The Ninth Circuit refused last month to disturb a district court order denying a defendant’s motion to compel arbitration against a sailor in a maritime action pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention Act”) where the defendant company was not a signatory or a party to an employment agreement with an arbitration clause. The sailor (“Yang”) entered into an employment agreement with the vessel’s owner (“Majestic”) that contained an arbitration clause. While defendant Dongwon Industries Co. was responsible for the vessel’s repairs, maintenance, and supplies, it was neither a signatory nor party to Yang and Majestic’s agreement. After Yang died when the ship sank due to inadequate repairs, Yang’s wife sued Majestic and Dongwon for wrongful death. The district court compelled arbitration of her claims against Majestic based on the employment agreement, but denied Dongwon’s motion to compel arbitration.
First, the Ninth Circuit affirmed because the Convention Act does not allow non-signatories or non-parties to compel arbitration. Dongwon attempted to argue that the language in the Convention Treaty limiting arbitration to signatories applied only to a phrase addressing arbitration agreements, but not the phrase addressing arbitration clauses in other contracts. The court relied heavily on a Second Circuit case Kahn Lucas Lancaster, Inc. v. Lark International Ltd., which held that the signatory requirement language applied to both arbitration agreements and clauses in other contracts. Kahn Lucas relied on the last-antecedent rule, the grammar of the Treaty’s foreign texts, and the Treaty’s legislative history. In relying on Kahn Lucas, the court explicitly recognized the punctuation canon, under which a phrase applies to “all antecedents instead of only to the immediately preceding one” when the phrase is separated from the antecedents by a comma. The court also noted that every circuit considering Kahn Lucas’s logic has followed it. Lastly, the court found Dongwon failed to demonstrate that it was a party to the agreement containing the arbitration clause, a foundational requirement to compel under the Convention Treaty.
Second, the court rejected Dongwon’s argument that a non-party may invoke arbitration under the Federal Arbitration Act (“FAA”) if the relevant state contract law allows such a litigant to enforce the agreement. Initially the court noted FAA arbitration was unavailable to Dongwon because it specifically exempts “contracts of employment of seamen.” The court dismissed the argument as a “doctrinal sleight of hand” because arbitrations under the Convention Act require additional prerequisites than those required for arbitrations under the FAA, a conflict which prevents application of the FAA. Furthermore, even if the court were to ignore the additional Convention Act requirements, Dongwon would not be entitled to arbitration because its theories under the applicable state law—California—do not provide a basis to compel arbitration. To conclude, the court noted there was “no reason to depart from the general rule” that the contractual right to compel arbitration may not be asserted by a non-party to the agreement that does not otherwise possess the right to compel arbitration. , Case No. 15-16881 (9th Cir. Nov. 30, 2017).