Court: Court of Appeals for the Ninth Circuit; July 9, 2003; Federal Appellate Court
The federal maritime statute, originally enacted in 1792, requires that fishing agreements be 'in writing.' This requirement has evolved over time, now applicable to all types of fishing without species limitations. Under 46 U.S.C. 10601(a) and (b), a valid fishing agreement must be signed by both the vessel's master and the vessel owner to protect seamen and provide a clear, enforceable commitment regarding their compensation.
In this case, the court must address two main statutory interpretation issues: whether an agreement can be considered 'in writing' if a bonus provision is verbally explained, and if vessel masters can delegate signature authority to an agent. The appellants, Elias Flores and Jose Toledo, are part of a group of 732 crew members who signed employment contracts with American Seafoods Company (ASC) in January 2000 for work on six trawlers, five targeting pollock and one cod.
During orientation in Seattle, Cathy Udoff, an ASC official, signed the contracts on behalf of both ASC and the vessel masters, who had delegated authority to her. The contracts specified that processors would receive shares from a 'crew share pool' based on the total fish caught, with different percentages for cod (28%) and pollock (21%). Performance bonuses were also mentioned, based on evaluations that would determine the number of additional shares awarded at the season's end, with the exact shares' value being calculable only after all evaluations were completed.
Udoff outlined a forfeiture provision stipulating that bonuses would only be awarded to processors who worked the entire season, excluding those who left early. He provided a formula for calculating bonus shares but did not clearly define the relationship between the 'bonus pool' and the 'crew share pool.' The contract lacked any mention of a 'bonus pool,' stating that the value of a share in the crew share pool is determined by dividing the crew share pool total by the number of shares assigned to Crew Members at the trip's start. The crew share pool comprises 21% of the trip's value for pollock and 28% for cod. ASC believed all seamen's compensation came from the crew share pool, resulting in approximately $16.3 million in payments. The appellants contended that the contract's definition excluded bonus shares, which should be awarded in addition to the crew share pool caps. They filed suit against ASC in April 2000, claiming the contracts were not validly written as required by section 10601(a) due to oral explanations and improper signatures. They also alleged breach of contract for incorrectly funding the bonus pool and for underestimating the market price for pollock roe. ASC later provided a $2.725 million adjustment for the roe price discrepancy. The district court found ASC breached its good faith obligation in estimating roe prices but ruled that the crew suffered no damage due to the adjustment. It rejected the appellants' claims regarding the validity of the contracts under section 10601(a) but agreed that the bonus pool should be funded separately from the crew share pool, awarding approximately $1.8 million in damages and prejudgment interest.
Appellants requested attorneys' fees and litigation costs under Wash. Rev.Code. 49.48.030. The fishing agreement's choice-of-law clause specified that it would be governed solely by U.S. maritime laws and that the obligations and rights established by the agreement would not be modified by state laws. Federal maritime law does not provide for attorneys' fees. The district court ruled that seamen’s rights to attorneys' fees are vital public rights that cannot be waived by the maritime law provision and found that state law awarding attorneys' fees in wage disputes is not preempted by federal law. Consequently, the court awarded appellants $339,651 in attorneys' fees and $43,583 in litigation costs.
Appellants appealed the court's findings regarding the vessel masters' signature delegation and the oral explanation of bonus awards under section 10601(a). ASC cross-appealed, contesting the attorneys' fees award and the interpretation that the 'bonus pool' had to be funded separately from the 'crew share pool.' The court emphasized that contract interpretation is a legal question reviewed de novo, applying federal common law as dictated by the agreement's choice-of-law clause.
Under federal law, contracts must be interpreted as a whole, giving preference to reasonable interpretations and considering the plain language. The district court accurately interpreted the 'crew share' provision in relation to the entire contract, concluding that the bonus system was not fully explained and that the 'crew share' value excluded any performance bonus shares. The court clarified that the 'crew share pool' consisted solely of shares assigned to crew members present at the trip's start, while the 'bonus pool,' which was not mentioned in the contract, was discretionary and determined by ASC at the end of the season based on performance scores.
Shares could not be assigned to Crew Members at the start of a trip because the total number of bonus shares was unknown until the season concluded. ASC argued that the 'bonus pool' was part of the 'crew share pool,' citing a district court statement indicating that ASC representatives informed processors that bonus shares would be included in total assigned shares. However, the district court clarified that this statement did not imply that the two pools were merged, finding instead that the agreements did not disclose such a merger and that ASC's reports treated the shares differently. Udoff's testimony, which suggested a method for determining assigned shares, was deemed unclear and did not alter the contract's meaning. The court concluded that crew members had reason to believe the 'bonus pool' was funded separately from the 'crew share pool.' ASC's interpretation of 'shares assigned to Crew Members working at the start of the trip' was found to require significant alterations to the contract language, which clearly indicated separate funding for the pools. The district court's ruling that ASC breached the contract by not maintaining separate funding was upheld. Additionally, according to 46 U.S.C. 10601(a), a seaman’s fishing agreement must be in writing and signed by the vessel master; agreements violating these requirements are void under 46 U.S.C. 11107, allowing seamen to leave the vessel and claim the highest wage rate available.
Section 11107 establishes a statutory default to the prevailing market wage when contracts are deemed invalid. The appellants claim the contracts were invalid due to illusory bonus provisions, arguing that the discretionary nature of the bonuses allowed ASC to withhold them arbitrarily, rendering the contracts without binding promise. An illusory promise is defined as one that lacks real limitations on the promisor's freedom. The bonus constituted about one-third of the processors' pay, leading the appellants to assert that the contracts lacked substance if bonuses could be unilaterally denied.
However, the court favors interpretations that uphold contract validity. Evidence from orientation meetings indicated that the bonus distribution was based on a clear formula linked to performance ratings, ensuring all eligible processors would receive a share of the bonus pool, barring those with zero performance scores. Although ASC had discretion in conducting evaluations and assigning ratings, it was contractually obligated to distribute the bonus funds reasonably and in good faith, adhering to the duty of good faith and fair dealing inherent in contracts, particularly under federal admiralty law related to seamen's rights.
The court concluded that the promise of a discretionary bonus was not illusory, as ASC's discretion was bound by a requirement to act reasonably and in good faith. The appellants further contended that the contracts were invalid under 46 U.S.C. 10601(a) for not being "in writing." However, there is no established precedent indicating that fishing agreements require a written form if some terms are explained orally.
Section 10601(a) mandates that fishing agreements with seamen must be in writing, rendering any oral contract invalid. A master who hires a seaman without a written contract violates this law, allowing the seaman to seek remedies under 11107. The requirement for a written agreement aims to protect seamen from potential exploitation through duress or deception. In the case discussed, the written contract allowed bonuses at the discretion of ASC, and although Udoff provided an oral explanation of performance scores translating into bonus shares, it did not demonstrate any coercion or deception. The district court determined that ASC's lack of detailed written policies regarding bonus distribution did not invalidate the agreements, despite ASC being described as "careless" rather than "willful." The appellants argued that key terms regarding bonus calculation and forfeiture should have been documented, but did not claim ASC acted unreasonably. The district court remedied the situation by awarding the appellants an increase in wages, thus negating the need to void the contract or invoke 46 U.S.C. 11107, which would have significantly increased their wages. The court affirmed that federal maritime law does not necessitate exhaustive written details, provided the explanation given was not deceptive. The court's reasoning aligned with contract law principles, which allow for damages in case of misunderstanding but do not invalidate contracts unless there is awareness of a significant mistake or unconscionability. A core understanding of the agreement's terms is sufficient to determine performance and remedy.
The district court appropriately remedied the case by accepting the appellants' interpretation of the fishing contract, awarding funds accordingly. A fishing agreement containing both written and oral terms can only be voided under section 10601(a) if the oral terms were imposed through duress, coercion, or deception. The precedent set in Crowell v. United States illustrates that an agreement is not considered 'in writing' if it relies on oral terms that materially differ from the written provisions, as this deprives seamen of their expected benefits. In contrast, ASC's oral explanation of bonus provisions did not alter its obligations under the written contract, thus not violating section 10601(a).
The appellants also argued that the requirement for the vessel master to sign the fishing agreement was not met because the masters delegated signing authority to Udoff. According to the relevant version of section 10601(b), both the vessel master and owner were required to sign. The appellants contended that Udoff's signature failed to satisfy this requirement. In Harper, it was established that agreements were void if the vessel master did not sign. However, the court indicated that this does not preclude the possibility of substantial compliance or delegation, although it did not resolve whether delegation by the vessel owner or master would violate section 10601(a). The court asserts that the purpose of section 10601(a) is to protect seamen from duress, coercion, and deception, and there is no evidence that allowing a delegate to sign frustrates this intent.
Delegation by a principal to an agent does not prevent liability unless the agent agreed to be personally liable, as established in Whitney v. Wyman and Atlantic, Gulf Stevedores, Inc. v. Revelle Shipping Agency, Inc. Generally, a maritime agent acting for a disclosed principal is not liable for contracts made on behalf of the principal, as outlined in the Restatement (Second) of Agency. The principal remains bound by contracts even when signed by an agent, aligning with congressional intent to protect seamen. The vessel owner or master can delegate contract signing without violating section 10601(a).
Regarding attorneys’ fees, although the contract specified that federal maritime law governs, the district court awarded over $339,000 in fees and costs based on Washington state law, which ASC contests. Federal maritime laws do not provide for attorneys’ fees for seamen's protection and relief. In admiralty cases, courts apply federal maritime choice-of-law principles unless a contract specifies otherwise. The principles of the Restatement (Second) of Conflict of Laws guide these determinations, particularly section 187. The district court appropriately focused on subsection 187(2), as subsection 187(1) does not apply in this context.
Subsection (1) applies when a contract specifies that a particular issue is governed by the law of a chosen forum; however, in this case, the contract stated that federal maritime law governed the entire agreement, not just attorneys’ fees. Consequently, the analysis shifted to subsection (2). The district court determined that Washington law applied due to a 'strong public interest' in wages and attorneys’ fees, but this analysis is disputed. Under Restatement (Second) of Conflict of Laws, 187(2)(a), the U.S. has a substantial relationship to the parties, as their maritime employment contracts have been federally regulated for over 200 years. The appellants initiated the action based on alleged non-compliance with federal requirements, suggesting a significant federal interest in the contracts governing seamen’s wages.
Under 187(2)(b), while Washington has an interest in attorneys’ fees, there is no evidence that its interest is materially greater than that of the U.S. The historical principle that 'seamen are wards of the admiralty' underscores the federal interest. Although the seamen were hired in Washington, their diverse origins suggest that Washington's interest is not superior to that of the federal government. Thus, the choice of federal maritime law meets both criteria of section 187(2): the federal interest is substantial, and Washington's interest is not materially greater. The appellants presented three arguments against applying section 187(2), which were found unpersuasive. They claimed that section 187 is superseded by the Lauritzen v. Larsen decision, which only applies in the absence of a choice-of-law clause, making it irrelevant here. They also argued that the fishing agreement was an adhesion contract, but this assertion does not hold sufficient weight against the enforcement of the contract terms.
Courts should refrain from enforcing choice-of-law provisions in adhesion contracts if doing so would cause substantial injustice to the adherent, as noted in the Restatement. However, the case involving M/V American Queen found no evidence of employer overreach, leading to the conclusion that enforcing the contract's federal maritime law designation does not result in substantial injustice to the seamen. The appellants argue that the Restatement does not apply to choice-of-law issues between federal and state law, citing its focus on federal-state conflicts and preemption. Nevertheless, the court asserts that section 187 of the Restatement can still be relevant in analyzing a contract specifying federal law. The court determined that, under federal maritime law, attorneys' fees are not recoverable in this case, as the district court found ASC acted in good faith. Consequently, the court reversed the district court’s award of attorneys’ fees and litigation costs, affirming part of the ruling while remanding for further proceedings. Each party is responsible for its own appeal costs. Additionally, a 2002 revision combined signature provisions for vessel agreements, but this change does not impact the current dispute, and it was noted that 66 seamen have opted out, reducing the class size.
"Processors" refers to ASC employees involved in fish processing. A "scaled" number indicates a converted number from one measurement system to another, commonly used in ability tests, such as the Wechsler Adult Intelligence Scales. Relevant legal provisions state that in wage recovery actions, reasonable attorney's fees shall be awarded against the employer, as amended in 2002. Section 10601 now mandates that a written fishing agreement must be made by the owner, charterer, or managing operator of fishing vessels. The appellants claim for the first time on appeal that vessel masters' lack of contract signatures violated this section due to their unawareness of the contract terms. Generally, such new arguments are not considered on appeal; however, the record indicates vessel masters were informed about the bonus system and had communication with ASC Human Resources regarding compensation, showing they were aware of the contract terms. The legal framework is framed by the Restatement (Second) of Conflict of Laws, focusing on the federal maritime laws as applicable in this case. Although the district court's conclusion regarding attorneys' fees may stem from a desire to ensure processors are compensated fairly, the analysis confirms that federal maritime law governs the issue, and an attorneys' fee award is not permissible in this context.
