- United States District Court, S.D. Florida
- Koda v. Carnival Corp.
DISPUTE BETWEEN AN INDIAN EMPLOYEE AND A BERMUDAN EMPLOYER
NEW YORK CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS - INTERPRETATION OF ARTICLE II(3) - REFERENCE TO UNIDROIT PRINCIPLES
ALLEGED INVALIDITY OF ARBITRATION CLAUSE BY REASON OF UNEQUAL BARGAINING POWER BETWEEN THE PARTIES - CLAIMANT'S REFERENCE TO ART. 3.10 UNIDROIT PRINCIPLES [ART. 3.2.7 OF THE 2010 EDITION] AND TO ARTS. 4:109 AND 4:110 PRINCIPLES OF EUROPEAN CONTRACT LAW - CLAIM DISMISSED BECAUSE “IT IS DOUBTFUL THAT THERE EXISTS A PRECISE, UNIVERSAL DEFINITION OF THE UNEQUAL BARGAINING POWER DEFENSE THAT MAY BE APPLIED EFFECTIVELY ACROSS THE RANGE OF COUNTRIES THAT ARE PARTIES TO THE CONVENTION”
Plaintiff, a seaman from India, brought an action against Defendant, a Bermudan cruise ship employer, alleging to have suffered injuries while working. Defendant opposed the action, contending that, pursuant to the contract, any dispute between the parties must be settled via arbitration. Plaintiff asserted, inter alia, that his financial hardships and his “complete ignorance and lack of experience with negotiating commercial contracts” required avoidance of the arbitration clause under the defense of “unequal bargaining power.” In support of his claim, Plaintiff referred to the UNIDROIT Principles, which he stated “can be seen as the general internationally accepted commercial principles”, and in particular to Art. 3.10 (“Gross Disparity”) allowing avoidance or adaption of a contract or of its individual terms if, at the time the contract was concluded, a party enjoyed an unjustifiably excessive advantage from the contract or that term. Moreover, Plaintiff not only recalled that also Arts. 4:109 (“Excessive benefit or unfair advantage” and 4:110 (“Unfair terms not individually negotiated” of the Principles of European Contract Law addressed the effects of unequal bargaining power between the parties to a contract, but, citing a number of Australian, Canadian, Hong Kong, Singapore and English cases, pointed out that besides these international instruments, “many of the world’s civilized nations have defined unequal bargaining power similarly, and permit it as a means of avoidance of contracts either as a stand alone basis or as an aspect of unconscionability.”
Defendant countered that the language of Art. 3.10 of the UNIDROIT Principles, using vague terms such as “unfair advantage” and “excessive advantage,” was not, in fact, precise enough. Furthermore, Defendant argued that any issues of contract validity would impact the entire agreement, not simply the arbitration clause and should therefore be submitted to the arbitral tribunal.
The Court, though admitting that economic hardship might have placed an undue burden on Plaintiff during the hiring process, without mentioning the UNIDROIT Principles held that “it is doubtful that there exists a precise, universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the [New York] Convention” and therefore decided in favor of the enforceability of the arbitration agreement.
William M. Hoeveler, Senior D.J.:
Plaintiff, a citizen of India, was employed as a seaman aboard Defendant's Panamanian-flagged vessel, the Carnival Glory. FN5 Defendant is a Panamanian Corporation, with its principal executive offices located in Miami, Florida. During the course of Plaintiff's employment, he was injured on the vessel, which was in navigable waters, when he fell down an open elevator shaft while attempting to perform maintenance on the elevator. On April 4, 2005, Plaintiff brought a three-count Complaint in the Circuit Court of the Eleventh Judicial Circuit, in and for Miami-Dade County. On May 1, 2006, Defendant removed this case to this Court, pursuant to 28 U.S.C. s 1441, et seq., and 9 U.S.C. s 205, alleging that the employment contract between Defendant and Plaintiff was governed by the terms of the Seafarer's Agreement of Employment (“Agreement”), and asked the Court to compel arbitration of this dispute. Defendant asserts that the Agreement constitutes an arbitration agreement falling under the United Nations Convention on the Recognition of Enforcement of Foreign Arbitral Awards, opened for signatureJune 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 (“Convention”), and its implementing legislation, 9 U.S.C. s s 202- 208 (2002) (“Convention Act”).
Motion to Remand
The Jones Act, 46 U.S.C. app. s 688, creates a cause of action for seamen who suffered personal injury in the course of their employment. Plaintiff brings a Jones Act claim for personal injuries which occurred during his employment as a seaman. Jones Act cases are normally not removable because they incorporate the general provisions of FELA, including, 28 U.S.C. s 1445, which was enacted in 1948, and prohibits the removal of FELA cases. Plaintiff argues that Jones Act cases are not removable, and that the Eleventh Circuit failed to address s 1445 in Bautista. However, Bautista did not need to address s 1445, because regardless, Plaintiff's Jones Act case was properly removed under the Convention Act, which is construed broadly in favor of removal. See McDermott International, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, 1994 AMC 302 [Sy.] (5 Cir. 1991).
Pursuant to 9 U.S.C. s 205, “[w]here 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 Arbitration Agreement between Plaintiffs and Defendants clearly falls within the scope of the Convention. A seaman employment contract exemption exists within the Federal Arbitration Act. However, the Eleventh Circuit has ruled that the seaman contract exemption does not “remov[e] from the Convention Act's scope a subset of commercial employment agreements” such as Plaintiff's signed contract. See Bautista, 2005 AMC at 383, 396 F.3d at 1300.
Motion to Compel Arbitration
In light of the strong policy favoring arbitration, courts are to conduct “a very limited inquiry” in deciding whether to compel arbitration pursuant *975 to the Convention Act. See Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-187 (1 Cir. 1982). Therefore, this Court must order arbitration if four conditions are met: (1) there is an agreement in writing to arbitrate the dispute; (2) the agreement provides for arbitration in the territory to the Convention; (3) the agreement to arbitrate arises out of a commercial legal relationship; and (4) there is a party to the agreement who is not an American citizen, Std. Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 449 (3 Cir.). The undisputed facts of this case answer each of these questions affirmatively. Thus, this Court must send this matter to arbitration unless one of the permissible defenses applies, i.e., that the agreement is null and void, inoperative or incapable of being performed. See Bautista, 2005 AMC at 378, 396 F.3d at 1301.
Plaintiff asserts that the Arbitration Clause in the Agreement is unenforceable, but Plaintiff initialed the bottom of each and every page of the Agreement, as well as signed and dated the last page. The Court notes, however, the unusual formatting in the section of the Agreement detailing the place of arbitration. The relevant portion, Paragraph 7, of the Agreement reads:
"Any and all disputes arising out of or in connection with this Agreement .. shall be referred to and formally resolved by arbitration under the Arbitration Rules of the International Chamber of Commerce .. The number of arbitrators shall be one. The place ..
Below this section is Plaintiff's initials and the date the Agreement was signed. However, underneath Plaintiff's initials but still on the same page of the Agreement, the section continues:
of arbitration shall be London, England, Monaco, Panama City, Panama or Manila, Philippines whichever is closer to ..
Seafarer's home country."
While the Court finds the formatting of this section unusual, it does not render the Agreement unenforceable.
In addition, Plaintiff claims several of the permissible defenses apply to the arbitration agreement, but none rise to the level required for invalidation of an otherwise enforceable agreement. Plaintiff alleges he was put in a difficult “take it or leave it” situation when presented with the terms of employment, which he blindly entered into without a clear understanding of the terms of the contract. It is plausible that economic hardship might place an undue burden on the Plaintiff during the hiring process. However, it is doubtful that there exists a precise, universal definition of the unequal bargaining power defense that may be applied effectively across the range of countries that are parties to the Convention, and absent any indication to the contrary, we decline to formulate one. See Bautista, 2005 AMC at 386,396 F.3d at 1302.
Plaintiff also alleges that the location of the arbitration would deprive Plaintiff of his day of court. According to the Arbitration Clause in the Agreement, the place of arbitration will not be in Seafarer's home country. The arbitration clause states, “[t]he place of arbitration shall be London, England, Monaco, Panama City, Panama, or Manila, Philippines, whichever is closer to Seafarer's home country.” Manila, Philippines is the closest of the four potential arbitration sites to Plaintiff's home country, albeit still approximately 2900 miles away. Plaintiff argues that the cost of a plane ticket from Plaintiff's home country to Manila is about $658.00. Plaintiff also alleges that he may have difficulty securing an entry visa. Plaintiff contends that he is a citizen of India who may or may not be allowed to enter into the designated forum of arbitration (Manila, Philippines) due to visa complications. While the Court recognizes the potential burdens involved in arbitrating Plaintiff's claims, it feels constrained by the precedent set in this Circuit. As such, the Court must send Plaintiff's claim to arbitration, and we look to the Appellate Court for further guidance. Therefore, based upon the above, it is hereby
Ordered and adjudged that Plaintiff's Motion for Remand is denied. Further, it is ordered and adjudged that Defendant's Motion to Compel Arbitration is granted. [...]
Motions, Pleadings and Filings
Amended Seaman's Complaint and Demand for Jury Trial
6. Plaintiff KODA, like most all seamen, entered into his cruise line employment agreement blindly without a clear understanding of the terms of the contract. He, like most of his brethren, was compelled to waive basic fundamental rights, such as the right of access to courts, without even a hint of what he was signing. The employment contracts are “take-it-or-leave it” contracts if they wish to work for Defendant. The seafarers may not negotiate the terms of their employment contracts.
7. These take-it-or-leave it contracts are used across the board by Defendant Carnival. Like most every seaman, KODA was told by Carnival's agent to sign the contract as is or he would not get a job. KODA signed it because he had no choice: he needed the job; he needed to feed his family. If KODA asked any questions concerning the contract, he believed the Defendant would hire another seaman in his place.
8. KODA was not given sufficient time to review his contract or to ask any questions. He was told to make sure his name and position were correct and told to initial and sign the contract. Even if he had had time to read the contract, he had already flown halfway around the world and had less than fifty dollars to his name.
9. Within a span of minutes, Plaintiff waived the dearest of constitutional and statutory protections without even an opportunity of reading this waiver much less negotiating its terms. At the time of entering into the contract Plaintiff did not have a full understanding of his rights, did not have advice of counsel, and entered an agreement that is unfair to the plaintiff. The arbitration clause inserted into the contract creates a high hurdle to plaintiff enforcing his rights in that he does not have the funds to travel to a foreign country, does not have the funds to arbitrate in a foreign country, and will not have access to legal counsel in that contingent fee counsel is not available in foreign countries. This result harkens the words of warning of Justice Story. This poor and friendless seaman is subject to the inducement of the masters and owners.
10. Plaintiff has suffered injuries in the course of this perilous employment. He now seeks justice.
27. The contract for employment Plaintiff KODA has with, and which was created by, Defendant Carnival contains an arbitration clause which states:
"Any and all disputes arising out of or in connection with this Agreement, including any question regarding its existence, validity, or termination, or Seafarer's service on the vessel, shall be referred to and finally resolved by arbitration under the Arbitration Rules of the International Chamber of Commerce, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be one. The place of arbitration shall be London, England, Monaco, Panama City, Panama or Manila Philippines whichever is closer to Seafarer's home country. The Seafarer and Cruise Line must arbitrate in the designated jurisdiction, to the exclusion of all other jurisdictions. The language of the arbitral proceeding shall be English. Each party shall bear its own attorney's fees, and each shall pay on half of the costs of arbitration. Seafarer agrees to appear for medical examination by doctors designated by CCL in specialties relevant to any claim Seafarer asserts, and otherwise the parties agree to waive any and all rights to compel information from each other."
29. The arbitration clause found in Plaintiff's contract is unenforceable and Plaintiff is entitled to proceed before this Court: The Shipowners' Liability (Sick and Injured Seamen) Convention, 1936 renders the arbitration provision unenforceable. Likewise, the unequal bargaining position of the parties, the abrogating effect arbitration will have on the Jones Act, and the inclusion of a maintenance and cure claim forbids this Court from compelling arbitration.
38. Additionally, the arbitration provision is both substantively and procedurally unconscionable. In the case at bar, there is assuredly unequal bargaining between the parties.
39. Substantive unconscionability exists “when the terms of the contractual provision are unreasonable and unfair.” See Golden v. Mobil Oil Corp., 882 F.2d 490, 493 (11th Cir. 1989). Carnival's arbitration provision is unreasonable and unfair to KODA because the provision requires him to forgo the court room and his centuries old seamen protections for an arbitration with no such protections, prior to which arbitration KODA is not entitled to any discovery and he must pay a substantial sum of money to commence his claim and, if he can find one, hire an attorney abroad. “Procedural unconscionability exists when the individualized circumstances surrounding the transaction reveal that there was no ‘real and voluntary meeting of the minds' of the contracting parties.” Id. The unequal bargaining position between Carnival and KODA demonstrates this lack of mutuality in this contract; Plaintiff entered into this agreement in a “take-it-or-leave-it” basis. Defendant preyed on KODA, a third-world seaman, knowing that KODA would subject himself to unconscionable conditions without even questioning them in order to make relatively decent pay on which he could support his loved ones abroad.
40. Furthermore, and notwithstanding that the arbitration clause is in the employment contract, the arbitration clause is null and void, inoperative or incapable of being performed because of the unequal bargaining power in the formation of the contract.
41. Although principles of international comity should be considered when dealing with international contracts, U.S. law directs that the disparity in the bargaining position is a defense to avoiding compelling arbitration - even in the face of the New York Convention. As stated by the United States Supreme Court in Mitsubishi v. Soler: “Of course, courts should remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds ‘for any revocation of any contract.’ 9 U.S.C. §2” (citation omitted).
42. Plaintiff KODA and Defendant Carnival never had a “meeting of the minds” relative to the employment contract, as is so essential. Plaintiff KODA is, likewise, a far weaker party to the contract than Carnival. Thus KODA deserves and requires protection from enforcement of the contract's arbitration clause under U.S. policy.
43. Even if international recognition of unequal bargaining power based on the principles of comity, and not U.S. policy alone, was required to nullify Carnival's arbitration clause, such international recognition of this defense exists.
44. The UNIDROIT Principles are a collection of black letter commercial laws recognized by the international community.
[FN1: The Principles are commonly considered the closest reflection to an international consensus on commercial law]
The drafting of the UNIDROIT Principles began in 1980 by committees comprised by representatives of all major legal and socio-economic communities of the world which were leading experts in the field of contract law and international trade law.
[FN2: Bonell, Michael Joachim. The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purpose?26 Uniform Law Review 229-246 (1996)].
Although not binding unless expressly provided for in a contract, the UNIDROIT Principles have attained a universal recognition as an internationally accepted body of commercial law.
[FN3:“[I]t is nevertheless informative to refer to them [UNIDROIT Principles] because they are said to reflect a world-wide consensus in most of the basic matters of contract law.” ICC Case No. 9177 (1998) (Zurich). “[G]eneral legal rules and principles enjoying wide international consensus, applicable to international contractual obligations and relevant to the Contracts, are primarily reflected by the Principles of International Commercial Contracts adopted by UNIDROIT.... In consequence, without prejudice to taking into account the provisions of the Contract and relevant trade usages, the Tribunal finds that the Contracts are governed by, and shall be interpreted in accordance to, the UNIDROIT Principles with respect to all matters, by such other scope of such Principles, and for all other matters, by such other general legal rules and principles applicable to international contractual obligations enjoying wide international consensus which would be found relevant for deciding controverted issues falling under the present arbitration.”]
The UNIDROIT Principles deliberately seek to avoid the use of terminology peculiar to any given legal system. The international character of the Principles is also stressed by the fact that the comments to the black letter rules systematically refrain from referring to national laws in order to explain the origin and rationale of the solution retained.
As pointed out by the Australian Government, [T]he [UNIDROIT] Principles could be a timely additional resource for the authorities of those and other countries in their efforts in drafting an important and difficult area of commercial law. In that respect those authorities may derive confidence from the fact that the [UNIDROIT] Principles have been drafted in an atmosphere free from any particular political or ideological persuasion and by some of the most eminent world experts in this area of the law.
45. Therefore, the UNIDROIT Principles can be seen as the general internationally accepted commercial principles.
[FN4:See also: ICC Case No. 217 (2002) (applying the UNIDROIT Principles because it is the instrument widely used in international practice for the interpretation of commercial contracts and quoted by domestic and international literature); ICC Case No. 11 (2002) (applying the UNIDROIT Principles as general principles of law and expressions of lex mercatoria); ICC Case No. 10346 (2000) (Finding support for their domestic international laws in the UNIDROIT Principles); ICC Case NO. 302 (1999) (Finding UNIDROIT Principles gaining the status of internationally recognized trade usages); ICC Case No. 9479 (1999) (applying “the usage of international trade” by referencing the UNIDROIT Principles “which is considered an ‘accurate representation, although incomplete, of the usages of international trade’.”); Ad Hoc Arbitration, Buenos Aires (December 10, 1997) (finding “that the UNIDROIT Principles constituted usages of international trade reflecting solutions of different legal systems and of international contract practice”); ICC Case No. 8240 (1995) (referring to the UNIDROIT Principles for confirmation at an international level of similar rules).]
46. In Article 3.10, entitled Gross Disparity, The UNIDROIT Principles state:
i) A party may avoid the contract or an individual term of it if, at the time of the conclusion of the contract, the contract or term unjustifiably gave the other party an excessive advantage. Regard is to be had, among other factors , to
(1) The fact that the other party has taken unfair advantage of the first party's dependence, economic distress or urgent needs, or of its improvidence, ignorance, inexperience or lack of bargaining skill, and
(2) The nature and purpose of the contract
ii) Upon the request of the party entitled to avoidance, a court may adapt the contract or term in order to make it accord with reasonable commercial standards of fair dealing.
iii) A court may also adapt the contract or term upon the request of the party receiving notice of avoidance, provided that the party informs the other party of its request promptly after receiving such notice and before the other party has acted in reliance on it. The provisions of Article 3.13(2) apply accordingly.
47. In ICC Case Number 9029, the tribunal seated in Rome discussed the application of Gross Disparity. The tribunal stated:
[T]here must exist two presuppositions in order for the grave hardship principle to be applicable, viz. that there must be a serious disparity between the parties' reciprocal rights and obligations which gives an excessive advantage to one party and that the excessive advantage must be unjust, that is to say that one party must have taken excessive advantage of a dependency a state of economic necessity, urgent needs or lack of foresight, ignorance, inexperience, or the other party's disablement in conducting the negotiations.
48. The Principles of European Contract Law also discusses the effects of unequal bargaining power between the parties in a contract.
49. Art. 4:109, entitled Excessive benefit or unfair advantage, states:
(1) A party may avoid a contract if, at the time of the conclusion of the contract:
(a) it was dependent on or had a relationship of trust with the other party, was in economic distress or had urgent needs, was improvident, ignorant, inexperienced or lacking in bargaining skill, and
(b) the other party knew or ought to have known of this and, given the circumstances and purpose of the contract, took advantage of the first party's situation in a way which was grossly unfair and took an excessive benefit
(2) Upon the request of the party entitled to avoidance, a court may if it is appropriate adapt the contract in order to bring it into accordance with what might have been agreed had the requirements of good faith and fair dealings been followed.
(3) A court may similarly adapt the contract upon the request of a party receiving notice of avoidance for excessive benefit or unfair advantage, provided that this party informs the party who gave the notice promptly after receiving it and before that party has acted in reliance on it.
50. Furthermore, Art. 4:110, entitled Unfair terms which have not been individually negotiated, states:
(1) A party may avoid a term which has not been individually negotiated if, contrary to the requirements of good faith and fair dealing, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of that party, taking into account the nature of the performance to be rendered under the contract, all the other terms of the contract and the circumstances at the time the contract was concluded.
(2) This Article does not apply to:
(a) a term which defines the main subject matter of the contract, provided the term is in plain and intelligible language; or to
(b) the adequacy in value of one party's obligations compared to the value of the obligations of the other party.
51. Besides these international instruments, many of the world's civilized nations have defined unequal bargaining power similarly, and permit it as a means of avoidance of contracts either as a stand alone basis or as an aspect of unconscionability.
[FN5: See Australia: Australian Competition and Consumer Comission v. CG Barbatis Holding Pty. Ltd., 214 CLR 51 (2003); Canada: Cain v. Calrica Life Ins. Co., A.B. Q.B. 531 (2004 );Rossup v. Westfair Food Ltd., 248 A.R. 275 (Alta. Q.B. 1999); McDonald v. Canada, Can LII 8736 (F.C. 1998); Hong Kong: Andayani v. Chan Oi Ling, 1 HILC 252 (Ct. 1st Instance 2001); Ireland: Carroll & Another v. Carroll, 2 I.L.R.M. 218 (Ir. H. Ct. 1998); Malaysia: Polygram Records SDN BHD v. The Search & Anor, CITATION NEEDED; Philippines: Sweetlines v. Hon. Bernardo Teves, 83 SCRA 361; Singapore: Lim Geok Hiam v. Lim Guan Chin, 1 SLR 203 (Sing. 1994); United Kingdom: Director Gen. of Fair Trading v. First National Bank plc., UKHL 52 (2001)].
52. Plaintiff KODA thus qualifies for avoidance of the arbitration clause in the employment contract pursuant to the internationally recognized definitions for unequal bargaining power: Defendant Carnival has taken advantage of the economic conditions of this foreign seaman as well as his complete ignorance and lack of experience with negotiating commercial contracts with arbitration clauses.
Carnival's Response in Opposition to Plaintiff's Motion for Rehearing on Court's Order Granting Defendant's Motion to Compel Arbitration
First, Plaintiff claims that this Court failed to adequately address his claim that the employment contract is void because there was unequal bargaining power between the parties. More specifically, he claims that the Court should have looked to the “UNIDROIT Principles,” as well as Principles of European Contract Law, to define “unequal bargaining power.” The Court, however, considered and rejected this precise argument. Indeed, as the Court noted (and as Carnival demonstrated in its papers on the motion to compel arbitration), neither the UNIDROIT Principles nor Principles of European Contract Law provides a “precise, universal definition of the unequal bargaining power defense.” Rather, they merely state-broadly and vaguely-that a contract can be voided if one party has taken “unfair advantage” or “excessive advantage” of the other, and, in the case of the European Principles, apply only to select countries. Thus, this Court correctly noted that the Bautista court had already held that “it is doubtful that there exists a precise, universal definition of the unequal bargaining power defense.” Bautista, 396 F.3d at 1302. Even if there were such a definition , however, Plaintiff's challenge to the validity of his employment contract would be a matter for the arbitration tribunal, and not for this Court because, as we previously demonstrated, Plaintiffs claims of unconscionability, coercion, and confusion in signing the agreement generally go to the formation of the entire contract rather than to the arbitration clause. See, e.g., The Ministry Of Defense And Support For The Armed Forces Of The Islamic Republic Of Iran, As Successor In Interest To The Ministry Of War Of The Government Of Iran, Petitioner, v. Cubic Defense Systems, Inc., 29 F. Supp. 2d 1168 (S.D.CA 1998)(finding that arbitration tribunal did not exceed authority in using UNIDROIT principles to decide question of whether general principles of international law apply to dispute); Merrill Lynch, Pierce, Fenner, & Smith v. Haydu, 637 F.2d 391, 398 (5th Cir. Unit B 1981); Brener v. Becker Paribas, Inc., 628 F.Supp. 442, 446 (S.D.N.Y.1985).