Johnson et al v. The F/V Kilauea, in rem et al
Filing
75
ORDER DENYING DEFENDANTS' MOTION TO COMPEL ARBITRATION AND LIFTING STAY ORDERED ON MARCH 3, 2016 re 58 MOTION to Compel Arbitration. Signed by JUDGE LESLIE E. KOBAYASHI on 04/22/2016. -- The stay is HEREBY LIFTED. -- Plaintiffs may re-file the Summary Judgment Motion with a one-page notice stating that they would like the motion set for hearing. Defendants may re-file their memorandum in opposition to the S ummary Judgment Motion and Plaintiffs may re-file their reply in support of the Summary Judgment Motion with a one-page notice. On February 3, 2016, Defendants filed a Motion to Strike Plaintiffs' Reply Memorandum in Support of Plaintiffs' Motion for Partial Summary Judgment ("Motion to Strike"), [dkt. no. 65 ,] which the Court deemed withdrawn without prejudice. Defendants may re-file the Motion to Strike with a one-page notice. (eps)CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
JOHN JOHNSON and LOIS
JOHNSON, d/b/a SEA FARMERS,
LLC,
)
)
)
)
Plaintiff,
)
)
)
vs.
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THE F/V KILAUEA, in rem, and )
F/V KILAUEA, INC., a
)
)
Washington Corporation, and
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MICHAEL OSTENDORP, IN
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PERSONNAM,,
)
)
Defendants.
_____________________________ )
CIVIL 15-00065 LEK-KJM
ORDER DENYING DEFENDANTS’ MOTION TO COMPEL
ARBITRATION AND LIFTING STAY ORDERED ON MARCH 3, 2016
On January 14, 2016, Defendants F/V Kilauea, in rem,
and F/V Kilauea, Inc., a Washington Corp. (collectively
“Defendants”), filed a Motion to Compel Arbitration (“1/14/16
Motion to Compel”).
[Dkt. no. 58.]
On February 8, 2016,
Plaintiffs John Johnson (“Mr. Johnson”) and Lois Johnson (“Mrs.
Johnson”), doing business as Sea Farmers, LLC (collectively
“Plaintiffs”), filed their memorandum in opposition, and
Defendants filed their reply on February 15, 2016.
68, 69.]
[Dkt. nos.
On February 25, 2016, this Court issued an entering
order (“2/25/16 EO”) finding this matter suitable for disposition
without a hearing pursuant to Rule 7.2(d) of the Local Rules of
Practice of the United States District Court for the District of
Hawai`i (“Local Rules”) and ruling on the 1/14/16 Motion to
Compel.
EO.
[Dkt. no. 71.]
The instant Order supersedes the 2/25/16
After careful consideration of the motion, supporting and
opposing memoranda, and the relevant legal authority, Plaintiff’s
1/14/16 Motion to Compel is HEREBY DENIED because under Hawai`i
law, there must be bilateral consideration for an arbitration
agreement and it must be in writing.
As to Mrs. Johnson, she did
not sign the agreement, and therefore she cannot be compelled to
arbitrate.
As to Mr. Johnson, he did sign the agreement, but
Defendants reserved the right to alter its terms unilaterally –
that is, without input or notice to Mr. Johnson, and therefore
there is no bilateral agreement and he cannot be compelled to
arbitrate.
BACKGROUND
On March 19, 2015, Defendants filed a Motion to Compel
Mediation and Arbitration (“3/19/15 Motion to Compel”).
no. 14.]
[Dkt.
On May 12, 2015, the magistrate judge filed an order
(“5/12/15 Order”) granting in part and denying in part the
3/19/15 Motion to Compel.
[Dkt. no. 27.]
The background of this
case is well known to the parties and was explained in the
5/12/15 Order.
See 5/12/15 Order at 2-4.
In 5/12/15 Order, the magistrate judge ordered
Plaintiffs to mediate their claims pursuant to Local Rule
88.1(d)(2), and he stayed the case pending mediation.
Order at 12.]
[5/12/15
On December 2, 2015, the magistrate judge lifted
2
the stay.
[Minutes, filed 12/2/15 (dkt. no. 49).]
The 1/14/16
Motion to Compel moves to compel arbitration on all of Plaintiffs
claims.
[1/14/16 Motion to Compel at 2.]
Plaintiffs argue that
the agreement at issue, see 1/14/16 Motion to Compel, Exh. A
(Captain Employment Agreement) (“Agreement”), “is unenforceable
due to Defendants’ misrepresentations, for lack of consideration,
under the doctrine of unconscionabilty, and for failure to
satisfy the requirement of signing written employment agreements
before the commencement of fishing voyages in violation of 46
U.S.C. § 10601.”
[Mem. in Opp. at 2.]
DISCUSSION
The Court must first determine the law that applies to
the instant matter.
Insofar as Defendants argue that the Federal
Arbitration Act (“FAA”), 9 U.S.C. § 1, applies here, see Mem. in
Supp. of 1/14/16 Motion to Compel at 7 (“[S]hould Plaintiffs
attempt to contend that the present matter cannot be subject to
arbitration because it supposedly falls beyond the scope of the
[FAA], no such argument can be availing.”), they are incorrect.
The FAA states, in relevant part, “nothing herein contained shall
apply to contracts of employment of seamen, railroad employees,
or any other class of workers engaged in foreign and interstate
commerce.”
9 U.S.C. § 1.
“Although the FAA does not define
‘seamen,’ courts have relied on judicial interpretation of the
Jones Act, such that a seaman under the Jones Act is also a
3
seaman for the purposes of exemption under § 1 of the FAA.”
Veliz v. Cintas Corp., No. C 03-1180 SBA, 2004 WL 2452851, at *4
(N.D. Cal. Apr. 5, 2004) (footnote and some citations omitted)
(citing Brown v. Nabors Offshore Corp., 339 F.3d 391, 393 (5th
Cir. 2003)), modified on other grounds on reconsideration, 2005
WL 1048699 (N.D. Cal. May 4, 2005).
The United States Supreme
Court has held:
We believe the better rule is to define
. . . “seaman” under the Jones Act[] solely in
terms of the employee’s connection to a vessel in
navigation. This rule best explains our case law
and is consistent with the pre-Jones Act
interpretation of “seaman” and Congress’ landbased/sea-based distinction. All who work at sea
in the service of a ship face those particular
perils to which the protection of maritime law,
statutory as well as decisional, is directed.
McDermott Int’l, Inc. v. Wilander, 498 U.S. 337, 354 (1991)
(citation omitted).
The Court CONCLUDES that Plaintiffs, who are
connected to “a vessel in navigation,” see id., are seamen for
purposes of the FAA exemption.
There also appears to be some uncertainty about whether
Hawai`i law or Washington law applies to the Agreement.
See,
e.g., Mem. in Supp. of 1/14/16 Motion to Compel at 7 (“Further,
even if – as Plaintiffs have incorrectly contended in the past –
Washington law is applicable to the present matter, they will be
able to show no distinction between Washington law and Hawai`i
law.”).
“A seaman’s contract to work aboard a vessel is a
maritime contract.”
Madeja v. Olympic Packer, LLC, 155 F. Supp.
4
2d 1183, 1209 (D. Hawai`i 2011) (citing Aqua-Marine Constructors,
Inc. v. Banks, 110 F.3d 663, 670-71 (9th Cir.), cert. denied, 522
U.S. 933, 118 S. Ct. 339, 139 L. Ed. 2d. 263 (1997)).1
Further,
“[u]nder choice of law rules in maritime contract cases in the
Ninth Circuit, the court must apply the law of the state which
has the most significant relationship to the transaction.”
(citations and internal quotation marks omitted).
determination, “the court must consider:
Id.
In making that
(a) the place of
contracting; (b) the place of negotiation; (c) the place of
performance; (d) the location of the subject matter of the
contract; and (e) the domicile, residence, nationality, place of
incorporation, and place of business of the parties.”
(citing Aqua-Marine, 110 F.3d at 673).
Id.
Here, the Agreement was
signed in Hawai`i, the work was performed in Hawai`i, and the
subject of the contract is located in Hawai`i.
The Court
therefore FINDS that Hawai`i has the most significant
relationship to the Agreement, and it will apply Hawai`i law.
The Hawai`i Uniform Arbitration Act (“HUAA”), Haw. Rev.
Stat. Chapter 658A, “codifie[s] [the state’s] endorsement of the
enforceability of arbitration agreements.”
See Brown v. KFC
Nat’l Mgmt. Co., 82 Hawai`i 226, 233, 921 P.2d 146, 153 (1996).
1
The district court in Madeja also noted that “[a] suit for
seaman’s personal wages is properly before a district court under
its maritime jurisdiction.” 155 F. Supp. 2d at 1199 (citing
United States Bulk Carriers, Inc. v. Arguelles, 400 U.S. 351,
353, 91 S. Ct. 409, 27 L. Ed. 2d 456 (1971)).
5
The HUAA states, in relevant part that, “[a]fter June 30, 2004,
this chapter governs an agreement to arbitrate whenever made.”
§ 658A-3(c).
Section 658A-6(b) states that “[t]he court shall
decide whether an agreement to arbitrate exists or a controversy
is subject to an agreement to arbitrate.”
Further,
[o]n motion of a person alleging that an
arbitration proceeding has been initiated or
threatened but that there is no agreement to
arbitrate, the court shall proceed summarily to
decide the issue. If the court finds that there
is an enforceable agreement to arbitrate, it shall
order the parties to arbitrate.
§ 658A-7(b).
The Hawai`i Supreme Court has held that, on “a motion
to compel arbitration, the court is limited to answering two
questions:
1) whether an arbitration agreement exists between
the parties; and 2) if so, whether the subject matter of the
dispute is arbitrable under such agreement.”
Douglass v.
Pflueger Haw., Inc., 110 Hawai`i 520, 530, 135 P.3d 129, 139
(2006) (footnote, citation, and internal quotation marks
omitted).
In Douglass, the Hawai`i Supreme Court stated:
“[E]ven though arbitration has a favored place,
there still must be an underlying agreement
between the parties to arbitrate. Without an
agreement to arbitrate, a court may not force
parties to engage in arbitration.” Luke v. Gentry
Realty, Ltd., 105 Hawai`i 241, 247, 96 P.3d 261,
267 (2004) (citations and internal quotation marks
omitted); see also Moss v. Am. Int’l Adjustment
Co., Inc., 86 Hawai`i 59, 63, 947 P.2d 371, 375
(1997) (“[A]rbitration must be agreed upon by the
parties and evinced by a written agreement,
despite the strong policy in its favor.”
6
(Citations omitted.)).
We held in Brown that, in order to be valid
and enforceable, an arbitration agreement must
have the following three elements: (1) it must be
in writing; (2) it must be unambiguous as to the
intent to submit disputes or controversies to
arbitration; and (3) there must be bilateral
consideration. 82 Hawai`i at 238-40, 921 P.2d at
158-60.
110 Hawai`i at 531, 135 P.3d at 140 (some alterations in
Douglass).
“Consideration is defined as a bargained for exchange
whereby the promisor receives some benefit or the promisee
suffers a detriment.”
Id. at 534 (citations and block quote
format omitted).
The arbitration clause at issue here states:
Any dispute(s) that might arise out of any terms
or conditions relating to or contained in this
Captain Employment Agreement shall be settled by
mediation and/or binding arbitration under the
Rules of the Hawaii Dispute Prevention &
Resolution (DPR), or other recognized arbitration
body selected by the Owner. The prevailing party
in any arbitration hereunder shall be awarded
reasonable attorney fees and costs, expert and
non-expert witness costs and all other costs and
expenses incurred directly or indirectly in
connection with said arbitration. The undersigned
parties understand and agree that any such dispute
shall be mediated and arbitrated in Honolulu,
Hawaii pursuant to the rules of DPR.
[Agreement at ¶ 13.]
It is undisputed that Mrs. Johnson did not
sign the Agreement, see Mem. in Supp. of 1/14/16 Motion to Compel
at 4 (“Lois Johnson is claiming that she was employed even though
she was no signatory to the Agreement.”); Mem. in Opp. at 23
(“The undisputed facts are that Defendants failed to make any
7
written fishing agreement with Mrs. Johnson.”), and therefore the
Court cannot compel Mrs. Johnson to arbitrate her claims against
Defendants.
Insofar as the 1/14/16 Motion to Compel seeks to
compel arbitration of Mrs. Johnson’s claims, the motion is HEREBY
DENIED.
The question remains whether or not the Court may
compel Mr. Johnson to arbitrate his claims against Defendants.
The arbitration clause at issue here:
(1) is in writing; and
(2) includes unambiguous language that “[a]ny dispute(s) that
might arise out of any terms or conditions relating to or
contained in” the Agreement must be resolved by mediation or
arbitration.
See Agreement at ¶ 13.
In agreeing to forfeit
their right to a judicial forum, Mr. Johnson and Defendants
provided consideration for the arbitration agreement.
The plain
language of the arbitration agreement, however, reveals that
Defendants reserved the right to alter its terms without any
notice to or input from Mr. Johnson.
See id.
Because Defendants
may unilaterally choose the arbitration body that conducts any
binding arbitration proceeding, the arbitration agreement lacks
mutual obligation.
“Consequently, without mutuality of
obligation, the third Brown requirement is . . . not met.”
Douglass, 110 Hawai`i at 535, 135 P.3d at 144 (citation and
8
internal quotation marks omitted).2
The Court FINDS that there
was no bilateral consideration and CONCLUDES that there is no
enforceable arbitration agreement between Mr. Johnson and
Defendants.
Insofar as the 1/14/16 Motion to Compel seeks to
compel arbitration of Mr. Johnson’s claims, the motion is HEREBY
DENIED.
In an entering order filed on March 3, 2016 (“3/3/16
EO”) the Court stayed this case pending arbitration.
58.]
The stay is HEREBY LIFTED.
[Dkt. no.
The Court notes that, on
December 22, 2015, Plaintiffs filed a Motion for Partial Summary
Judgment (“Summary Judgment Motion”), [dkt. no. 58,], which, in
the 3/3/16 EO, the Court deemed withdrawn without prejudice
2
This district court has repeatedly found that, if one
party to an agreement to arbitrate can make unilateral changes to
the terms of that agreement, the agreement itself is illusory.
See, e.g., Keanini v. United Healthcare Servs., Inc., 33 F. Supp.
3d 1191, 1195 (D. Hawai`i 2014) (“Admittedly, United Healthcare
must provide notice of its intent to amend, modify, or terminate
the agreement, and any changes can only be effective beginning
January 1 of the coming year. However, United Healthcare retains
sole discretion to make any such change, leaving the employee
with no recourse short of resignation.”); Arredondo v. 24 Hour
Fitness USA Inc., CV. No. 07-00232, 2007 WL 2363386, at *3 (D.
Hawai`i Aug. 13, 2007) (“Thus, Defendant retained the right to
change the arbitration policy, including removing the bilateral
consideration provision, yet at the same time binding Plaintiff
to any unilateral changes made to the policy. Consequently, the
purported agreement is illusory.” (footnote omitted) (citing
Gourley v. Yellow Transp., LLC, 178 F. Supp. 2d 1196, 1202-03 (D.
Colo. 2001))). See also Young v. Cty. of Hawaii, Civil No. 1100580 ACK-RLP, 2012 WL 2359933, at *4 (D. Hawai`i Apr. 3, 2012)
(“Unlike cases where the arbitration provision is deemed
illusory, there is no reservation of rights by one party to
unilaterally alter the agreement.” (citation omitted)).
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[3/3/16 EO at 1].
Plaintiffs may re-file the Summary Judgment
Motion with a one-page notice stating that they would like the
motion set for hearing.
Defendants may re-file their memorandum
in opposition to the Summary Judgment Motion and Plaintiffs may
re-file their reply in support of the Summary Judgment Motion
with a one-page notice.
On February 3, 2016, Defendants filed a
Motion to Strike Plaintiffs’ Reply Memorandum in Support of
Plaintiffs’ Motion for Partial Summary Judgment (“Motion to
Strike”), [dkt. no. 65,] which the Court deemed withdrawn without
prejudice [3/3/16 EO at 1].
Defendants may re-file the Motion to
Strike with a one-page notice.
CONCLUSION
On the basis of the foregoing, Defendants F/V Kilauea,
in rem, and F/V Kilauea, Inc.’s Motion to Compel Arbitration,
filed January 14, 2016, is HEREBY DENIED, and the stay ordered on
March 3, 2016 is HEREBY LIFTED.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, April 22, 2016.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
JOHN JOHNSON, ET AL. VS. F/V KILAUEA, ETC., ET AL; CIVIL 15-00065
LEK-KJM; ORDER DENYING DEFENDANTS’ MOTION TO COMPEL ARBITRATION
LIFTING STAY ORDERED ON MARCH 3, 2016
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