“Judge Alex”: When a Famous TV Arbitrator Rejects Arbitration
Preston v. Ferrer, 128 S.Ct. 978 (2008) debated whether a contract dispute between Arnold M. Preston and Alex E. Ferrer should be decided by arbitration—as specified by an arbitration clause in their contract–or a state labor commissioner. Ferrer—better known as “Judge Alex” to his Fox TV audience–alleged that Preston was operating as an unlicensed talent agent—an assertion that Preston denies—and was thus in violation of California law (specifically the California Talent Agencies Act, or TAA), which would invalidate their contractual agreement (Yost, 2008) and thus Ferrer was neither required to pay Preston nor accept arbitration from the American Arbitration Association (AAA) (Long, 2007). Preston, who was introduced to Ferrer in 2002 by a mutual friend, used his role as a talent scout / William Morris Agency “agent in training” (Bravin, 2008) to help publicize and promote Ferrer and to find entertainment-related employment and lucrative projects for him. Preston claimed that Ferrer had contracted to pay 12% of his income for Preston’s promotional services but that Ferrer had reneged on the deal (Shepherd Smith Edwards & Kantas LTD LLP, 2008) for services rendered.
Preston noted that Ferrer’s headshot and promotional video quickly garnered a lot of interest and that he soon managed to arrange a meeting between Ferrer and a couple of producers. By 2004, Ferrer was snapped up by a subsidiary of News Corp. and it was soon announced that Ferrer would star in a new syndicated TV show called Judge Alex (Yost, 2008).
Preston alleged that Ferrer owed him a commission equal to 12% of his earnings from Judge Alex–which Preston estimated to be between $75,000 – 150,000–and requested an AAA hearing to resolve their dispute in accordance with the arbitration clause in their contract. Ferrer claimed that he owed Preston nothing because the Judge Alex show deal was not discussed during the 2002 meeting that Preston had arranged for him with the producers. Furthermore, said Ferrer, citing the TAA, Preston was not a “licensed talent agent,” which meant that he was not eligible to request an arbitration hearing regardless of the particulars of their contract (Bravin, 2008).
Not only was Ferrer refusing to pay his bill, he was also suggesting that Preston take his dispute to California’s labor commissioner, which—much like the American Federation of Television & Radio Artists (AFTRA) and the Screen Actors Guild (SAG), both openly expressing support for Ferrer—“tends to be [pro-talent and] hostile to managers who “procure” employment for clients” (Belloni, 2008). SAG and AFTRA claimed that the TAA “is critical to protecting vulnerable individuals in an environment where aspirants will do almost anything to ‘make it big,’” (Yost, 2001). Preston was thus probably correct to be wary of how he would be treated.
Ferrer, perhaps trying to paint Preston as the stereotypical unscrupulous and less-than-ethical “talent scout” type which preys on naïve actors, alleged that because the California labor commissioner did not grant Preston a license (which is required under the TAA before a talent agent procures work for or promotes talent), the contract he signed with Preston was invalid (Duke Law, n.d.). Preston countered he was operating as a talent manager, not an unlicensed talent agent (Shepherd Smith Edwards & Kantas LTD LLP, 2008). The U.S. Chamber of Commerce (which is not affiliated with the U.S. government, and which typically promotes the interests of corporations and businesses) was concerned that a ruling in favor of Ferrer could erode the strength of arbitration clauses (not only in California but country-wide) and thus stated that they sided with Preston and urged SCOTUS to apply the Federal Arbitration Act (FAA) (Bravin, 2008). The FAA “as interpreted [by SCOTUS] cases dating back to the 1960s [Prima Paint and Buckeye were cited] requires that [challenges to a contract with an arbitration clause—excluding that clause itself] must first be settled by the arbitrator” (Vladeck, 2008).
SCOTUS was asked to determine what weight the California labor commissioner’s decision should have and whether the labor commissioner should hear the dispute rather than the AAA; some of this determination would, in part, hinge upon whether Preston should be considered a “talent agent” (rather than a mere independent contractor serving as a “manager,” as Preston asserted) and thus under the labor commissioner’s purview (which would mean that the labor commissioner would be the person who decided if the dispute should be referred to arbitration or not), and if the a federal law like the FAA should supersede state arbitration-related laws (Vladeck, 2008).
The Court of Appeal in California “affirmed a lower court’s judgment, 2-1, in Preston v. Ferrer, 145 Cal.App.4th 44 (Cal. App. 2nd Dist. 2006)” (Bleemer, 2007) and determined that, because the labor commissioner typically had jurisdiction over similar contractual disputes, the arbitration clause was not valid. The Court of Appeal thus refused to side with Preston on one issue–Judge Jackson claiming that the FAA did not preempt state laws—and declined to dismiss Ferrer’s petition that the commissioner have ultimate authority over their dispute. In her dissent, Justice Vogel noted that the contract between Preston and Ferrer was a “Personal Management Contact” and not a “Talent Agent’s Contact” and since only Ferrer was asserting that Preston was operating as a talent agent (which Preston continued to deny), this “threshold issue […] must be decided by [AAA], not the [labor] Commissioner or the trial court” ((Bleemer, 2007). The labor commissioner, meanwhile, disappointed Ferrer when she declined to stay Preston’s request for arbitration, claiming that making a determination about whether or not arbitration was appropriate in this situation was beyond the normal scope of the labor commission’s authority.
SCOTUS “granted a petition for a writ of certiorari in Preston v. Ferrer, No. 06-1463, on Sept. 25, 2007” (Bleemer & Dart, 2007). Ferrer, as defendant, was represented by G. Eric Brunstad, Jr., who argued that the contract between Preston and Ferrer was invalid due to the TAA, and that the California labor commissioner was supposed to get the first bite at the apple and make a determination before the dispute was brought before an arbitrator or the courts. The TAA was procedural and not preempted by the FAA, Brunstad argued, because it does not prohibit arbitration, it merely postpones it, and that “any decision by the Labor Commissioner is subject to de novo review by the California Superior Court” (Buechner & Cannon, n.d.). In short, Ferrer was hoping to invalidate the entire contract and thus avoid paying Preston his 12% commission fee. Brunstad cited Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, but SCOTUS noted that the Volt case involved a dispute between two parties bound by a contract with an arbitration clause and third parties who were not bound by that contract and who had not signed an arbitration agreement; Preston and Ferrer were not involving any third parties in their dispute.
Preston, as plaintiff and petitioner, was represented by Joseph D. Schleimer, who countered that SCOTUS had previously ruled, citing the FAA and the precedent set by Buckeye Check Cashing v. Cardegna, 546 U.S. 440 (2006), that legally-binding arbitration clauses in contracts must be adhered to.
SCOTUS also noted that in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, an arbitrator can examine an entire contract’s validity, but can not challenge an arbitration clause in that contract. Buckeye came to the same conclusion in a state court: the contract as a whole can be challenged, and an arbitrator can make a decision about the contract as a whole, but an arbitrator can not make a decision about whether or not a particular clause in a contract allows disputes to be arbitrated, which makes sense. It might be seen as a conflict of interest if an arbitrator was able to determine whether or not a dispute was covered by an arbitration clause, especially if fees are involved (as they frequently are). If the entire contract (with or without an arbitration clause) appears to be invalid, an arbitrator can make a reasoned decision about its validity without necessarily acting in his or her own best interests, but if the primary dispute is specifically about an arbitration clause within a contract, then an arbitrator may have a vested financial interest in finding that it applies.
Justice Ginsberg also noted that Ferrer’s attempt to have the dispute resolved by the labor commissioner before resorting to a court trial “would, at the least, hinder speedy resolution of the controversy” (Bleemer, 2008); the 6th Amendment of the U.S. Constitution guarantees citizens the right to a “speedy and public trial” (The Rutherford Institute, 2012), though it could be argued that the language used in the 6th Amendment appears to refer more to criminal rather than civil cases. With that, SCOTUS ruled 8-1 against Ferrer, with only Justice Thomas dissenting and citing “his customary arbitration dissent, stating that he believes that the FAA doesn’t apply to cases originating in state courts” (Bleemer, 2008).
Apparently Ferrer was attempting to find legal justification for his refusal to pay Preston the 12% commission fee the contract stipulated, and, if he was unable to do that, to try to force Preston to seek relief from the California labor commissioner (who typically took the part of the talent when resolving similar contractual disputes, and who would be likely to side with Ferrer). Forcing Preston to submit to more arbitration after their dispute had made its way through the lower courts, especially when Preston had already submitted his case to the AAA, and Ferrer had asked the California labor commissioner to stop the proceedings (Long, 2007), would allow Ferrer to spend more time resisting paying Preston. The SCOTUS decision appears to be fair.
Perhaps the most interesting detail in the Preston v. Ferrer case is that, in his role as “Judge Alex” on an eponymous TV show, Ferrer serves as a type of “rent-a-judge” (Twomey, 2012) much like his more famous fellow television justice Judge Wapner, who was paid to decide disputes on The People’s Court. Ferrer is also paid to referee disputes in a private court as an arbitrator; his decisions just happen to be televised and marketed as entertainment. Therefore Ferrer, a famous arbitrator, openly supported disregarding a contractual arbitration agreement.
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