My colleague, Joshua Hawks-Ladds, has this post regarding an important new case that further explains the breadth of the preemption effect of the Federal Arbitration Act, a case he handled on behalf of our client, Ulti-Mate Connector, Inc.
Last week was a watershed moment for arbitration preemption cases, both at the federal and state level. As highlighted in an earlier post, the U.S. Supreme Court ruled in AT&T Mobility v. Concepcion that the Federal Arbitration Act preempts state laws that limit arbitration agreements that proscribe class action arbitration procedures
Earlier in the week, a Superior Court decision which Pullman & Comley successfully litigated, held that the Connecticut Sales Representative’s Commissions Statute, C.G.S. §42-481 et seq., is also preempted by the Federal Arbitration Act. That case, Avionics Technologies, Inc. v. Ulti-Mate Connector, Inc., can be downloaded here.
Avionics is a Connecticut-based sales representative that sued Ulti-Mate for the payment of allegedly unpaid commissions. Ulti-Mate is a California corporation. Avionics was Ulti-Mate’s eastern United States’ sales representative.
Avionics and Ulti-Mate entered into two manufacturer’s representative agreements, one in 2004 and one in 2006, both of which provided for arbitration of any dispute in California, with California law applying.
Avionics brought suit in the Connecticut Superior Court under the state’s Sales Representative’s Commission Statute, which provides that “any provision in a contract between a sales representative and a principle that provides for waiver of any provision of §§42-482 and 42-483 (of the Sales Commission Statute) shall be void.” C.G.S. §42-484(a). Section 42-482(b) provides for the right of a sales representative to recover “in a civil action. . . twice the full amount of the commission owed to such sales representative.”
Avionics argued that the Commission Statute trumped the arbitration agreements and permitted the lawsuit against Ulti-Mate to go forward in the Connecticut Superior Court.
Ulti-Mate moved to compel arbitration in California pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. §2, which provides that any contract involving interstate commerce and containing a written provision agreeing to submit a controversy to arbitration “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. §2.
The Superior Court discussed the strong policy favoring arbitration both in Connecticut and California, as well as the strong national policy (as demonstrated by the AT&T case) and also cited Second Circuit and Supreme Court precedent which declares that “the FAA preempts all state laws that impermissibly burden arbitration agreements.”
The Superior Court stated that “to the extent the Connecticut Sales Representatives Commission Statute conflicts with the FAA, the supremacy clause of the Constitution results in state law being rendered preempted and unenforceable.”
Thus, in a case of first impression in Connecticut, and the first case that this author is aware of discussing the Connecticut Sales Representative Commission Statute, a Superior Court judge has determined that the FAA preempts that statute when it conflicts with a bona fide arbitration agreement.
The Court in the Avionics case also discussed the defenses to the arbitration agreement that are available to defeat the arbitration agreement (which would have avoided preemption), including unconscionability and all the other standard contract defenses), however, the Court rejected those arguments in this case, finding that the arbitration agreement was valid and enforceable.
For employers, this case and the AT&T case continue to reinforce the importance of arbitration provisions if desired.