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The Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., establishes a national policy favoring arbitration when the parties contract for that mode of dispute resolution. The FAA, which rests on Congress' authority under the Commerce Clause, supplies not simply a procedural framework applicable in federal courts; it also calls for the application, in state as well as federal courts, of federal substantive law regarding arbitration. When parties agree to arbitrate all disputes arising under their contract, questions concerning the validity of the entire contract are to be resolved by the arbitrator in the first instance, not by a federal or state court.
Respondent Alex E. Ferrer, a former Florida trial court judge who was currently on television as “Judge Alex,” and petitioner Arnold Preston, a California attorney rendering services to persons in the entertainment industry, entered into a contract, which required arbitration of any dispute relating to the contract’s terms or the breach, validity, or legality thereof in accordance with the American Arbitration Association rules. Seeking fees allegedly due under the contract, petitioner Preston invoked the parties’ agreement to arbitrate. Respondent Ferrer filed suit in state court seeking to enjoin arbitration, and Preston moved to compel arbitration. The court denied Preston's motion and enjoined him from proceeding before the arbitrator unless and until the Labor Commissioner determined she lacked jurisdiction over the dispute. The Court of Appeal of California held that the state labor agency had the exclusive jurisdiction over the dispute. Petitioner Preston appealed.
Did the state labor agency have the exclusive jurisdiction over the parties’ dispute, regardless of an arbitration provision in the parties’ contract?
The U.S. Supreme Court held that the parties agreed to arbitrate all disputes relating to the contract, and thus the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., superseded the TAA which lodged jurisdiction in the administrative forum. It was therefore the function of an arbitrator rather than the agency to decide whether the attorney violated the TAA by acting as an unlicensed talent agent, since the applicability of the FAA foreclosed state legislative attempts to undercut the enforceability of the arbitration agreement. Further, the TAA did not merely require the exhaustion of administrative remedies prior to arbitration, since the TAA granted the agency exclusive jurisdiction to decide issues the parties agreed to arbitrate, and pursuing such remedies would unduly delay the required arbitration.