Supreme Court orders Arbitration of Manager/Artist dispute

(Preston v. Ferrer) Congratulations to my friend and colleague Joe Schleimer, who successfully argued the case of Preston v. Ferrer before the United States Supreme Court. The Court ruled today in favor of Joe's client Arnold Preston (also an entertainment attorney), holding that when parties agree to arbitrate all questions arising under a contract, state laws giving primary jurisdiction over such disputes to state Courts or Agencies are preempted (superseded) by The Federal Arbitration Act.

The case arose over Mr. Preston's representation agreement with Alex Ferrer, known to TV Audiences as “Judge Alex”. When a dispute between the two arose over fees due to Preston, he began Arbitration proceedings, as required by the agreement. Ferrer petitioned the California Labor Commissioner to void the contract on grounds that Preston had acted as an unlicensed talent agent, in violation of the California Talent Agencies Act. The matter worked its way through the courts, eventually resulting in an order granting jurisdiction over the matter to the Labor Commissioner.This Appeal to the US Supreme Court followed.

The Court, in an opinion by Justice Ginsburg held that the Federal Arbitration Act declares a national policy favoring dispute resolution through arbitration, rather than through the courts or administrative agencies, determines who ultimately will decide whether Mr. Preston acted in violation of California's Talent Agencies Act, and whether the contract in question will be voided by such actions.

Fee disputes between managers and their artist-clients often result in a petition to the Labor Commission similar to that filed by Ferrer.  Essentially, a manager who “procures employment” for a client, violates the Talent Agencies Act, which requires a license to engage in such activities.  If the Labor Commissioner finds that procurement did occur, the agreement between manager and client (which typically provides for the manager's compensation in the form of a commission between 15-20% of the Artists income) will be deemed void. In the past, a voided contract resulted in forfeiture of ALL commissions earned by the manager… in many cases actually requiring the manager to disgorge commissions already received.

Where, as here, however, the agreement between manager and artist specifically provides for arbitration, the Labor Commissioner will no longer make the determination of whether procurement has occured. Instead, the question must be submitted to Arbitration. Assuming the Arbitrator finds that procurement did occur, it remains to be seen whether the Arbitrator will void the contract entirely, sever the unlicensed activity, or fashion some other remedy.

This case is the second in recent months to address questions surrounding the activities of managers in the entertainment industry. In January, the California Supreme Court decided the case of Marathon v. Blasi, in which a single act of unlicensed procurement was held not to void the entire contract, but to be “severed” from the rest of the agreement. The manager in that case was allowed to retain the commission earned on other jobs not tainted by the unlicensed activity.At this point, I think it's fair to say that we're all updating our management agreements to include arbitration clauses and ensure that a single, isolated act of procurement won't void the entire agreement in the future. These two recent decisions go a long way to level the playing field for agent/manager relations, though some will argue that they are a blow to the very few protections artists have against unscrupulous managers.