Fourth Circuit Court of Appeals Sends Seaman Packing and Home to Philippines to Arbitrate Jones Act Claims

In yet another unfavorable decision for seamen, the Fourth Circuit Court of Appeals has joined other circuits in finding that an arbitration clause in a seaman’s employment agreement is binding and enforceable. The case of Potenciano L. Aggarao, Jr. v. MOL Ship Management Company, Ltd., Case No. 10-2211 (D.C. Maryland, March 16, 2012), (addressed a case where the seaman was a citizen of the Philippines and he filed suit for severe injuries he suffered on a ship named the M/V Asian Spirit. The accident happened in the Chesapeake Bay near Baltimore. Multiple claims were alleged, including Jones Act negligence, unseaworthiness, maintenance and cure, breach of contract as well as violation of the Seaman’s Wage Act. There were negligence claims brought up under the general maritime law as well as the Jones Act.

The opinion is interesting because it first addresses the basis for the dismissal, which the Court found to be a dismissal for improper venue since the arbitration clause was likened to a forum selection clause. Dismissal pursuant to a forum selection clause is on the grounds of improper venue. Similarly, this Court concluded that the dismissal based on the arbitration agreement was based on improper venue.

The Court discussed the Convention on the recognition and enforcement of foreign arbitral awards (the “Convention”). The United States has exceeded to this Convention in 1970, and Congress implemented it by enacting Chapter 2 of Title 9 of the United States Code (“The Convention Act”).

The United States also, under Title 9 of the United States Code, has what’s called the Federal Arbitration Act (the “FAA”). A Ninth Circuit Court of Appeals decision, in Rogers v. Royal Caribbean Cruise Line, 547 F.3d 1148 (9th Circ. 2008), described the relationship the Federal Arbitration Act has to the Convention Act:

Federal arbitration law is codified in the three chapters of Title 9 of the United States Code [only two of which are relevant here].
The [FAA] comprises the first chapter. See 9 U.S.C. §§ 1-14.
[The legislation] implementing the treaty . . . commonly called the Convention Act, comprises the second chapter. See U.S.C §§ 201-208.

The Supreme Court of the United States has indicated that the goal of the “Convention” is to encourage the recognition and enforcement of commercial arbitration agreements in international contracts, as well as unify standards by which agreements to arbitrate are observed and arbitral awards are enforced in signatory countries.

Unfortunately, seamen employment agreements have been found to constitute international commercial agreements subject to the Convention despite the fact that under the Federal Arbitration Act seamen employment agreements are specifically exempted. For some strange reason the Appellate Courts have rejected the argument that the exemption for seamen’s employment agreements contained in the Federal Arbitration Act is applicable to the Convention. This has left seamen at the mercy of shipowners who have now started to insert arbitration agreements in the employment agreements. The major cruise ship companies based here in Miami, Florida have jumped on the bandwagon and have now included in all their employment agreements mandatory arbitration agreements, and several of the cruise ship line companies are now inserting forum choice-of-law clauses in the employment agreement also. They are attempting to shaft the seamen and prevent them from receiving their fair and just compensation for injuries and illnesses they suffer in the course and scope of their employment. The cruise ship companies are trying to do away with the Jones Act, a remedial legislation enacted by Congress for the protection of seamen.

The courts have ignored the fact that the Jones Act is a specific statute designed to protect seamen by giving them a negligence action against their employer, with a very liberal standard of causation, as well as a very liberal interpretation. The employment agreements with arbitration agreements deny the seamen their rights under the Jones Act to a jury trial, and their rights to select the venue of the lawsuit. Under the Jones Act the seaman is supposed to have a right to sue the employer anywhere the employer does business. Under the Jones Act, the employer should not have a right to put a provision in an employment agreement which deprives seamen of the substantive right to sue, in a court of law, the employer any place it does business. In addition, the employment agreements with mandatory arbitration agreements are denying seamen their rights to a jury trial.

This recent decision is another example of the fact that courts are not heeding the rights of seamen, and not following well established principles of admiralty law which recognize that seamen are supposed to be wards of the court, entitled to protection from over reaching by their employers. The employment agreements are take it or leave it employment agreements. The seamen have no choice but to sign these agreements. In addition, most seamen have no clue what arbitration involves, and that by signing the employment agreement they are giving up very special rights that exist under the Jones Act and General Maritime Law of the United States.

In addition, arbitration in general, which has spread throughout the United States, is considered to be unfair and lopsided in favor of the employer. Arbitration agreements are becoming very common in all employment and consumer contracts. A study done in 2008 by the University of Michigan Journal of Law Reform examined employment and consumer contracts that were utilized by twenty-one major corporations and found that mandatory arbitration clauses were contained in 93% of the employment contracts and 77% of the consumer contracts. However, until the proposed Arbitration Fairness Act of 2011, Congress has repeatedly failed to step in and stop this abuse. Hopefully the proposed Arbitration Fairness Act of 2011 will be followed through with and some favorable legislation will be passed for consumers and employees. We are hoping that this will spill over into the context of seamen employment agreements, especially in view of the long history of protecting seamen’s rights under the Jones Act.

Arbitration is known to be unfair to consumers and employees. Sometimes arbitration is simply too costly to pursue. Arbitration decisions are not subject to the usual evidentiary requirements and laws that would be applied if the case was decided in a court of law. The arbitrators can determine their own procedures. There are studies which show that the results in arbitration have been found to be systematically biased in favor of companies that hire them. Arbitration clauses in these agreements also bar class-wide arbitrations. In addition, arbitration decisions are usually kept confidential, and not subject to an appeal. Therefore, a worker can be left without any recourse from an arbitration decision.

I am not saying that all arbitration agreements should be stricken. The agreements that should stand are those that are freely entered into between two sophisticated entities that know what they are agreeing to. Arbitration is supposed to be able to save time and expense. Sometimes sophisticated business entities will agree to arbitrate their disputes. That is fine. However, in the case of a seaman, there is simply no agreement on the part of the seaman to arbitrate his claims and give up his rights under the United States Congressional statute named the Jones Act. The mandatory arbitration agreements are simply an example of a greedy shipowner/employer trying to take advantage of a hardworking employee. It is a further example of the cruise line industry trying to limit their liabilities for personal injuries and wrongful deaths. We read about it all the time. The cruise lines enjoy very favorable laws that protect them from lawsuits arising out of personal injuries and wrongful deaths, including the very favorable Death on the High Seas Act that limits damages to pecuniary loss only in the case of a wrongful death on the high seas.

The cruise line industry is a powerful lobbying group and it will be extremely difficult to get legislation passed that will rightfully protect the seamen from the overreaching by the cruise ship companies. It used to be that the courts would recognize unequal bargaining power, and situations where one side is clearly taking advantage of the other side. Although this is especially true in seamen’s employment agreements, the courts have refused to step in and strike down these mandatory arbitration agreements, leaving the seamen to go home to a foreign country and rely on the arbitration process to compensate them for their personal injuries.

Our firm continues to fight hard for the rights of both passengers and crewmembers who are harmed at sea, and we will continue to fight for legislation that will appropriately hold the cruise line industry accountable for personal injuries and wrongful deaths occurring onboard cruise ships. Our firm handles all types of maritime cases involving personal injuries and wrongful deaths.

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