee iicnaicnnsinhientiinnitpniciinsisiisiatpbianusiienanianidta 24

TABLE OF AUTHORITIES

Page(s)

CASES

Abramson v. Juniper Networks, Inc.,

115 Cal. App. 4th 638

I a selinisebics 17

Allied-Bruce Terminix Cos. v. Dobson,

I comets 2,10, 16

Armendariz v. Foundation Health

Psychcare Seruvs., Inc.,

I I, cscanssnnenonsoonhion 17

Buchwald v. Superior Court,

254 Cal. App. 2d 347

(Call. Ct. App. 1967) ..............ceccececcscoscccoccecossecoeeess 10

Buckeye Check Cashing, Inc. v. Cardegna,

a ctiatisieninenti passim

Circuit City Stores, Inc. v. Adams,

ER 10, 16, 18

Dean Witter Reynolds, Inc. v. Byrd,

EL 3, 18

Discover Bank v. Superior Court

of Los Angeles,

DED Fe BI CA, Be occcncccccccccccccccccccecescoccceses 17

Doctor’s Associates v. Casarotto,

er I... ecceamsicmmonnnnsoniees 10, 12-13

Ferrer v. Preston,

145 Cal. App. 4th 440

Eee passim

First Options of Chicago, Inc. v. Kaplan,

i ein 19

Fitz v. NCR Corp..,

118 Cal. App. 4th 702

Gs Gaiele MNNG SII icc sincsscssienisisnitcttscicteiamibaiasadedaiummaalal 17

Flores v. Transamerica HomeFirst, Inc.,

93 Cal. App. 4th 846

2 FREUD rent ne rt eH 17

Gentry v. Superior Court,

ft we Ff +, , SEEN ENED 17

Gilmer v. Interstate/Johnson Lane Corp.,

Lik Enna nem 9, 14, 21

Green Tree Financial Corp. v. Bazzle,

is SR sccecssisisvestnsinatiileiinatiadddessiananmaanm 3,9

Hines v. Davidowitz,

a Or ee ccicnctccncnssitiniaitsdaiaiaeaaie 11-12

Imbler v. PacifiCare of California, Inc.,

103 Cal. App. 4th 567

+ BF ee 16

Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc.,

fie G00 eee 18, 21

Moses H. Cone Memorial Hosp. v.

Mercury Construction Corp.,

GED Ue BF iciniictisituntiiniaiae: 2-3, 10, 24

O'Hare v. Municipal Resource Consultants,

107 Cal. App. 4th 267

Gek. Ge. ane, TERI cconetciocssasisiianiiinnaiimeaan 17

PacifiCare Systems, Inc. v. Book,

SOD TE. GG Gai iercccievsinccscccnnnsanuibiiituiaimianim 3

Perry v. Thomas,

GES UB. Ge Ca iacininteccesiadiunamiamaneamae 1, 10-13

Prima Paint v. Flood & Conklin

Manufacturing Co.,

TI icienettcinnenenimtenneeennsensane

Red Cross Line v. Atlantic Fruit Co.,

Robertson v. Health Net of California, Inc.,

132 Cal. App. 4th 1419

ts TIT soncncecisscannnenccsnsnecsnanenene

Rodriguez de Quias v.

Shearson/ American Express, Inc.,

Ot cntnesicteesnsnemsnescansoncneneess

Scherk v. Alberto-Culver Co.,

Se ET ccrcriernitsereceenssenseeneeescensoeen

Shearson/ American Express Inc. v.

McMahon,

ii inisiccenneendammtnenennnenace

Smith v. PacifiCare Behavioral Health

of California, Inc.,

93 Cal. App. 4th 139

I os ietiomoatinniia’

Southland Corp. v. Keating,

ae oe

Styne v. Stevens,

26 P.3d 343 (Cal. 2001) ..............cceccccceeees

Tobey v. County of Bristol,

23 F. Cas. 1313 (C.C. Mass. 1845) ............

Volt Information Sciences, Inc. v. Board of

Trustees of Leland Stanford, Jr.

University,

GBB US. SEB (2BGB)..........0000000000000020:. 1, 11-12, 18-19

vii

CONSTITUTION AND STATUTES

I clea iattelailel 13

ll 1,3

California Talent Agencies Act,

Cal. Lab. Code §§ 1700 et seq. ..............cccccccccceeeeeeee 3

Cal. Lab. Code § 1700.45(c)-(d)............00ccccccccceeeee 13

Cal. Lab. Code § 1700.44(a)............................. 22-23

MISCELLANEOUS

Arbitration: Simpler, Cheaper, and Faster

Than Litigation (Institute for Legal Re-

form, April 2005), available at www. in-

stituteforlegalreform.org/resources/

ArbitrationStudyFinal pdf ..................0..0cccccceeeeeee 21

Stephen A. Broome, An Unconscionable Ap-

plication of the Unconscionability Doc-

trine: How the California Courts Are Cir-

cumventing the Federal Arbitration Act,

3 Hastings Bus. L.J. 39 (2006) .............000000000.00.. 17

California Legislative Analyst's Office, 2006

Cal Facts: California’s Economy and

Budget in Perspective, available at

http://www.lao.ca.gov/2006_cal_facts/pdf ............ 18

Theodore Eisenberg & Elizabeth Hill, Arbi-

tration and Litigation of Employment

Claims: An Empirical Comparison,

58-Jan. Dispute Resolution J. 44 (2004).............. 22

Federal Judicial Center, Judicial Business

of the United States Courts 2006.................c..c0000- 22

H.R. Rep. No. 68-96 (1924) ..................cccececceeeeeees 15, 20

H.R. Rep. Neo. 97-642 (1962) ...................................... 20

Joint Hearings Before the Subcommittees of

the Committees on the Judiciary on

S. 1005 and H.R. 646, 68th Cong., Ist

ERECT SE YES A Ol 20

Lewis L. Maltby, Private Justice: Employ-

ment Arbitration and Civil Rights,

30 Colum. Hum. Rts. L. Rev. 29 (1998) ............... 22

Michael G. McGuinness & Adam J. Karr,

California’s “Unique” Approach to Arbi-

tration: Why This Road Less Traveled

Will Make All the Difference on the Issue

of Preemption Under the Federal Arbitra-

tion Act, 2005 J. Disp. Resol. 61 (2005)................ 17

5. Rep. Ne. 68-596 (1924)................................ 15-16, 20

INTRODUCTION AND

INTEREST OF AMICUS CURIAE

This is the latest in a long series of cases in which

this Court has been called upon to ‘address increas-

ingly creative efforts by state courts to evade the re-

quirements of the Federal Arbitration Act (“FAA”).!

The FAA creates a rule of substantive federal law

that generally requires enforcement of private

agreements to arbitrate. See 9 U.S.C. § 2; Volt Info.

Sciences, Inc. v. Board of Trs. of Leland Stanford, Jr.

Univ., 489 U.S. 468, 478 (1989); Perry v. Thomas, 482

U.S. 483, 489 (1987). Consistent with the text and

purpose of the FAA, this Court has held that a party

to such an agreement cannot avoid arbitration simply

by challenging the validity of the contract containing

the arbitration provision. As the Court explained in

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

440, 449 (2006), “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 specifi-

cally to the arbitration clause, must go to the arbitra-

tor.”

The court below purported to distinguish Buckeye

on the ground that it did not involve an administra-

tive proceeding. But that distinction makes no differ-

ence, because the rule in Buckeye does not depend

upon the forum employed as an alternative to arbi-

tration. In fact, the reasoning of Buckeye compels the

! The parties have consented to the filing of this brief. Pursu-

ant to Rule 37.6, the amicus states that no counsel for a party

authored this brief in whole or in part, and no counsel or party

made a monetary contribution intended to fund the preparation

or submission of this brief. No person other than the amicus, its

members, or its counsel made a monetary contribution to prepa-

ration or submission of this brief.

conclusion that a litigant may not avoid arbitration

by challenging the validity of the contract as a whole

in any other forum, judicial or administrative. Thus,

to the extent that California law requires an adminis-

trative agency, rather than an arbitrator, to decide

whether the contract is valid and enforceable, Cali-

fornia law is preempted by the FAA.

The rule of Buckeye is critically important to vin-

dicating the FAA’s underlying policies. This Court

has recognized that the FAA was intended to “over-

come courts’ refusals to enforce agreements to arbi-

trate,” Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265, 270 (1995), and to “move the parties to an

arbitrable dispute out of court and into arbitration as

quickly and easily as possible,” Moses H. Cone Mem

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983).

By sidestepping Buckeye and allowing respondent to

pursue a costly and time-consuming administrative

proceeding rather than abide by his agreement to ar-

bitrate, the court below exhibited just the kind of hos-

tility to arbitration that Congress and this Court

have clearly (and repeatedly) rejected.

In sum, the decision below cannot be reconciled

with the FAA or this Court’s decisions applying it,

and the decision therefore should be reversed.

This issue is especially important to the Chamber

of Commerce of the United States of America—the

world’s largest business federation, representing

more than three million businesses, state and local

chambers of commerce, and professional organiza-

tions. Many of the Chamber’s members routinely en-

ter arbitration agreements because they believe—and

recent studies confirm—that arbitration is a rela-

tively fast, fair, and inexpensive method of resolving

disputes with consumers and other contracting par-

ties. Because many Chamber members may be sued

in state courts or before administrative agencies, they

rely on “rigorous[ ] enforce[ment]” of the FAA to en-

sure that they will not be deprived of the real benefits

of arbitration, benefits for which they have bar-

gained. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.

213, 221 (1985). That is why the Chamber has filed

amicus briefs in other recent arbitration cases, in-

cluding Buckeye, supra, Green Tree Financial Corp. v.

Bazzle, 539 U.S. 444 (2003), and PacifiCare Systems,

Inc. v. Book, 538 U.S. 401 (2003). In this case too, the

Chamber seeks to advance its members’ continuing

interest in the full vindication of the “liberal federal

policy favoring arbitration agreements, notwithstand-

ing any state substantive or procedural policies to the

contrary.” Moses Cone, 460 US. at 24.

STATEMENT

This case arises from a personal management con-

tract between petitioner Arnold Preston and respon-

dent Alex Ferrer. The contract contained a standard

arbitration provision covering not only the substan-

tive dispute between the parties but also any dispute

relating to the “validity or legality” of the contract it-

self. Ferrer v. Preston, 145 Cal. App. 4th 440, 444-

444 (Cal. Ct. App. 2006); id. at 448-449 & n.1 (Vogel,

J., dissenting). It is undisputed that this contract

“evidencies}] a transaction involving commerce” (9

U.S.C. § 2) and thus is subject to the FAA. It is also

undisputed that Ferrer has never specifically chal-

lenged the validity of that provision. Nevertheless,

Ferrer resisted arbitration of a fee dispute with peti-

tioner on the ground thai the contract as a whole was

invalid under California’s Talent Agencies Act, Cal.

Lab. Code §§ 1700 et seq. The superior court granted

Ferrer’s request to enjoin arbitration proceedings and

denied petitioner’s motion to compel arbitration.

A divided panel of the California Court of Appeal

affirmed the superior court’s ruling. The majority

held that Ferrer’s challenge to the validity of the con-

tract as a whole must be determined in the first in-

stance by the Labor Commissioner, not an arbitrator.

Ferrer, 145 Cal. App. 4th at 446. According to the

majority, California law grants the Labor Commis-

sioner exclusive jurisdiction over controversies arising

under the Talent Agencies Act, subject to an appeal

to the superior court. See id. at 444-447.

To reach this result, the court below had to distin-

guish this Court’s recent decision in Buckeye, supra,

which held that a party cannot avoid arbitration by

attacking the validity of the contract as a whole. But

the only reason the court gave for distinguishing

Buckeye was that it “did not involve an administra-

tive agency with exclusive jurisdiction over a dis-

puted issue” and “did not consider whether the FAA

preempts application of the exhaustion [of adminis-

trative remedies] doctrine.” Ferrer, 145 Cal. App. 4th

at 447.

As the dissent pointed out, the majority’s holding

that Ferrer could take his challenge to the adminis-

trative agency effectively rewrote the parties’ con-

tract and denied petitioner the benefits of arbitration

rights for which he had bargained: “Instead of the

speedy, efficient, and relatively inexpensive proce-

dure contemplated by the parties’ contract, [the ma-

jority has] permitted Ferrer to cause a delay of years

and triple or quadruple the parties’ expenditures.

That is not how it is supposed to work.” Id. at 451

(Vogel, J., dissenting) (citation omitted).

Sit ie

SUMMARY OF ARGUMENT

As explained in Section I below, Buckeye controls

this case and requires reversal. This Court made

clear in Buckeye that any challenge to the validity of

the contract containing an arbitration provision must

be resolved by the arbitrator. The fundamental

propositions on which that conclusion depend are not

affected by the fact that the alternative forum to arbi-

tration is an administrative forum rather than a judi-

cial one. When Buckeye reserved to the arbitrator au-

thority to determine the validity of the contract as a

whole, it precluded any other decisionmaker from

making that determination. To the extent that Cali-

fornia law requires a contrary result in cases involv-

ing contracts covered by the FAA, California law is

preempted by that statute, as definitively construed

in Buckeye.

As shown in Section II, the decision below also

undermines the core objectives of the FAA. Indeed,

by ignoring Buckeye and allowing Ferrer to avoid his

clear agreement to arbitrate, the decision below re-

quires the parties to employ a more expensive and

time-consuming dispute resolution procedure than

the one for which they freely bargained. The decision

below thus reflects the very kind of judicial hostility

to arbitration that the FAA, and this Court’s deci-

sions construing it, were designed to eradicate.

If left in place, moreover, the decision below will

deprive litigants throughout California—and any

other states that adopt the approach of the court be-

low—of the substantial benefits of arbitration, which

Congress sought to protect when it enacted the FAA.

Those benefits include the ability to resolve legal dis-

putes more quickly and at a lower cost than the par-

ties could do in most courts. Recent data demon-

strate that these benefits remain as important today

as they were when the FAA was enacted. And a re-

versal is necessary to ensure that those benefits are

not lost as a result of residual judicial hostility to ar-

bitration.

ARGUMENT

I. Under Settled Law, Challenges To The Valid-

ity Of The Contract As A Whole Must Be Re-

solved By The Arbitrator, Not An Adminis-

trative Agency.

There can be little doubt that the decision below is

flatly contrary to Buckeye. Although Buckeye did not

involve an administrative action, the Court’s reason-

ing, as we explain below, compels the conclusion that

any challenge to the validity of the contract as a

whole must be decided by the arbitrator alone—not a

court or an administrative agency. And any state law

that would otherwise require a different result—in

this case California’s Talent Agencies Act—is to that

extent preempted by the FAA.

A. Under the FAA, as construed in Buckeye

and other decisions, a challenge to the va-

lidity of the contract as a whole must be

resolved by the arbitrator.

Buckeye relied heavily upon this Court’s decision

in Prima Paint v. Flood & Conklin Manufacturing

Co., 388 U.S. 395, 404 (1967), which held that a fed-

eral court considering a petition to compel arbitration

under Section 4 of the FAA or an application for a

stay pending arbitration under Section 3 “may con-

sider only issues relating to the making and perform-

ance of the agreement to arbitrate.” (Emphasis

added.) More specifically, the Court explained that

“if the claim is fraud in the inducement of the arbi-

tration clause itself—an issue which goes to the ‘mak-

ing’ of the agreement to arbitrate—the federal court

may proceed to adjudicate it. But the statutory lan-

guage does not permit the federal court to consider

claims of fraud in the inducement of the contract

generally.” Jd. at 403-404 (footnote omitted). Thus,

under Prima Paint, a litigant in federal court could

not resist arbitration oy attacking the validity of the

contract as a whole.

1. Buckeye held that the same rule applies to liti-

gants resisting arbitration by resorting to state

courts. See 546 U.S. at 449. The plaintiffs there had

filed a putative class action in Florida state court, al-

leging that a check-cashing company charged usuri-

ous interest rates and that its contract with the

plaintiffs was illegal on its face. See id. at 443. The

plaintiffs sought to avoid their written agreement to

arbitrate on the ground that the contract as a whole

was void ab initio, such that the arbitration agree-

ment was unenforceable. See ibid. The trial court

denied the defendant’s motion to compel arbitration,

and the state supreme court affirmed that ruling.

See ibid.

This Court reversed, explaining that Prima Paint,

together with Southland Corp. v. Keating, 465 U.S. 1

(1984), establish three fundamental propositions of

federal arbitration law: first, that “an arbitration

provision is severable from the remainder of the con-

tract”; second, that “unless the challenge is to the ar-

bitration clause itself, the issue of the contract’s va-

lidity is considered by the arbitrator in the first in-

stance”; and third, that “this arbitration law applies

in state as well as federal courts.” Buckeye, 546 U.S.

at 445-446. Applying these bedrock principles, the

Court in Buckeye held that “regardless of whether the

challenge is brought in federal or state court, a chal-

lenge to the validity of the contract as a whole, and

not specifically to the arbitration clause, must go to

the arbitrator.” Id. at 449.

2. The court below purported to distinguish Buck-

eye on the ground that the Talent Agencies Act allows

respondent to ask the Labor Commissioner to deter-

mine (preliminarily) the validity of the management

contract as a whole. But Buckeye cannot be dis-

missed so easily.

For one thing, notwithstanding the administra-

tive-agency wrinkle, this is still a case, like Buckeye,

in which a state court has now allowed a litigant to

avoid his arbitration agreement based on his chal-

lenge to the validity of the contract as a whole—a re-

sult that Buckeye plainly forbids. See 546 U.S. at

446.

Moreover, the fact that Ferrer asked an adminis-

trative agency rather than a court to determine the

validity of the contract as a whole is irrelevant. None

of the three propositions of arbitration law on which

Buckeye depends is affected by the identity of the al-

ternative forum. The point of Buckeye (and Prima

Paint) is that the arbitration agreement is severable

from the remainder of the contract, and disputes re-

lating to the remainder of the contract “must go to

the arbitrator. Jd. at 449. Thus, the fact that Cali-

fornia law allowed Ferrer to file a petition with the

Labor Commissioner is no ground on which to distin-

guish Buckeye. Under the FAA, it is for the arbitra-

tor—and no one else—to decide whether the man-

agement contract as a whole is a valid, enforceable

contract.?

The court below failed to identify any characteris-

tic of administrative procedure that would distin-

guish this case from Buckeye in any material respect.

And this Court has already rejected the argument

that the prominence of an administrative agency in

enforcing statutory rights counsels against enforcing

arbitration agreements. See Gilmer v. Inter-

state/Johnson Lane Corp., 500 U.S. 20, 28-29 (1991)

(citing Shearson/American Express Inc. v. McMahon,

482 U.S. 220 (1987), and Rodriguez de Quijas v.

Shearson/American Express, Inc., 490 U.S. 477

(1989)). Indeed, this Court has held that a federal

age discrimination claim may be arbitrated, notwith-

standing the important role of the EEOC in enforcing

the Age Discrimination in Employment Act, because

“the mere involvement of an administrative agency in

the enforcement of a statute is not sufficient to pre-

clude arbitration.” Gilmer, 500 U.S. at 28-29.

So too here: the “mere involvement” of the Cali-

fornia Labor Commissioner is plainly “not sufficient

to preclude arbitration” under this Court’s prece-

dents.

B. The FAA preempts any state law, includ-

ing California’s Talent Agencies Act, that

would require a result contrary to Buck-

eye.

The court below rested its contrary conclusion on

California case law holding that the Talent Agencies

2 Indeed, this Court itself has declined to interpret a contract

where the FAA committed the issue to the arbitrator. See Baz-

zle, 539 U.S. at 451-453.

Act confers upon the Labor Commissioner exclusive

jurisdiction to resolve disputes involving that statute

in the first instance. See 145 Cal. App. 4th at 444-

447 (citing Styne v. Stevens, 26 P.3d 343 (Cal. 2001),

and Buchwald v. Superior Court, 254 Cal. App. 2d

347 (Cal. Ct. App. 1967)). But even assuming that

the Talent Agencies Act was properly invoked in this

case,’ that statute—as applied by the court below—

frustrates Congress’ purpose in enacting the FAA and

is therefore preempted.

1. This Court has described Section 2 of the FAA

as “a congressional declaration of a liberal federal

policy favoring arbitration agreements, notwithstand-

ing any state substantive or procedural policies to the

contrary. The effect of the section is to create a body

of federal substantive law of arbitrability, applicable

to any arbitration agreement within the coverage of

the Act.” Moses Cone, 460 U.S. at 24 (emphasis

added). And it is by now well settled that the FAA is

“enforceable in both state and federal courts.” Perry,

482 U.S. at 489; see also Doctor’s Associates v.

Casarotto, 517 U.S. 681, 684-686 (1996); Allied-Bruce,

513 U.S. at 272; Southland, 465 U.S. at 12, 15.4 In-

3 The parties executed a personal management contract, not a

talent agent's contract. Nevertheless, Ferrer invoked the Talent

Agencies Act by “claim|[ing] the agreement is not what it ap-

pears to be.” 145 Cal. App. 4th at 450 (Vogel, J., dissenting).

4 As recently as 2001, this Court reaffirmed the essential hold-

ing of Southland. See Circuit City Stores, Inc. vy. Adams, 532

U.S. 105, 122 (2001) (‘The question of Southlands continuing

vitality was given explicit consideration in Allied-Bruce, and the

Court declined to overrule it”). Even Justice O'Connor, who dis-

sented in Southland, concurred in Allied-Bruce based on “con-

siderations of stare decisis.” 513 U.S. at 283-284 (“I acquiesce in

today’s judgment because there is no ‘special justification’ to

overrule Southland. It remains now for Congress to correct this

deed, “[iJn creating a substantive rule applicable in

state as well as federal courts, Congress intended to

foreclose state legislative attempts to undercut the

enforceability of arbitration agreements.” Southland,

465 US. at 16 (footnote omitted).

Accordingly, this Court has held that the Suprem-

acy Clause requires enforcement of the FAA rather

than a contrary state law. Although “[t]he FAA con-

tains no express pre-emptive provision” and does not

“occupy the entire field of arbitration,” “state law may

nonetheless be pre-empted * * * to the extent that it

‘stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Con-

gress.” Volt, 489 U.S. at 477 (1989) (quoting Hines v.

Davidowitz, 312 U.S. 52, 67 (1941)). Thus, “[iJn rec-

ognition of Congress’ principal purpose of ensuring

that private arbitration agreements are enforced ac-

cording to their terms,” this Court has held that “the

FAA pre-empts state laws which require a judicial fo-

rum for the resolution of claims which the contracting

parties agreed to resolve by arbitration.” Jd. at 478

(quotations omitted).

The Court has repeatedly applied that principle in

other contexts. For example, in Perry v. Thomas, su-

pra, this Court held that another provision of Cali-

fornia’s Labor Code, Section 229, could not be applied

to arbitration agreements. That section provided

that actions for collection of wages could be pursued

in state court “without regard to the existence of any

private agreement to arbitrate.” 482 U.S. at 484.

But the Court held that this anti-arbitration provi-

sion stood in “unmistakable conflict” with the FAA,

interpretation if it wishes to preserve state autonomy in state

courts”) (citation omitted).

and concluded that “under the Supremacy Clause,

the state statute must give way.” Id. at 491. Simi-

larly, in Doctor’s Associates vy. Casarotto, supra, the

Court held that the FAA preempted a Montana stat-

ute providing that a contract containing an arbitra-

tion provision must give notice of that provision on

the first page of the contract. 517 U.S. at 686-688.

These decisions make clear that where a state law

impedes the simple enforcement of arbitration

agreements according to their terms, it “stands as an

obstacle to the accomplishment and execution of the

full purposes and objectives of Congress” and is there-

fore preempted by the FAA. Volt, 489 U.S. at 477;

Hines, 312 US. at 67.

2. Undoubtedly, the Talent Agencies Act (as in-

terpreted by California courts) impedes the accom-

plishment of congressional objectives in the FAA in

two ways. First, under the decision below, that Act

requires the Labor Commissioner to determine the

validity of the management contract as a whole, even

though the arbitration agreement and the FAA (as

interpreted in Buckeye and Prima Paint) commit that

determination to the arbitrator alone.

Second, the Talent Agencies Act purports to sup-

plement the requirements of the FAA. Construing

Section 2 of the FAA, this Court has explained that

the FAA recognizes “only two limitations on the en-

forceability of arbitration provisions governed by the

Federal Arbitration Act: [1] they must be part of a

written maritime contract or a contract ‘evidencing a

transaction involving commerce’ and [2] such clauses

may be revoked upon ‘grounds as exist at law or in

equity for the revocation of any contract.” South-

land, 465 U.S. at 10-11 (footnote omitted). Here, the

contract undisputedly evidences a transaction involv-

ing commerce, and respondent has not claimed that

the arbitration provision is invalid under any gener-

ally applicable principle of law or equity.

The Talent Agencies Act itself recognizes the va-

lidity of arbitration provisions in contracts to which it

applies. But it conditions the validity of such provi-

sions on the parties’ agreeing to give notice to the La-

bor Commissioner and to allow his attendance at any

arbitration hearings. Cal. Lab. Code § 1700.45(c)-(d).

Because this provision thus purports to impose “addi-

tional limitations” on arbitration agreements, it con-

flicts with the FAA for that reason as well. South-

land, 465 U.S. at 10-11; see also Doctor’s Assocs., 517

U.S. at 683; Perry, 482 U.S. at 491.

Given the “unmistakable conflict” (Perry, 482 U.S.

at 491) between the Talent Agencies Act and the

FAA, the court below was required to apply the FAA

and this Court’s decision in Buckeye, notwithstanding

anything to the contrary in the Talent Agencies Act.

As the Supremacy Clause itself provides: “the Laws

of the United States * * * shall be the supreme Law of

the Land; and the Judges in every State shall be

bound thereby, any Thing in the Constitution or

Laws of any State to the Contrary notwithstanding.”

U.S. Const. art. VI (emphasis added). State adminis-

trative proceedings are thus not excepted from the

Clause’s comprehensive scope.

For all these reasons, the court below erred in

concluding that the Labor Commissioner must de-

termine, in the first instance, the validity of the

agreement at issue here, and the decision below must

therefore be reversed.

Il. Reversal Is Necessary To Eliminate Remain-

ing Judicial Hostility To Arbitration And To

Ensure That Businesses And Others Can En-

joy The Benefits Of Arbitration.

In disregarding this Court’s decision in Buckeye

and allowing Ferrer to avoid his clear agreement to

arbitrate, the decision below represents only the lat-

est example of some state courts’ continuing hostility

to private arbitration agreements—the very problem

that the FAA was intended to overcome. As a result

of that decision, the parties in this case have been

deprived of the opportunity to realize the economies

and efficiencies of private dispute resolution for

which they bargained. As the dissent below put it,

“fiJnstead of the speedy, efficient, and relatively inex-

pensive procedure contemplated by the parties’ con-

tract, [the majority below has] permitted Ferrer to

cause a delay of years and triple or quadruple the

parties’ expenditures.” 145 Cal. App. 4th at 451 (Vo-

gel, J., dissenting). Reversal will not only help root

out remaining judicial hostility to arbitration, but

will also ensure that businesses and other parties to

arbitration agreements can realize the significant ad-

vantages of arbitration over litigation.

A. The decision below reflects continuing

judicial hostility to arbitraticn.

Given the implausibility of its legal reasoning, the

decision below can only be understood as the latest

example of that “longstanding judicial hostility to ar-

bitration agreements” that the FAA was intended to

overcome. Gilmer, 500 U.S. at 24.

1. As explained in a 1924 congressional report is-

sued in connection with the FAA, “[s]ome certuries

ago, because of the jealousy of the English courts for

their own jurisdiction, they refused to enforce specific

agreements to arbitrate upon the ground that the

courts were thereby ousted from their jurisdiction.”

H.R. Rep. No. 68-96, at 1-2 (1924) (cited in Scherk v.

Alberto-Culver Co., 417 U.S. 506, 510 n.4 (1974)); see

S. Rep. No. 68-536, at 2 (1924). This practice “be-

came firmly embedded in the English common law

and was adopted with it by the American courts.”

H.R. Rep. No. 68-96, at 2. Justice Story explained the

traditional practice in Tobey v. County of Bristol, 23

F. Cas. 1313, 1321 (C.C. Mass. 1845):

It is certainly the policy of the common law, not to

compel men to submit their rights and interests to

arbitration, or to enforce agreements for such a

purpose. Nay, the common law goes farther, and

even if a submission has been made to arbitrators,

who are named, by deed or otherwise, with an ex-

press stipulation, that the submission shall be ir-

revocable, it still is revocable and countermand-

able, by either party, before the award is actually

made, although not afterwards.

Citing Tobey as a leading example, this Court

later observed that “[t]he federal courts—like those of

the states and of England—have, both in equity and

at law, denied, in large measure, the aid of their proc-

esses to those seeking to enforce executory agree-

ments to arbitrate disputes. They have declined to

compel specific performance, or to stay proceedings

on the original cause of action.” Red Cross Line v. At-

lantic Fruit Co., 264 U.S. 109, 120-121 (1924) (cita-

tions omitted). “It [was] very old law,” a Senate Re-

port explained, “that the performance of a written

agreement to arbitrate would not be enforced in eq-

uity * * * * [Such agreements were in large part inef-

fectual, and the party aggrieved by the refusal of the

other party to carry out the arbitration agreement

was without adequate remedy.” S. Rep. No. 68-536,

at 2.

Congress enacted the FAA in 1925 specifically to

“overcome [this] judicial resistance to arbitration.”

Buckeye, 546 U.S. at 443; see Circuit City, 532 U.S. at

111 (“the FAA was a response to hostility of American

courts to the enforcement of arbitration agreements,

a judicial disposition inherited from _then-

longstanding English practice”); Allied-Bruce, 513

U.S. at 270 (1995) (“the basic purpose of the Federal

Arbitration Act is to overcome courts’ refusals to en-

force agreements to arbitrate”); Scherk, 417 U.S. at

510 (the FAA “revers[ed] centuries of judicial hostility

to arbitration agreements”). As this Court explained

in Southland, “(t]he problems Congress faced were

* * * twofold: the old common law hostility toward ar-

bitration, and the failure of state arbitration statutes

to mandate enforcement of arbitration agreements.”

465 U.S. at 14. With the FAA now more than 80

years old, institutional hostility to arbitration agree-

ments should be a relic of the past.

2. Unfortunately, this hostility remains apparent

in other recent decisions from California courts. For

example, California courts have refused to enforce

arbitration provisions in health care service plans

based on failure to comply with unique statutory dis-

closure requirements.5 California courts have also

5 E.g., Robertson v. Health Net of Cal., Inc., 132 Cal. App. 4th

1419 (Cal. Ct. App. 2005); Imbler v. PacifiCare of Cal., Inc., 103

Cal. App. 4th 567 (Cal. Ct. App. 2002); Smith v. PacifiCare Be-

havioral Health of Cal., Inc., 93 Cal. App. 4th 139 (Cal. Ct. App.

2001).

recently invoked the amorphous doctrine of uncon-

scionability to give plaintiffs a way out of their arbi-

tration agreements.’ Indeed, California courts have

applied a stricter form of unconscionability analysis

in arbitration cases, and as a result, “unconscionabil-

ity challenges succeed more frequently when the con-

tractual provision at issue is an arbitration agree-

ment.” Stephen A. Broome, An Unconscionable Ap-

plication of the Unconscionability Doctrine: How the

California Courts Are Circumventing the Federal Ar-

bitration Act, 3 Hastings Bus. L.J. 39, 47 (2006) (find-

ing that courts found at least a portion of an arbitra-

tion provision unconscionable in 68 out of 114 cases,

while courts found non-arbitration contract provi-

sions unconscionable in only 5 out of 46 cases).

As these examples make clear, “the same judicial

hostility ostensibly thwarted eighty years ago contin-

ues today, albeit in a more subt:e—but equally hos-

tile—form,” at least in California. Michael G.

McGuinness & Adam J. Karr, California’s “Unique“

Approach to Arbitration: Why This Road Less Trav-

eled Will Make All the Difference on the Issue of Pre-

emption Under the Federal Arbitration Act, 2005 J.

Disp. Resol. 61, 61 (2005); see Gentry, 42 Cal. 4th at

473 (Baxter, J., dissenting) (noting the California Su-

preme Court’s “continuing effort to limit and restrict

6 E.g., Gentry vy. Superior Court, 42 Cal. 4th 443 (Cal. 2007);

Discover 3ank v. Superior Court of Los Angeles, 113 P.3d 1100

(Cal. 2005); Armendariz v. Foundation Health Psychcare Servs.,

Inc., 6 P.3d 669 (Cal. 2000); Fitz v. NCR Corp., 118 Cal. App. 4th

702 (Cal. Ct. App. 2004); Abramson v. Juniper Networks, Inc.,

115 Cal. App. 4th 638 (Cal. Ct. App. 2004); O'Hare v. Municipal

Res. Consultants, 107 Cal. App. 4th 267 (Cal. Ct. App. 2003);

Flores v. Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846

(Cal. Ct. App. 2001). |

the terms of private arbitration agreements, which

enjoy special protection under both state and federal

law”). And because California’s economy is the larg-

est in the Nation and, indeed, the eighth-largest

economy in the world (with a gross state product ex-

ceeding $1.6 trillion), continuing hostility to arbitra-

tion in California is a significant problem for busi-

nesses nationwide. See California Legislative Ana-

lyst’s Office, 2006 Cal Facts: California’s Economy

and Budget in Perspective, available at http://www.

lao.ca.gov/2006_cal_ facts/pdf.

B. The decision below deprives both busi-

nesses and individuals of the substantial

benefits of arbitration.

Such hostility often deprives businesses and indi-

viduals of the substantial benefits of arbitration—

benefits that are often at the heart of an arbitration

contract.

1. The “preeminent concern” of Congress when it

enacted the FAA was “to enforce private agreements

into which parties had entered.” Dean Witter Rey-

nolds, 470 U.S. at 221. Accordingly, the Act “simply

requires courts to enforce privately negotiated agree-

ments to arbitrate, like other contracts, in accordance

with their terms.” Volt, 489 U.S. at 478; accord Cir-

cuit City, 532 U.S. at 111 (“the FAA compels judicial

enforcement of a wide range of written arbitration

agreements”); Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985)

(the FAA manifests “a policy guaranteeing the en-

forcement of private contractual agreements”); South-

land, 465 U.S. at 10 (“Congress has * * * mandated

the enforcement of arbitration agreements”). Be-

cause “[a]rbitration under the Act is a matter of con-

sent, not coercion,” the parties may “structure their

arbitration agreements as they see fit.” Volt, 489

U.S. at 479; see First Options of Chicago, Inc. v. Kap-

lan, 514 U.S. 938, 943 (1995) (the parties may decide

which issues should be submitted to the arbitrator).

But, however the parties structure their agreement,

the FAA commands that a court must enforce that

agreement according to its terms.

The decision below undermines this fundamental

objective of the FAA. The parties’ agreement in this

case could not be clearer: “[AJny dispute under or re-

lating to the terms of [the management contract], or

the breach, validity, or legality thereof’ must be re-

solved through arbitration rather than litigation.

Ferrer has never challenged the validity or the scope

of this agreement. Instead, his sole defense to arbi-

tration is the allegation that the management con-

tract as a whole is invalid under the Talent Agencies

Act. But that is just a “dispute * * * relating to * * *

the breach, validity, or legality” of the management

contract, which the parties expressly agreed should

be resolved in arbitration. 145 Cal. App. 4th at 449

n.l.

By relieving Ferrer of his contractual duty to arbi-

trate issues relating to the validity or legality of the

management contract, the decision below fails to en-

force the parties’ bargained-for agreement. And to

make matters worse, the decision below undermines,

for businesses and individuals throughout California,

Congress’ “preeminent” purpose in enacting the FAA.

2. Congress and this Court have identified sev-

eral compelling reasons why contracting parties fre-

quently prefer arbitration to litigation. Shortly be-

fore enactment of the FAA, Congress heard testimony

that “arbitration saves time, saves trouble, [and]

saves money. * * * It preserves business friendships.

*** Tt maintains business honor, prevents unneces-

sary litigation, and eliminates the law’s delay by re-

lieving our courts.” Joint Hrgs. Before the Subcomms.

of the Comms. on the Judiciary on S. 1005 and H.R.

646, 68th Cong., lst Sess. 7 (1924) (Statement of

Charles L. Bernheimer, Chamber of Commerce of

New York). Similarly, a House Report explained that

“the costliness and delays of litigation * * * can be

largely eliminated by agreements for arbitration, if

arbitration agreements are made valid and enforce-

able.” H.R. Rep. No. 68-96, at 2. And a Senate Re-

port concluded that action was needed because “[t]he

desire to avoid the delay and expense of litigation

persists. The desire grows with time and as delays

and expenses increase. The settlement of disputes

appeals to big business and little business alike, to

corporate interests as well as to individuals.” S. Rep.

No. 68-536, at 3.

Nearly 60 years after the FAA was enacted, Con-

gress observed that “[t]he advantages of arbitration

are many: it is usually cheaper and faster than litiga-

tion; it can have simpler procedural and evidentiary

rules; it normally minimizes hostility and is less dis-

ruptive of ongoing and future business dealings

among the parties; [and] it is often more flexible in

regard to scheduling of times and places of hearings

and discovery devices.” H.R. Rep. No. 97-542, at 13

(1982). Thus, decades of experience under the FAA

regime have only confirmed that arbitration is fun-

damentally beneficial for parties engaged in com-

merce.

This Court likewise has recognized the benefits of

arbitration as well, explaining that “it is often a judg-

ment that streamlined proceedings and expeditious

results will best serve their needs that causes parties

to agree to arbitrate their disputes; it is typically a

desire to keep the effort and expense required to re-

solve a dispute within manageable bounds that

prompts them mutually to forgo access to judicial

remedies.” Mitsubishi Motors, 473 U.S. at 633.

Thus, parties to arbitration agreements elect to trade

“the procedures and opportunity for review of the

courtroom for the simplicity, informality, and expedi-

tion of arbitration.” Gilmer, 500 U.S. at 31.

3. The assessments of Congress and this Court

accurately reflect the perceptions of private parties

considering alternative methods of dispute resolution

as well as relevant empirical data.

Survey research confirms that participants in ar-

bitrations perceive distinct advantages to this method

of dispute resolution. For example, in a 2005 survey

conducted by Harris Interactive on behalf of the

Chamber's Institute for Legal Reform, most respon-

dents described the arbitrations in which they par-

ticipated as faster (74 percent), simpler (63 percent),

and less expensive (51 percent) than litigation. See

Arbitration: Simpler, Cheaper, and Faster Than Liti-

gation 5 (Institute for Legal Reform, April 2005).’

Not surprisingly, about two-thirds of respondents

said they would likely use arbitration again. See

ibid.

These perceptions of the benefits of arbitration

find ample support in available empirical research.

For example, the authors of one study comparing ar-

7 Available at www.instituteforlegalreform.org/resources/Arbi-

trationStudyF inal pdf.

bitration and litigation of employment-related claims

concluded that “{b]y any measure, the arbitrations

terminated more quickly than the litigations. The

mean and median times in arbitration ranged from

about seven to 13 months. The mean and median

litigation times in both federal and state courts all

exceeded 20 months.” Theodore Eisenberg & Eliza-

beth Hill, Arbitration and Litigation of Employment

Claims: An Empirical Comparison, 58-Jan. Dispute

Resolution J. 44, 51 (2004). Another commentator

reported in 1998 that “[t]he average case in arbitra-

tion is resolved in 8.6 months, less than half of the

time required for civil litigation.” Lewis L. Maltby,

Private Justice: Employment Arbitration and Civil

Rights, 30 Colum. Hum. Rts. L. Rev. 29, 55 (1998).

Data on pending court cases confirm this conclu-

sion. For example, as of September 30, 2006, more

than 40 percent of all civil cases pending in the fed-

eral district courts had been pending for one year or

longer. See Federal Judicial Center, Judicial Busi-

ness of the United States Courts 2006, at 195-197

(Table C-6). Eleven percent of cases had been pend-

ing for three years or longer. See id. at 195. The me-

dian interval from filing to disposition of civil cases

resolved by trial was 23.5 months—significantly

longer than the average arbitration. See id. at 192-

104 (Table C-5).

4. The financial and other risks created by the

decision below to other California litigants are well

illustrated by the facts of this case. Under California

law, Ferrer’s administrative proceeding is apparently

only a prelude to further litigation. Section

1700.44(a) provides that “[iJn cases of controversy

arising under [the Talent Agencies Act], the parties

involved shall refer the matters in dispute to the La-

bor Commissioner, who shall hear and determine the

same, subject to an appeal within 10 days after de-

termination, to the superior court where the same

shall be heard de novo.” And to take the case to the

superior court for this trial de novo, the aggrieved

party must post a bond of at least $1,000 and up to

twice the amount of any judgment approved by the

Commissioner. See Cal. Lab. Code § 1700.44(a).

Thus, by allowing Ferrer to litigate the validity of

the management contract before the Labor Commis-

sioner rather then the arbitrator, the decision below

actually exacerbates the harm caused by Ferrer’s re-

fusal to arbitrate. In the typical case, a party seeking

to compel arbitration might be forced into state-court

litigation, costly and time-consuming as that may be.

But the result in this case is even worse, because the

decision below forces petitioner to spend additional

time and money merely to satisfy a condition prece-

dent to state-court litigation, perhaps including an-

other appeal.

This case thus calls to mind this Court’s admoni-

tion that allowing a litigant to evade his agreement to

arbitrate “could lead to prolonged litigation, one of

the very risks the parties, by contracting for arbitra-

tion, sought to eliminate.” Southland, 465 U.S. at 7.

Reversal will spare petitioner—and other California

litigants—from that perverse fate.

e*xneak

This Court has recognized “the unmistakably

clear congressional purpose that the arbitration pro-

cedure, when selected by the parties to a contract, be

speedy and not subject to delay and obstruction in the

courts.” Prima Paint, 388 U.S. at 404. Indeed, Con-

gress intended “to move the parties to an arbitrable

dispute out of court and into arbitration as quickly

and easily as possible.” Moses Cone, 460 U.S. at 22;

see Southland, 465 U.S. at 7. Yet the court below

ratified Ferrer’s “delay and obstruction,” thereby de-

priving petitioner of the full benefits of arbitration

and, at the same time, providing a blueprint for evis-

cerating the FAA and Buckeye in other state courts,

in California and elsewhere. For businesses subject

to suit in those jurisdictions, that is an intolerable re-

sult.

CONCLUSION

The decision below should be reversed.

Respectfully submitted.