9 N.Y.3d 331 (2007)
Post-injury arbitration agreements between seamen and their employers are not automatically prohibited, but their enforceability depends on the absence of fraud, deception, or coercion, with the burden of proof on the seaman to demonstrate the agreement’s invalidity. Any arbitration order must ensure the seaman can pursue the claim without prohibitive costs.
Summary
Nicholas Schreiber, a seaman, was injured while working for K-Sea Transportation. After the injury, K-Sea offered Schreiber increased maintenance payments in exchange for agreeing to arbitrate any claims related to the injury. Schreiber signed the agreement. Later, Schreiber sued K-Sea under the Jones Act. K-Sea sought to compel arbitration. The New York Court of Appeals held that post-injury arbitration agreements are not prohibited but ordered a hearing to determine the enforceability of the agreement, placing the burden on Schreiber to prove its invalidity due to factors like fraud or unconscionability. The court also specified that Schreiber shouldn’t be burdened with costs that would prevent him from pursuing his claim.
Facts
Nicholas Schreiber, a seaman employed by K-Sea Transportation Corp., sustained injuries while working on K-Sea’s tugboat. K-Sea initially provided maintenance payments of $15 per day. Several weeks post-injury, K-Sea’s claims manager proposed increasing payments to two-thirds of Schreiber’s regular wage as an advance against settlement, contingent on Schreiber agreeing to arbitration. Schreiber signed the agreement, which stipulated arbitration under AAA rules and K-Sea’s advancement of filing fees up to $750. Later, Schreiber sued K-Sea under the Jones Act after his injury worsened. K-Sea then demanded arbitration, but the AAA required a $10,000 filing fee, significantly exceeding the $750 mentioned in the agreement.
Procedural History
Schreiber petitioned the Supreme Court to stay arbitration; K-Sea cross-moved to compel it. The Supreme Court granted Schreiber’s petition, finding K-Sea failed to prove the absence of deception or coercion. The Appellate Division reversed, ordering a hearing on the agreement’s enforceability, but maintained that K-Sea had the burden to show the agreement was equitable. The New York Court of Appeals affirmed the Appellate Division’s order for a hearing, but modified it by placing the burden of proof on Schreiber to demonstrate the agreement’s unenforceability.
Issue(s)
1. Whether the Federal Arbitration Act (FAA) prohibits the enforcement of a post-injury arbitration agreement between a seaman and his employer?
2. Whether Section 5 of the Federal Employers’ Liability Act (FELA) renders the arbitration agreement void?
3. Whether the “ward of the admiralty” doctrine invalidates the arbitration agreement unless proven fair to the seaman?
Holding
1. No, because the agreement at issue is not a “contract of employment” excluded from the FAA; it is a separate agreement made after the employment relationship was established and after the injury occurred.
2. No, because an arbitration agreement is not a forbidden exemption from Jones Act liability.
3. No, because the “ward of the admiralty” doctrine does not outweigh the policy favoring arbitration; Schreiber must show fraud, unconscionability, or some other defect to invalidate the agreement.
Court’s Reasoning
The court reasoned that the FAA favors arbitration, even for claims under protective statutes like the Jones Act, citing Gilmer v. Interstate/Johnson Lane Corp. The court distinguished the arbitration agreement from an employment contract, finding it a separate agreement made after the injury. Therefore, the FAA applies. The court rejected the argument that FELA § 5 voids the agreement under the precedent of Boyd v. Grand Trunk Western R. Co., emphasizing the federal policy favoring arbitration. “To hold, as Schreiber urges, that any agreement to arbitrate a Jones Act claim is void would contradict that policy.”
Regarding the “ward of the admiralty” doctrine, the court acknowledged its historical basis from Harden v. Gordon and Garrett v. Moore-McCormack Co., but asserted that it doesn’t automatically invalidate arbitration agreements. The court stated, “Schreiber is bound by his agreement with K-Sea unless he can show that fraud, unconscionability or some other defect justifies invalidating it.”
The court ordered a hearing due to a “troubling aspect” of the agreement: the statement that K-Sea would advance filing fees “up to $750.00,” which could mislead Schreiber about the actual $10,000 fee. The court emphasized that “If Supreme Court finds that K-Sea intentionally misled Schreiber, and that if correctly informed he would not have agreed to arbitration, the arbitration agreement should be set aside.” The court also stipulated that if arbitration is compelled, K-Sea must bear any costs that would prevent Schreiber from pursuing his claim, citing Green Tree Financial Corp.-Ala. v. Randolph.