ADR Case Updates
Federal Arbitration Act Supersedes State Laws That Refer Dispute to Labor Commissioner, 03/01/08
In case you have not seen them, the U.S. Supreme Court and California Courts of Appeal have rendered four ADR decisions (all dealing with arbitration) since my last update of February 2, 2008. You may view the Supreme Court case at: http://www.supremecourtus.gov/opinions/07slipopinion.html, and the Appellate Court cases at: http://www.courtinfo.ca.gov/cgi-bin/opinions.cgi.
In Preston v. Ferrer, 552 U.S. ___, 128 S. Ct. 978 (Feb. 20, 2008), the matter before the Supreme Court, respondent Alex Ferrer, a former Florida trial court judge, who currently appears as Judge Alex on a Fox television network program, entered into a contract with petitioner Arnold Preston, a California entertainment industry attorney. The contract included a provision that the parties would arbitrate any dispute relating to the terms of [the contract] or the breach, validity, or legality thereof in accordance with the rules [of the American Arbitration Association].
Seeking fees due under the contract, Preston initiated arbitration. Ferrer countered by filing a petition with the California Labor Commissioner, claiming that the contract was invalid under the California Talent Agencies Act (TAA). Labor Code section 1700 et seq. Ferrer asserted that Preston acted as a talent agent without the license required by the TAA, and that Prestons unlicensed status voided the entire contract. On the other hand, Preston maintained that he acted as a personal manager, not as a talent agent, his contract was not governed by the TAA, and was both lawful and binding on the parties.
The Labor Commissioners hearing officer found that Ferrer asserted a colorable basis for exercise of the Labor Commissioners jurisdiction, but denied Ferrers motion to stay the arbitration on the ground that the Commissioner lacked authority to order such relief. Ferrer then filed suit in Los Angeles Superior Court, requesting a declaration that the contract between the parties was not subject to arbitration, and an injunction restraining Preston from proceeding with arbitration. Preston responded by seeking to compel arbitration.
The Superior Court denied Prestons motion to compel arbitration, and enjoined Preston from proceeding before the arbitrator, unless and until the Labor Commissioner determines that she is without jurisdiction over the disputes between Preston and Ferrer. While Prestons appeal from the Superior Courts judgment was pending, the United States Supreme Court reaffirmed that challenges to the validity of a contract calling for arbitration ordinarily should be considered by an arbitrator, not a court. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006).
The California Court of Appeal affirmed the trial courts judgment denying Prestons motion to compel arbitration, concluding that Buckeye was inapposite because it did not involve an administrative agency with exclusive jurisdiction over a disputed issue. The California Supreme Court denied Prestons petition for review. The United States Supreme Court granted certiorari to determine whether the Federal Arbitration Act ( FAA), 9 U.S.C. §1, et seq., overrides a state law (the California Labor Code) vesting initial adjudicatory authority in an administrative agency (the Labor Commissioner).
Reversed and remanded. In enacting the FAA, Congress expressed a national policy favoring arbitration. FAA §2. The contract between Ferrer and Preston clearly demonstrates a transaction involving commerce under §2s purview. The issue in not whether the FAA preempts the TAA in its entirety. Rather, the question is simply who decides if Preston acted as a talent agent or personal manager the arbitrator or Labor Commissioner.
The distinction between judicial and administrative proceedings adopted by the appeals court is disapproved. When parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative. Id. at * 12. Therefore, the question as to whether Preston acted as a personal manager or talent agent is for an arbitrator, and not the Labor Commissioner.
In Ahmadi-Kashani v. The Regents of the University of California (2008) 159 Cal. App. 4th 449, an employment case, holding that the trial court committed error in finding that employees FEHA Claim was barred by her failure to exhaust the internal remedy process established by the employer.
Masteneh Ahmadi-Kashani was employed as a research assistant in the cardiology department of the University of California, Irvine, School of Medicine. She complained of sexual harassment by her supervisor, and ultimately reported the problem to the dean of the School of Medicine. Not wanting to get involved, he directed her to human resources. Shortly thereafter, Ahmadi-Kashani was told that she was being laid off due to cessation in funding.
Ahmadi-Kashani filed eight grievances pursuant to the collective bargaining agreement between the University and her union. The grievance process consisted of four steps. The first step was delivery of a formal written grievance to the on-campus labor relations office. Step 2 consisted of a meeting convened by the designated University local official within 15 calendar days. Step 3 was an appeal with the Director of Labor Relations in the office of the University President. The fourth and final step was binding arbitration.
Ahmadi-Kashanis grievances were rejected by the University in step 1, and she timely filed a step 2 appeal. However, the University did not convene the step 2 meeting within 15 days as required. Instead, after waiting 8 months, Ahmadi-Kashani consulted counsel and filed a claim with the Department of Fair Employment and Housing, which issued a right to sue letter. Immediately thereafter, the University scheduled the step 2 meeting. After the meeting, the University rejected Ahmadi-Kashanis claim on the rather incredible basis that she failed to present a prima facie case of sexual harassment.
Ahmadi-Kashani did not appeal to step 3 of the grievance process. Instead, she filed suit in superior court. The University then moved for summary judgment on the basis that the complaint was barred because of Plaintiffs failure to exhaust her administrative remedy and her failure to exhaust her judicial remedies. The trial court granted the motion.
Reversed and remanded. Because Plaintiffs harassment claim is governed by the Fair Employment and Housing Act, she was not required to exhaust her administrative remedies in the first place. Rather, she was entitled to proceed directly with a claim to the Department of Fair Employment and Housing and then to the courts. Although Plaintiff met with a University official to discuss her claims, she was not obligated to complete that process one that never resulted in a quasi-judicial decision that would have preclusive effect in court. Therefore, Plaintiff was entitled to pursue her FEHA claim in court.
The third case is Jakks Pacific, Inc., v. Superior Court (THQ, Inc.), 2008 DJDAR 2970 (Feb. 28, 2008), a business litigation case, holding that an arbitrators disclosure obligations are not triggered until he is notified of selection to serve as neutral arbitrator.
The fourth case is Adajar v. RWR Homes, Inc., 2008 DJDAR 2963 (Feb. 28, 2008), where defendant developer sold new homes to plaintiffs, the court held that if arbitration terms are incorporated by reference to another document, that document must clearly state terms for the court to compel arbitration.
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