Freudensprung v. Offshore Technical Services, Inc. et. al.

The Fifth Circuit enforces an arbitration agreement contained in a seaman’s employment contract pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. C.A. No. 03-20226 (5th Cir. 2004)

Fred Freudensprung (“Plaintiff”) sustained serious and disabling injuries while working as a barge leaderman on board a sea-going derrick barge off the coast of Lagos, Nigeria. Plaintiff was assigned the position by operation of two agreements: a “Consultant’s Agreement” between Plaintiff and Offshore Technical Services, Inc. (“OTSI”), and an “Offshore Personnel Supply Agreement” between OTSI and the derrick barge’s owner, Willsbro West Africa, Inc. (“WWAI”). OTSI is an independent contractor that supplies personnel to work on offshore platforms.

On November 26, 1997, OTSI entered into the Consultant’s Agreement with Plaintiff to “effect the purchase of professional services.” Pursuant to the Consultant’s Agreement, Plaintiff agreed that he was an independent contractor, and not an employee. Further, Plaintiff stipulated he was “not a seaman and thus would not claim any benefit under the Jones Act.” The Consultant’s Agreement contained a Texas choice-of-law provision and an arbitration provision requiring the parties to submit “any dispute” arising from the agreement to binding arbitration in Houston, Texas.

On May 24, 2000, OTSI and WWAI entered into the Personnel Supply Agreement. This agreement contained an English choice-of-law provision and an arbitration provision requiring binding arbitration in Houston, Texas. Subsequently, by Work Order No. 4, dated June 9, 2000, OTSI and Plaintiff agreed that Plaintiff would work for WWAI as a barge leaderman in West Africa. Work Order No. 4 also contained an arbitration provision requiring arbitration of any disputes that may arise between Plaintiff and OTSI.

The derrick barge upon which Plaintiff was assigned to work was installing a single point mooring to load and offload tankers. On July 28, 2000, Plaintiff and other crewmembers had the responsibility of securing the single point mooring to the ocean floor with chains. While lowering the second chain, the winch failed, releasing the heavy chain and striking Plaintiff from behind.

On October 4, 2001, Plaintiff filed this maritime suit in federal district court. In his Complaint, Plaintiff asserted claims under the Jones Act, general maritime law negligence, unseaworthiness and maintenance and cure. WWAI filed a motion to dismiss for lack of personal jurisdiction, as it was a Panamanian company. Plaintiff amended his complaint to include WWAI’s parent company. The district court granted WWAI’s motion to dismiss. OTSI then moved the district court to stay Plaintiff’s claims pending arbitration, citing to the arbitration provision in the Consultant’s Agreement. Plaintiff countered, arguing the agreement was a seaman’s contract of employment and exempt from arbitration, and that arbitration was inappropriate under either federal or state law. The district court granted OTSI’s motion. Plaintiff appealed and the Fifth Circuit affirmed.

The Fifth Circuit began its analysis by reviewing the parties’ arguments. Namely, Plaintiff asserted that the Consultant’s Agreement constituted a seaman’s contract and the Federal Arbitration Act (“FAA”) expressly excluded it from coverage pursuant to Section 1 of the statute. OTSI countered by stating that Plaintiff was an independent contractor, not a seaman, and as such, the agreement was not a seaman’s contract of employment. The court recognized that both parties presented strong positions on the issue, but that it was unnecessary to determine whether the agreement constituted a seaman’s contract as the arbitration provision was enforceable pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”), which governed concurrently with the FAA in this case.

The Fifth Circuit noted that Title 9 of the United States Code contains the implementing legislation for both the FAA and the Convention. Generally, the FAA enforces written provisions for arbitration in maritime transactions and contracts, which evidence a transaction involving interstate or foreign commerce. Further, Section 1 of the FAA, upon which Plaintiff relied, excludes “contacts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” However, when the Convention governs the enforceability of an arbitration provision, the FAA only applies “to the extent [the FAA] is not in conflict with [the Convention Act] or the Convention as ratified by the United States.” The Fifth Circuit also recognized, as it had previously, “neither the Convention, the ratifying language of the Convention, nor the Convention Act ‘recognize[s] an exception for seaman’s employment contracts.’”

The Fifth Circuit stated that courts apply a four-prong test to determine whether the Convention requires compelling arbitration. A court should compel arbitration if “(1) there is a written agreement to arbitrate the matter; (2) the agreement provides for arbitration in a Convention signatory nation; (3) the agreement arises out of a commercial legal relationship; and (4) the party to the agreement is not an American citizen.” If these requirements are satisfied a court must compel arbitration.

The Fifth Circuit readily noted that the first three requirements were met in the instant case. The real issue turned on the fourth requirement as both Plaintiff and OTSI were U.S. citizens. However, the court recognized that the First Circuit in Ledeee v. Ceramiche Ragno, 684 F.2d 184, 185-86 (1st Cir. 1982), did not require the presence of a non-U.S. party, but instead, asked the question: “Is a party to the agreement not an American citizen, or does the commercial relationship have some reasonable relation with one or more foreign states?” Thus, the Fifth Circuit concluded that the lack of a foreign citizen as a party to the agreement did not render the Convention inapplicable.

The court recognized that the issue of whether the Convention applied in such a context was one of first impression. The Fifth Circuit turned to the Second and Seventh Circuits, which had both addressed the issue, for guidance. The court noted that the Second and Seventh Circuits had held the Convention may apply “provided that there is a ‘reasonable relation’ between the parties’ commercial relationship and some ‘important foreign element.’” (citing Jones v. Sea Tow Servs., Inc., 30 F.3d 360, 366 (2d Cir. 1994); Lander Co. v. MMP Investments, Inc., 107 F.3d 476, 481 (7th Cir. 1997)).

The court reviewed the Jones and Lander decisions, finding that Lander involved similar circumstances to the case at bar. The Fifth Circuit distinguished Jones because the only foreign element in Jones was a Lloyd’s Open Forum salvage contract, whereas, in the instant case the agreement at issue between Plaintiff and OTSI “envisage[d] performance abroad,” services on WWAI’s barges in West Africa. Using Lander as its analytical framework, the court concluded that the Convention governed the arbitral provision in the parties’ Consultant’s Agreement “concurrently with the FAA because there is a reasonable connection between the parties’ commercial relationship and a foreign state that is independent of the arbitral clause itself.” Thus, the Fifth Circuit held the arbitral provision was “enforceable under the Convention as implemented by Congress.”

Further, the Fifth Circuit rejected Plaintiff’s assertion that the arbitration provision was unenforceable as OTSI failed to prove it was fair. The court noted that under the FAA, a written arbitration agreement is “prima facie valid and must be enforced unless the opposing party … ‘allege[s] and prove[s] that the arbitration clause itself was a product of fraud, coercion, or ‘such grounds as exist at law or in equity for the revocation of the contract.’” (citing National Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 326, 332 (5th Cir. 1987)). In addition, a federal court must enforce an arbitration agreement falling within the Convention unless it is “null and void, inoperative, or incapable of being performed.” (citing Sedco, Inc. v. Petroleos Mexicanos Mexican Nat’l Oil Co., 767 F.2d 1140, 1146 (5th Cir. 1985)). The court noted that Plaintiff had failed to introduce any evidence that would enable him to avoid arbitration in the instant case. The Fifth Circuit stated that it is “[o]nly by rigorously enforcing arbitration agreements according to their terms, do we ‘give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind the FAA.’” (citing Ford v. NYL Care Health Plans of Gulf Coast, Inc., 141 F.3d 243, 248-49 (5th Cir. 1998)). As such, the Fifth Circuit held Plaintiff failed to prove the arbitration agreement was unfair.