United States / 16 March 2012 / United States, U.S. Court of Appeals, Fourth Circuit / Potenciano L. Aggarao Jr. v. Mol Ship Management Company, LTD.; Nissan Motor Car Carrier Company, Ltd., trading as Nissan Carrier Fleet; World Car Carriers, Incorporated / 10–2211
Country | United States |
Court | United States, U.S. Court of Appeals, Fourth Circuit |
Date | 16 March 2012 |
Parties | Potenciano L. Aggarao Jr. v. Mol Ship Management Company, LTD.; Nissan Motor Car Carrier Company, Ltd., trading as Nissan Carrier Fleet; World Car Carriers, Incorporated |
Case number | 10–2211 |
Applicable NYC Provisions | I | II | V | I(3) | II(3) | V(2)(b) |
Source | online: http://www.ca4.uscourts.gov/ (official website of the U.S. Court of Appeals for the Fourth Circuit) |
Languages | English |
Summary | The Plaintiff-Appellant, Potenciano Aggarao (“Aggarao”), filed an action in the United States District Court for the District of Maryland against his employer, Mol Ship Management Company, and its affiliated entities (collectively, “Mol”) alleging, inter alia, negligence pursuant to the Jones Act. The Jones Act provides seamen with a special statutory framework for bringing negligence and related claims against their employers. Mol moved to dismiss the complaint for improper venue, based on an arbitration agreement in Aggarao’s employment contract which required arbitration in the Philippines under Philippine law. The District Court dismissed Aggarao’s action, holding that Aggarao was bound to arbitrate its claims against all of the defendants, regardless of whether they were signatories to the arbitration agreement or not, as he was equitably estopped from pursuing his claims against non-signatory defendants. Aggarao appealed, arguing that the arbitration agreement was unenforceable because (i) subsequent contracts entered into by the parties constituted a novation that superseded the contract containing the arbitration agreement, or, at the least, modified the contract to repeal the arbitration clause; (ii) under Section 202 of the Federal Arbitration Act (“FAA”), the NYC applies only to commercial contracts, and Section 1 of the FAA excludes seamen’s employment contracts from the definition of commercial; (iii) the Seaman’s Wage Act entitled Aggarao to access a federal court notwithstanding the arbitration agreement; and (iv) the contractual choice-of-law and choice-of-venue provisions violated public policy as they constituted a prospective waiver of Aggarao’s statutory remedies under U.S. law. Finally, Aggarao argued that it could not be compelled to arbitrate against all of the defendants because some of them were not signatories to the contract containing the arbitration agreement. It also argued that the District Court should have issued a preliminary injunction to preserve the status quo pending arbitration. The United States Court of Appeals for the Fourth Circuit affirmed the District Court’s decision that the arbitration agreement was enforceable, but vacated the part of its judgment ordering disposition of the case and remanded for the issuance of a stay pending arbitration and for consideration of Aggarao’s request for a preliminary injunction. First, the Court rejected Aggarao’s argument that the arbitration agreement in his employment contract had been repealed by subsequent contracts entered into by the parties, not containing an arbitration clause. The Court reasoned that the agreements were complimentary, and supplemented, rather than superseded, one another. Second, the Court rejected Aggarao’s argument that Section 1 of the FAA, which exempts employment contracts for seamen from the definition of commerce for purposes of domestic arbitration, also applied to arbitration governed by the NYC, finding that the exemption in Section 1 of Chapter 1 applied only to domestic arbitration, and that Chapter 2 of the FAA, which implements the NYC, did not incorporate the exemption. Third, it held that Chapter 2 of the FAA supplanted in part the Seaman’s Wage Act, requiring a federal court to refer to arbitration seamen wage claims and any other claims subject to an enforceable arbitration agreement. Fourth, the Court held that an arbitration agreement could not be invalidated on public policy grounds at the stage of enforcement of the arbitration agreement. The Court reasoned that the “null and void” defense in Article II NYC, applicable at the stage of enforcement of the arbitration agreement, did not include a public policy defense because such a defense could not be neutrally applied on an international scale. According to the Court, a party may only challenge arbitration on public policy grounds at the time of enforcement of the arbitral award. Thus, to ensure that Aggarao would have an opportunity to challenge the ensuing arbitral award on public policy grounds, the Court stayed judicial proceedings and retained jurisdiction over the matter pending arbitration. Fourth, the Court held that Aggarao was equitably estopped from refusing to arbitrate jointly against the signatory and non-signatory defendants where Aggarao had allegations of substantially interdependent and concerted misconduct by both the non-signatory and one or more of the signatories to the contract. Finally, the Court of Appeals directed the District Court to consider Aggarao’s request for a preliminary injunction, which would require the defendants to continue to provide maintenance and cure in the U.S. pending arbitration, by applying the “hollow-formality” test. The “hollow-formality” test permits a district court to issue a preliminary injunction in its discretion to maintain the status quo pending arbitration, if failure to do so would alter the circumstances so severely as to render any subsequent arbitral relief meaningless. |
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