Contract Law: Preston v. Ferrer Case Analysis

Introduction

The parties in this court case were Arnold Preston, the plaintiff, and Alex Ferrer, the defendant (Preston v. Ferrer, 2008). The former is a lawyer who entered into a contractual agreement with the latter, a judge. Alex Ferrer had a reality television show 'Judge Alex' in which he sought the services of Arnold Preston to represent him as his potential deal with a clear agreement on how they will share the revenue from the reality television show. They entered into this mutual contract in 2002.

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The background of the case can be found in the contract as it contained a clause which expressly stated that any disputes that would arise over the contractual agreement or its validity would be arbitrated before proceeding to a court of law to seek legal remedy. Preston filed a legal action to seek the income that was due to him as a result of the contract, only for Ferrer o claim that the contract was invalid under the Talent Agencies Act (TAA) of California and that arbitration was not necessary as both parties could find legal remedy through the California Labor Commissioner (Preston v. Ferrer, 2008).

On the other hand, Preston insists that there is a judicial precedent and the Federal Arbitration Act (FAA) which require that contract disputes be submitted for arbitration before seeking legal remedy through the court of law. Thus, in front of the court was the crucial question of whether the FAA and the judicial precedent in the 'Buckeye Check Cashing, Inc. v. Cardegna' preempt the arbitration agreement under the California TAA (Preston v. Ferrer, 2008).

The importance of this case cannot be understated because the majority of business contracts contain clauses on arbitration and the court decision will significantly affect the legality and enforceability of the arbitration clauses found in contractual agreements.

Having already entered into a contract, the two parties disagreed when Preston sought arbitration by claiming that Ferrer had failed to remit the portion of earnings due to Preston as per their contract. Preston sought arbitration as the ideal mechanism to resolve the contractual disagreement as the contract contained a clause that stipulated disputes on the validity of the contract would be solved through an arbiter. Ferrer insists that the dispute must be heard by the California Labor Commissioner under the TAA before proceeding to arbitration (Preston v. Ferrer, 2008).

In ruling this case, the court held that the FAA overrules the TAA because the FAA is a federal law that is superior to the state laws, thus some contractual disagreements like this one should be resolved through an arbiter. The majority decision cited 'Southland Corp. v Keating' in ruling that the FAA is 'a national policy favoring arbitration when parties contract to settle disputes in that manner, and that it foreclose[s] state legislative attempts to undercut the enforceability of arbitration agreements' (Preston v. Ferrer, 2008).

Despite this majority decision by the panel of judges , Justice Clarence Thomas was of a dissenting opinion where he observed; 'As I have stated on many previous occasions, I believe that the Federal Arbitration Act......does not apply to proceedings in state courts. (Preston v. Ferrer, 2008)' He was of the opinion that the FAA should not interfere with the state legal system.

Conclusion

In my opinion, I think the court was right in making this ruling because the contract between the two parties had already stated that Preston was entitled to a share of Ferrer's earnings. Ferrer was only trying to be smart and wriggle his way out of the contract by failing to pay Preston's dues based on a legal technicality between the FAA and the TAA. This ruling was a huge win for commercial businesses engaged in countless legal contracts.

Reference

Preston v. Ferrer, 06-1463 (State Appellate Court February 20, 2008).