# Amicus Curiae Brief — Preston v. Ferrer

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0540%3A10

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2008
- **Citation:** 552 U.S. 346

## Text

wed FILED
-—2 Cc

we NOvR - 2607
35 pep

OFFICE OF THE
SP yee par le ye

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

1V

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

vi
Prima Paint v. Flood & Conklin
Manufacturing Co.,

TI icienettcinnenenimtenneeennsensane

Red Cross Line v. Atlantic Fruit Co.,

ET
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.

2

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

3

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

4

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

5
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-

6

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

7

“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

8

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-

9

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.

10

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

11

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).

12

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

13

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.

14

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

15

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-

16

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).

17

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). |

18

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-

19

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

20

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-

21

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.

22

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-

23

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

24

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.
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
NOVEMBER 2007

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0540%3A10. Public record. Not legal advice.