Schreiber v. K-Sea Transp. Corp.
Decision Date | 27 November 2007 |
Docket Number | 135. |
Citation | 879 N.E.2d 733,849 N.Y.S.2d 194,9 N.Y.3d 331 |
Parties | In the Matter of Nicholas SCHREIBER, Respondent-Appellant, v. K-SEA TRANSPORTATION CORP. et al., Appellants-Respondents. |
Court | New York Court of Appeals Court of Appeals |
The issue is the validity of a seaman's agreement to arbitrate his Jones Act claim against his employer, where the agreement was made after the seaman was injured. We hold, as did the Appellate Division, that post-injury arbitration agreements are not prohibited, but that a hearing should be held to decide whether this arbitration agreement is enforceable. We disagree with the Appellate Division as to the burden of proof at the hearing; the burden should be on the party trying to invalidate the arbitration agreement.
Nicholas Schreiber was injured while working aboard the tug Tasman Sea, owned by K-Sea Transportation Corp. Under admiralty law, Schreiber was entitled to "maintenance" from K-Sea (payments sufficient to provide him with food and lodging) while his injury prevented him from working. He was also entitled to sue K-Sea under the Jones Act (46 USC § 30104) if K-Sea's negligence caused his injury. K-Sea, pursuant to its interpretation of its collective bargaining agreement with Schreiber's union, began making maintenance payments to him of $15 per day.
Several weeks after the accident, K-Sea's claims manager, Alton Peralta, called Schreiber and made a proposal: K-Sea would increase its payments to two thirds of Schreiber's regular wage, as an advance against settlement of any claims by Schreiber based on his injury, if Schreiber would agree to arbitrate those claims. Schreiber agreed, and Peralta sent him a written agreement with a short cover letter. The cover letter explained: "arbitration is a private process, and the outcome will be decided by one or more arbitrators, not by a jury." The cover letter also told Schreiber, in bold letters:
Schreiber signed the agreement. It provided that he and K-Sea agreed to arbitrate all claims arising out of his injury under the rules of the American Arbitration Association (AAA). The agreement also provided: "Any filing fee, up to $750.00 and any deposit for compensation of the arbitrators shall be advanced by K-Sea, subject to subsequent allocation."
At the time of the agreement, Schreiber apparently expected to recover well from his injury. But the injury worsened, leaving him confined to a walking boot and unlikely ever to return to working at sea. Some 17 months after the injury, Schreiber sued K-Sea in Supreme Court, asserting Jones Act and other claims. K-Sea filed a demand for arbitration with the AAA, and sent the AAA a check for $750 "as K-Sea's portion of the filing fee." Its letter told the AAA that "the remainder of the filing fee is to be provided by Mr. Schreiber." The AAA responded by telling the parties that, since the amount of the claim was not stated in the demand, the minimum filing fee would be $10,000.
Schreiber petitioned Supreme Court to stay arbitration, and K-Sea cross-moved to compel arbitration. Supreme Court granted Schreiber's petition. It rejected Schreiber's claim that the Federal Arbitration Act (FAA) rendered the agreement unenforceable, but held that K-Sea had failed to prove "that there was no deception or coercion on its part, and that Schreiber understood his obligations under the agreement" (2004 N.Y. Slip Op. 30151[U], *8, 2004 WL 5487018). The Appellate Division, one Justice dissenting in part, reversed and directed a hearing on whether the agreement was enforceable. The Appellate Division majority concluded, as had Supreme Court, that K-Sea had an "obligation to show that the arbitration agreement is equitable," but found the issue could not be resolved without a hearing (30 A.D.3d 101, 110, 814 N.Y.S.2d 124 [2006]). Justice Andrias, dissenting, said the burden should be on Schreiber to demonstrate the invalidity of the arbitration agreement and concluded that, since he had not met that burden, arbitration should be compelled, though Schreiber should not be required to pay the $9,250 balance of the filing fee. The Appellate Division granted both parties leave to appeal.
The three opinions below reached three different conclusions, and we reach a fourth: There should be a hearing, at which the burden should be on Schreiber to show that the arbitration agreement is unenforceable. Though the Appellate Division erred in allocating the burden of proof, its order simply remands the case for a hearing, and we therefore affirm that order.
Schreiber argues that the FAA forbids enforcement of the arbitration agreement; that the Federal Employers' Liability Act (FELA) also forbids it; and that, even if enforcement of the arbitration agreement is not barred by statute, it is barred by his status as a "ward of the admiralty." We reject all three arguments, but decide that the facts of this case warrant ordering a hearing on the agreement's enforceability.
Section 2 of the FAA (9 USC § 2) provides:
This section reflects a federal policy favoring the arbitration of disputes (Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 [1983]). The policy is applicable even to claims arising under protective statutes like the Jones Act ( ). Section 1 of the FAA (9 USC § 1), however, excludes from the scope of the FAA "contracts of employment of seamen." Schreiber argues that the arbitration agreement between him and K-Sea is part of his contract of employment and is therefore excluded from the FAA's coverage. He also argues that the exclusion implies a prohibition — i.e., that an arbitration agreement excluded from the FAA's coverage is unenforceable, even if it would otherwise be enforceable under state law.
We need not decide whether Schreiber is right about the enforceability of agreements excluded from the FAA by section 1 ( ) because the agreement at issue here is not excluded from the FAA. It is not a "contract of employment"; it is a separate agreement, made after K-Sea had employed Schreiber, at a time when the occasion for arbitration — Schreiber's injury — already existed. We agree with all other courts to consider the question that an agreement like this is within the coverage of the FAA (see Terrebonne v. K-Sea Transp. Corp., 477 F.3d 271, 278-280 [5th Cir.2007]; Nunez v. Weeks Mar., Inc., 2007 WL 496855, *1-5, 2007 U.S. Dist LEXIS 10807, *4-19 [E.D.La.2007]; Barbieri v. K-Sea Transp. Corp., 2006 WL 3751215, *7-8, 2006 U.S. Dist LEXIS 91565, *21-26 [E.D.N.Y.2006]; Endriss v. Eklof Mar. Corp., 1998
WL 1085911, *4, 1998 U.S. Dist LEXIS 23231, *12-16 [S.D.N.Y.1998]).
The FELA is relevant here because the Jones Act says that "[l]aws of the United States regulating recovery for personal injury to . . . a railway employee apply" to a Jones Act claim (46 USC § 30104[a]). Section 5 of the FELA says that "[a]ny contract . . . the purpose or intent of which shall be to enable any common carrier to exempt itself from any liability created by this chapter, shall to that extent be void" (45 USC § 55). On its face, this statute seems to pose no problem here, because K-Sea's contract with Schreiber does not purport to "exempt" K-Sea from "liability," but only to require that Schreiber's claim be arbitrated. In Boyd v. Grand Trunk Western R. Co., 338 U.S. 263, 70 S.Ct. 26, 94 L.Ed. 55 (1949), however, the Supreme Court gave a broad reading to section 5 of the FELA, holding that an agreement limiting an employee's choice of forum to a state or federal court in Michigan was void, on the theory that being subject to suit in a court of the employee's choice was part of the "liability created." Schreiber argues that the arbitration clause here is similar to the venue-selection clause in Boyd, since both clauses limit litigation to a particular forum.
We reject the analogy because there is a factor here not present in Boyd:...
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