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Cruz

argued: January 7, 1991.

ERNESTO C. CRUZ, VICTORINO A. DOMINGO, ZALDY N. BANTILIAN, LEONARDO J. ESPIRITU, WILFREDO D. JEQUINTO, JUAN S. TERENCIO, SEVERIANO S. GASATAYA, JR., ROBERTO A. ALEJADO, VICENTE B. SOLANO, CESAR B. DEL ROSARIO, RENATO M. SANTIAGO, ERLITO R. VISTAR, RICHARD B. CELOSO, CIRILO R. PACHECO, ANTONIO T. TANIO-AN, ARMANDO C. EREDIANO, PASCUALITO R. AMISTOSO, ROMEO D. BARDALO, JOSE C. CONCHA, MIGUEL A. GOMEZ, JR., ROMEO B. ENRIQUEZ, JAIME M. INOVEJAS, MORENO T. JESUS, RAYMUNDO B. ARVESU, FAUSTINO T. PIEDAD, JR., RENATO O. CANAFRANCA, RICARDO D. BOBIS, ANGEL L. BONOTAN, ANTONIO V. SORIANO, CELSO A. TORNO, BENJAMIN G. PUNZALAN, RUFINO M. CASTILLO, GEORGE P. ALARCON, WILFREDO G. PASOQUIN, BEATO V. BAUTISTA, FERNANDO O. LEGAREJOS, JENNIFER M. OFELAS, ALFRED L. BRICIA, ELIODORO C. ALOJADO, FELICISIMO D. ABUBO, WILFREDO T. DELA PENA, ROMEO A. ALIMODO, JR., FERNANDO D. MABUTAS, ISABELITO J. BORJA, MAGPURI H. RAMOS, JR., RODOLFO A. FRANCISCO, MANOLITO R. GALANG, GLORETO A. AQUINO, MERVIN VILLANUEVA, DANDY D. CABALO, RONILO J. PEREZ, RODITO G. NACIONAL, JUAN C. ISLES, ARTURO M. LONTAJO, ROMEO D. DIMALANTA, DANIEL J. MACEDA, RONALD P. GAMO, JACOB QUIRANTE II, ROBERT C. ALAMAR, VINCENTE SILAN, ANTONIO O. MONTEMAYOR, ZOSIMO E. DUQUE, ELISERIO PAROHINOG, ALEX P. OBLEFIAS, ARTHUR A. NAVARRO, MAXIMILLIANO S. PARAISO, ALEXANDER A. SAN GABRIEL, MARIO LEE V. IMBONG, RENE D. AYUKIL, ROSSELER B. VERGARA, EDGAR B. VILLARANTE, JIMMY G. HARESCO, GODOFREDO C. OLIVER, JR., DANILO R. ROCO, PEDRO TIONGZON, RUBEN A. DATINGALING, TEODORO S. BERNAL, VICTORIO L. AGUILAR, MARIO S. MANOSCA, EDUARDO F. DE LOS SANTOS, JAIME N. MACATIVO, JR., ERWIN L. OYAO, MELQUIADES L. GALLOSO, JR., EFREN B. GAVINO, TIRSO R. RACZA, JR., JOSE M. SAGANA, MODESTO T. BANOGON, TEDDY C. TEFORA, HENRITO S. ALONSAGAY, LUIS J. ORTIZ, ROGELIO R. ORTIZ, CARLITO MAPRANGALA, CHARLIE T. SANSAET, ERNESTO B. JAVIER, REYNALDO A. CABACUNGAN, MANUEL D. OLIVO, ILLUMINADO M. PATAL, RAFAEL D. PEREZ, ONOFRE S. RODRIGUEZ, JR., JORGE P. DELA CRUZ, MARTIN F. CRUZ, JR., SALVADOR BALANE, ROGELIO CEREZO, SR., ROGER J. DALUMPINES, FRANCISCO P. SUELO, REYNALDO G. CADAOAS, MARCELO T. BEE, JORGE Y. VILLAROJO, NERLITO L. DE JESUS, NOEL A. DELOSO, MARION CALDERON, JR., FLORO M. BAUTISTA, JR., RUFINO CAPITLE, EMILIO A. FERNANDEZ, RICARDO G. ANTONIO, EDWARD A. MARTY, AMADOR C. ISLES, SEVERO ACUPAN, GEMSON C. BOONGALING, DANILO AGAZA ANTONIO, JOSE CASIGURAN GULLIAB, JR., CARLOS PADERNAL VILLANUEVA, JOSE LIM ABUTIN, ROBERTO BELEY ANDAYA, PEDRO B. NUNEZ, SABINO NINEL MARTINEZ, DANILO D. JAVIER, ALEJANDRO SOSA ORTEGA, RICARDO S. GUARTILLA, ROMEO L. MOLAR, ANASTACIO B. MAGSINO, EFRAIM SUAREZ, MELCHOR PINEDA, R. C. CEREZO, SR., MAXIMO P. PINEDA, ANTONIO G. GEMOTO, RIZAL O. SALEM, EDISON MAMBURAM, JERSON R. DELA CERNA, JUNIO P. DEQUITO, PACIFICO B. CATU, RUDOLFO I. TIANA, CARLITO A. BANO, REYNALDO M. CUSTODIO, REYNALDO R. BAUTISTA, MODESTO GRACIOSA, FERNANDO I. ALIVIA, LAURO A. BUENAFLOR, ELMO M. LALIC, CLAUDIO C. VARZUELO, MAXIMO G. TAPALLA, JR., BENVIENIDA BORNASAL, MERITO A. DIALINO, ALEX O. FORTUNADO, GERALDINE V. NICOLAS, HERCULANO R. GALLENTES, GERONIMO V. FRANCISCO, GERARDO L. ROA, GEORGE I. LOPEZ, DIVINA R. SAA, AMELIA T. CORDOVA. WILFREDO P. BANGCUYO, ANDELINO T. MARZAN, DANILO E. DELALUNA, IRENEO R. SARNO, RODOLFO T. DACQUEL, ELMER P. UNICA, ANTONIO M. DELOS SANTOS, DANILO T. BONITOLLO, WILLIAM CALIP, JR., GUERRERO M. OPAO, EDUARDO D. JARDIN, GIBSON P. ROBERTO, JR., VINCENTE E. FLORES, NAPOLEON ARROYO, MARIO FERMIN, FULGENCIO B. CERDENA, RONALDO C. OLARTE, ABNER C. RODRIQUEZ, DANILO R. ALBAYDA, JESUS BAYANI G. TORRES, SERGIO N. SALUDO, REYNALDO ILAO, GERARDO M. DELA CRUZ, AMADOR C. VILLACIN, NICANOR W. ARANCON, JR., LUISITO R. SALAZAR, EDUARDO A. NARCISO, MARCELO EUGENIO, NESTOR DE JESUS, MANUEL B. LIM, KENNETH V. JALLORINA, SALVADOR A. BALAGTAS, RODITO L. RUBION, ERNESTO MANALANSAN, CARLO A. ENCARNACION, DOMINGO B. BACABAC, MARIO M. CASTILLO, SEVERINO Z. SAMSON, RODRIGO L. MURILLO, NOEL A. PAPANGO, OSCAR P. VILLANUEVA, ROGER T. DEL ROSARIO, VICENTE MARINAS, SAMUEL C. ATIENZA, TEOFILO ARELLANO, CARLIE D. ALVAREZ, ALFREDO M. TALUB, RAMON M. HENSON, LEOPOLDO MERCOLITA, RAMON P. TOLENTINO, GENARO M. ANCIANO, DIODORO B. DALAGUAN, DANILO B. ESTROSOS, ANTHONY G. APOSTOL, ALFREDO S. CORCINO, JESUS PORTUGAL, JR., ASER S. SALAC, SR., ROBERT S. GEVERO, MACARIO L. ABION, CALIXTO S. APIT, GEORGE CABALUNA, SERGIO T. CALIMBAS, SERGIO T. CALUMBAS, JOSE T. INTON, ALFREDO LUCAS, CARLOS C. RAMIREZ, ROLAND L. VENTURA, APPELLANTS
v.
CHESAPEAKE SHIPPING INC.; GLENEAGLE SHIP MANAGEMENT CO., INC.; KUWAIT OIL TANKER COMPANY; KUWAIT PETROLEUM CORPORATION; KPC (U.S. HOLDINGS) INC.; SANTA FE INTERNATIONAL CORP.; NAESS SHIPPING (HOLLAND) B.V. OF AMSTERDAM



Appeal from the United States District Court for the District of Delaware; D.C. No. 89-00366.

Cowen, Alito, and Rosenn, Circuit Judges. Cowen, J., Circuit Judge, concurring. Alito, Circuit Judge, dissenting.

Author: Rosenn

Opinion ANNOUNCING THE JUDGMENT OF THE COURT

ROSENN, Circuit Judge

This appeal, arising in the context of the unanticipated juxtaposition of foreign policy decisions with domestic regulation of employee working conditions, presents the novel question of whether the temporary reflagging of former Kuwaiti oil tankers under the United States flag renders the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. ("FLSA" or "the Act"), applicable to foreign seamen employed on ships operating entirely outside the United States. In 1987, as a result of the hazards the Iran-Iraq war posed to neutral shipping operations in the Persian Gulf, eleven Kuwaiti vessels were reflagged to gain the protection of the United States. The plaintiffs, 228 Philippine seamen employed on these vessels, claim that the reflagging, which required compliance with extensive United States maritime statutes, entitled them to minimum wages and benefits under FLSA.*fn1

The United States District Court for the District of Delaware granted defendants' motion for summary judgment, holding that under choice of law principles, United States law did not apply to these seamen, or alternatively, that these seamen were not engaged "in commerce" as required by FLSA and that the vessels came under the foreign territory exemption of FLSA. Plaintiffs appealed. We affirm the judgment of the district court because Judge Cowen believes that under choice of law principles United States law did not apply to the plaintiffs and I believe that the plaintiffs were not engaged in commerce nor employed by an enterprise engaged in commerce under the terms of FLSA.

I.

A. Reflagging Requirements

By 1986, the Iran-Iraq war, which began in 1980, was threatening to disrupt neutral shipping operations in the Persian Gulf. Ironically, in light of the recent Iraqi invasion of Kuwait, Kuwait's assistance to Iraq in its war with Iran placed their shipping operations particularly at risk. The Iranian Government had intensified its efforts to intimidate Kuwait in an attempt to prevent Kuwait from supporting Iraq through financial assistance and use of its ports.

To gain the protection of the United States Navy while transporting oil and oil products in and from the Persian Gulf, Kuwait approached the United States and proposed that eleven Kuwaiti tankers be reflagged under the United States flag. The President, after consulting with the Secretary of Defense, the Secretary of State, and the National Security Advisor, granted Kuwait's request. Kuwaiti Tankers: Hearings before the House Committee on Merchant Marine and Fisheries, 100th Cong., 1st Sess., 40 (1987) (hereinafter Hearings).

Three issues arose with regard to the reflagging: compliance with United States maritime laws requiring American ownership, adherence to safety regulations, and fulfillment of manning requirements. Congress required that American-flag vessels be owned by an entity such as

a corporation established under the laws of the United States or of a State, whose president or other chief executive officer and chairman of its board of directors are citizens of the United States and no more of its directors are noncitizens than a minority of the number necessary to constitute a quorum . . . .

42 U.S.C. § 12102. Upon reflagging, the law required that ownership of the vessels be transferred to a United States entity. The defendant, Chesapeake Shipping Inc., was chartered on May 15, 1987, under the laws of Delaware for the specific purpose of satisfying this statutory requirement.

United States maritime laws also required that the reflagged tankers be brought into compliance with marine safety laws and regulations. The Coast Guard granted a one-year grace period to comply with Coast Guard safety regulations and a two-year grace period to meet dry-docking requirements.

Finally, 46 U.S.C. § 8103 compelled that the reflagged vessels satisfy certain manning requirements. Section 8103 required that the ship's master and radio officers be United States citizens. Presently, section 8103(b)(1) also requires that each unlicensed seaman be a United States citizen or an alien lawfully admitted to the United States for permanent residence with a limitation of twenty-five percent placed on the number of aliens. However, at the time the Kuwaiti tankers were reflagged, section 8103(b) permitted "the use of non-United States citizen crew members while each vessel is engaged on a foreign voyage and does not call at a United States port."*fn2

Pursuant to this foreign-to-foreign port exception to the manning requirements and the agreement between Kuwait and the United States that the reflagged tankers would not call at United States ports, the vessels were permitted to retain their crew of unlicensed seamen recruited in the Philippines and could replace those seamen with other foreign nationals. These Philippine crewmen are the plaintiff-appellants in this action who claim that they are entitled to the minimum wages and benefits provided by FLSA.

B. The Plaintiffs

Plaintiffs consist of 228 Philippine seamen who were crewmembers of the eleven Kuwaiti tankers during the time that the vessels were reflagged under the United States flag. All 228 are Philippine citizens and residents. They came from the Philippines to the Persian Gulf, signed on vessels there, and served tours of duty of several months. Upon completion of their tours of duty, the seamen were flown back to the Philippines. None have ever entered the United States.

The seamen were hired through the efforts of Naess Shipping B.V. of Amsterdam ("Naess").*fn3 Naess, a crewing contractor, is a Netherlands corporation. The Philippine government required Naess to negotiate with the Philippine Overseas Employment Administration ("POEA"), an agency of the Philippines Ministry of Labor and Employment, in hiring the Philippine seamen. Under Philippine law, no foreign employer may hire Philippine workers for overseas employment except through the POEA.

The Philippine government established the POEA to promote and develop overseas employment opportunities and to afford protection to Philippine workers and their families. The POEA has promulgated extensive rules and regulations controlling overseas employment to accomplish these objectives. It registers seamen seeking jobs, prescribes standard employment contracts for them, approves their wages, and requires that 80% of their earnings be sent home. The POEA regulates advertisement and placement, contract processing and travel documentation, the filing of grievances, and provides worker assistance and welfare services.

Naess and the Associated Marine Officers & Seamen's Union of the Pacific, a Philippine labor union, negotiated the plaintiffs' wages. The POEA verified and approved the individual contracts. The contracts also required the POEA's prior approval of any alterations or changes in the contract and that all rights and obligations of the parties to the contract would be governed by the laws of the Republic of the Philippines, international conventions, treaties and covenants wherein the Philippines is a signatory. The labor contract for these Philippine seamen granted POEA "original and exclusive jurisdiction over any and all disputes or controversies arising out of" the contract and that all claims would be exclusively resolved through the established grievance procedure, the POEA, and the Philippine Court of Justice, in that order.

C. The Defendants

The defendants consist of a number of corporations involved in the ownership and management of the eleven vessels. Three American corporations were named as defendants: Chesapeake Shipping Inc. ("Chesapeake"); Gleneagle Ship Management Company, Inc. ("Gleneagle"); and Santa Fe International Corporation ("Santa Fe"). Two Kuwaiti corporations are also defendants: Kuwait Oil Tanker Company ("KOTC") and Kuwait Petroleum Corporation ("KPC"). (See appendix A for Organizational Chart).

KPC, a corporation which is wholly owned by the Kuwaiti Government, is at the apex of the corporate structure. It wholly owns both KOTC and Santa Fe.*fn4 KOTC, in turn, wholly owns Chesapeake. Gleneagle is a completely independent corporation.

Prior to the reflagging, KOTC owned the eleven vessels. As stated above, KOTC, to satisfy the United States ownership requirement, created Chesapeake as its wholly owned subsidiary. In consideration for all of Chesapeake's stock, KOTC transferred title to the eleven vessels to Chesapeake. Upon transfer of the title of the eleven tankers to Chesapeake, Chesapeake immediately time-chartered them back to KOTC. KOTC, in turn, time-chartered at least one of the tankers to KPC.

Chesapeake also chartered an American flagged and crewed vessel named the Ocean Wizard (later replaced by the Ocean Runner) from Belmont VLCC, Inc. for the transport of petroleum and petroleum products in the Persian Gulf. By chartering these vessels, Chesapeake insured that even if American "legislative problems" forced it to deflag its eleven tankers, it would "retain U.S. naval presence with the 'Ocean Wizard' on the basis of that vessel being on a shuttle between Kuwait and Khor Fakkan." This vessel engaged in the same trading patterns as the eleven reflagged vessels.

As required by law, a majority of Chesapeake's officers and directors were United States citizens. Most of Chesapeake's officers and directors were also officers of defendant Santa Fe, the Delaware corporation acquired by KPC in 1983. The rest of Chesapeake's officers and directors were also officers and directors of KOTC.

Santa Fe entered into a management service agreement with Chesapeake, under which Santa Fe contracted to perform administrative, accounting, and professional services for Chesapeake. Santa Fe also prepared Chesapeake's United States tax returns and oversaw the vessels' compliance with our maritime laws.

KOTC also entered into a management services agreement with Chesapeake. Pursuant to the agreement, KOTC undertook to provide certain "principal services" including legal services regarding observation of United States laws, e.g., maritime, corporate and labor, for which it, like Santa Fe, would receive a $6,000 monthly fee and reimbursement of expenses.

Gleneagle, another Delaware, but wholly independent, corporation, also contracted with Chesapeake to manage the reflagged vessels. It is the American affiliate of a worldwide vessel management group and has the approval of the Maritime Administration of the United States Coast Guard to manage any American-flag vessel. Gleneagle assumed the responsibility of providing the required American masters and radio officers and arranged for their hire, transportation, and payment. The management agreement also delegated other responsibilities to Gleneagle, such as providing supplies, fuel, victuals, repairs, customs entry and exit clearances, insurance, and crew members, but by a co-terminous sub-management agreement, Gleneagle re-delegated these functions to KOTC. KOTC continued to recruit Philippine seamen through the same manning agents it had previously used, including principally Naess.

To facilitate the duties assumed by KOTC directly from Chesapeake and indirectly from its sub-management agreement with Gleneagle, KOTC set up a "field office" in Paramus, New Jersey. KOTC rented this space from A.B.S. Worldwide Technical Services ("Abstech"). In connection with the mandated safety and docking modifications, between January 1988 and 1989, KOTC purchased $3,907,356 in supplies and equipment from United States suppliers which were delivered to points outside the United States. KOTC charged Chesapeake for all the expenses it incurred from these activities.

D. The Shipping Operations

Following their reflagging, the eleven vessels continued to operate uninterruptedly in their former shipping routes under the protection of a United States Navy escort in the carriage of petroleum and its products between the Persian Gulf and Europe, the Mediterranean and the Far East. The vessels maintained telecommunications with Santa Fe in California and Gleneagle in Texas through a satellite communication system administered by Inmarsat and its American company, Comsat. Chesapeake paid for these services.

None of the reflagged vessels ever called at a United States port pursuant to the Kuwait-United States agreement. Because these vessels were granted temporary waivers from drydocking and safety requirements, the condition of no American port call was imposed to avoid "skew[ing]" or "having an adverse impact on the marketplace." Hearings at 87-88. However, during August of 1989, $2,811,444 of cargo from one of the vessels was transhipped to American oil companies in the United States.

In the spring of 1989, KOTC repurchased six of the reflagged vessels and documented them as Kuwaiti vessels. The foreign crews of the five vessels that retained their United States registry were replaced with American seamen in all licensed and unlicensed positions.

II.

The district court granted defendants' motion for summary judgment based on three grounds. First, the court held that under a choice of laws analysis, American law did not apply and the plaintiffs had alleged only a violation of American law. Second, the court held that FLSA did not apply to these seamen because they were not engaged in commerce, nor did the defendants constitute an enterprise engaged in commerce. Finally, the court held that the Philippine seamen were not entitled to the protection because they came under the foreign workplace exception found in section 213(f) of FLSA.

Under Fed. R. Civ. P. 56, summary judgment can be granted only if is shown that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The facts must be viewed in the light most favorable to the party opposing the motion. Bechtel v. Robinson, 886 F.2d 644, 647 (3rd Cir. 1989). This court is required to apply the same test the district court should have used initially. Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3rd Cir. 1976), cert. denied, 429 U.S. 1038, 97 S. Ct. 732, 50 L. Ed. 2d 748 (1977). In ...


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