The US District Court for the Eastern District of Louisiana grants a motion to compel arbitration of employment claims

On 19 February 2016, the US District Court for the Eastern District of Louisiana granted a motion to compel arbitration of employment claims in Kelly David Johnson v. NCL (Bahamas) Ltd. D/B/A Norwegian Cruise Line, Civil Action Case No. 15-4400 (E.D. La., 19 February 2016).

Factual Background

On 25 June 2015, Plaintiff, Kelly David Johnson (“Johnson”), an alleged seaman aboard a vessel owned by Defendant NCL (Bahamas) Ltd. (“NCL”), filed suit in the Civil District Court for Orleans Parish, seeking damages pursuant to the Jones Act, the Federal Employers Liability Act (“FELA”), and general maritime law for injuries he allegedly sustained, while attempting to exit his bunk. Johnson, a US citizen, worked as a casino pit supervisor aboard the Norwegian Dawn (“the Dawn”), a Bahamian-flagged passenger cruise vessel operated by NCL. Johnson’s employment with NCL, which began on 15 August 2014 and was scheduled to last until 15 February 2015, was governed by a Seafarer’s Employment Agreement (“Employment Agreement”), which contained an arbitration clause mandating that any claims relating in any way to Johnson’s employment would be “referred to and resolved exclusively by binding arbitration pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958) (‘The Convention’)”.

On 14 September 2014, Defendant filed a “Notice of Removal” pursuant to Section 205 of the Federal Arbitration Act (“FAA”), which provides for removal of causes of action relating to an arbitration agreement falling under the Convention. Defendant then filed a “Motion to Compel Arbitration and Stay Proceedings” on 30 September 2015. On 20 October 2015, Johnson filed an opposition.

While the motion to compel arbitration was pending, on 13 October 2015, Johnson filed a motion to remand the case. NCL filed an opposition on 20 October 2015.

The District Court’s Opinion

The District Court stated that pursuant to the applicable removal statute, a defendant may remove a state court action only if the action could have originally been filed in federal court. Generally, any civil action founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Under Section 203 of the FAA, “[a]n action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States”. Furthermore, Section 205 of the FAA states: “Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending.”

The District Court noted that suits properly brought in state court under the Jones Act may not be removed. Nevertheless, the District Court considered that the Jones Act would only bar removal in this case if the Convention did not apply. Accordingly, the District Court first analyzed whether the Convention applied to the claims in the matter before it.

The District Court referred to Article II(1) of the Convention which requires Contracting States, including the United States, to recognize written arbitration agreements. The District Court also referred to Section 206 of the FAA which provides that “[a] court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States”. Furthermore, it referred to the Fifth Circuit case in Francisco v. STOLT ACHIEVEMENT MT, 293 F.3d 270, 273 (5th Cir. 2002) which, in applying the Convention, has held that it “contemplates a very limited inquiry by courts when considering a motion to compel arbitration” and that the court should compel arbitration if (1) there is an agreement in writing to arbitrate the dispute, (2) the agreement provides for arbitration in the territory of a Convention signatory, (3) the agreement arises out of a commercial legal relationship, and (4) a party to the agreement is not an American citizen.  In addition, according to Section 202 of the FAA, where all parties to the agreement are American citizens, the FAA states that the fourth element may be met in the alternative if the relationship between the parties involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. The “reasonable connection between the parties’ commercial relationship and a foreign state [must be] independent of the arbitral clause itself”. Once these requirements are met, the Convention requires the District Court to order arbitration, “unless it finds that the said agreement is null and void, inoperative or incapable of being performed”.

The District Court also stated that to implement the Convention, the FAA provides two causes of action in federal court for a party seeking to enforce arbitration agreements covered by the Convention: (1) an action to compel arbitration in accord with the terms of the agreement; and (2) at a later stage, an action to confirm an arbitral award made pursuant to an arbitration agreement. The defenses that parties may invoke to challenge either the decision to arbitrate or the recognition and enforcement of the arbitration award differ depending on the stage of the proceedings. For example, after arbitration, a court may refuse to enforce an arbitral award if the award is contrary to the public policy of the country. The party defending against the enforcement of an arbitral award bears the burden of proof.

Here, Johnson did not dispute that the first three elements were satisfied. Furthermore, NCL did not contest that both it and Johnson are US citizens for purposes of the Convention. Therefore, the only question remaining for the District Court to decide was whether the Employment Agreement envisaged performance abroad or had some other reasonable relation with one or more foreign states. The District Court found that the Employment Agreement in this case envisaged performance or enforcement abroad or had some other reasonable relation with one or more foreign states.

With respect to Johnson’s argument that the application of Bahamian law in place of the Jones Act rendered the arbitration clause and its choice of law agreement void, the District Court sided with NCL which characterized Johnson’s argument as one alleging that the arbitration agreement is against public policy, which is improper at this initial enforcement arbitration stage and is reserved as a reason for a court to refuse to enforce an arbitral award. Plaintiff may challenge the enforcement of the arbitration clause at the first stage of the proceedings, where a court conducts “a very limited inquiry” as to whether to order arbitration, by invoking the “null and void” defense. The “null and void” defense, however, “limits the bases upon which an international arbitration agreement may be challenged to standard breach-of-contract defenses” such as fraud, mistake and duress. Here, Johnson has not made any such argument to the District Court. Instead, his argument appeared to be solely one of “prospective waiver of a plaintiff’s statutory right” an argument that has been found to be premature at the initial enforcement stage. Accordingly, the District Court found that it need not address this argument at the initial enforcement stage.

Because the Convention applied, the District Court did not need to separately analyze whether removal was appropriate. The Convention allowed removal even of Jones Act claims, and the District Court therefore had both subject-matter and removal jurisdiction, pursuant to the Convention, to enforce the arbitration clause in the Employment Agreement.

Accordingly, the District Court granted NCL’s motion to compel arbitration and stay the proceedings and denied Johnson’s motion to remand.

A more detailed summary and an excerpt of this decision, indexed and searchable according to the list of topics published in http://www.newyorkconvention.org/court+decisions/description will be published in the 2016 volume of the Yearbook Commercial Arbitration, published by the International Council of Commercial Arbitration (ICCA).

Source: Original Opinion available at http://www.fastcase.com