The U.S. Supreme Court issued a unanimous decision on June 1 in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, holding that, in some circumstances, even nonsignatories to an agreement may invoke international arbitration. The Court ruled that the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) did not prohibit the application of the U.S. doctrine of equitable estoppel to permit the enforcement of arbitration agreements by nonsignatories. In doing so, the Court clarified that the doctrine of equitable estoppel recognized under Chapter 1 of the Federal Arbitration Act (FAA) for U.S. domestic arbitrations could also be applied to international arbitration proceedings governed by Chapter 2 of the FAA.
For parties who regularly engage in multi-tiered international commercial arrangements like the kind seen in GE Energy, the ruling expands the reach of international arbitration agreements and gives those parties greater clarity into their own ability to utilize international arbitration to resolve complex disputes.
Facts and Procedural History
In 2007, ThyssenKrupp Stainless USA, LLC entered into three contracts with F.L. Industries, Inc. for the construction of cold rolling mills at ThyssenKrupp’s steel manufacturing plant in Alabama. Each of the contracts contained an arbitration clause that called for all disputes to be resolved through arbitration, seated in Germany, in accordance with the International Chamber of Commerce’s (ICC’s) Rules of Arbitration. The agreements also provided that , and all of its subcontractors, would be treated as one and the same under the contracts.
F.L. Industries entered in subcontract agreements with GE Energy Power Conversion France SAS, Corp. for the design, manufacture, and supply of motors for the cold rolling mills. The motors were delivered to the Alabama plant between 2011 and 2012, and, shortly thereafter, Outokumpu Stainless USA, LLC acquired ownership of the plant. By summer 2015, Outokumpu claims that all of the motors failed and caused Outokumpu to suffer substantial damages.
Outokumpu filed suit in Alabama state court against GE Energy. GE Energy removed the case to federal court and moved to compel arbitration based on the arbitration agreement between ThyssenKrupp and F.L. Industries. The district court granted GE Energy’s motion to compel arbitration and dismissed the case, holding that GE Energy qualified as a “party” under the arbitration clause.
On appeal, the Eleventh Circuit concluded that the district court’s decision to compel arbitration was inconsistent with the New York Convention’s requirement that an agreement to arbitrate be “signed by the parties.” According to the Court of Appeals, because GE Energy had not specifically signed the arbitration agreement between ThyssenKrupp and F.L. Industries, GE Energy had no right to compel arbitration, notwithstanding the fact that the ThyssenKrupp- F.L. Industries agreement called for F.L. Industries and its subcontractors, including GE Energy, to be treated as one and the same. The Eleventh Circuit reasoned that “[p]rivate parties cannot contract around the requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration.”
In doing so, the Eleventh Circuit expressly rejected GE Energy’s argument that Outokumpu should be compelled to arbitrate the dispute under the doctrine of equitable estoppel. In the case of GE Energy, the doctrine of equitable estoppel stands for the proposition that a nonsignatory (e.g., GE Energy) to a written agreement that contains an arbitration clause may compel arbitration when a signatory (e.g., Outokumpu) brings a claim arising out of the agreement against the nonsignatory. The Eleventh Circuit explained that “[a]lthough parties can compel arbitration through estoppel under Chapter 1 of the FAA, estoppel is only available under Chapter 1 because Chapter 1 does not expressly restrict arbitration to the specific parties to an agreement . . . . But the [New York] Convention imposes precisely such a restriction.” In other words, the Eleventh Circuit held that, while equitable estoppel was a viable basis to compel arbitration in U.S. domestic arbitrations governed by Chapter 1 of the FAA, it was not a viable basis to compel arbitration in international arbitrations governed by Chapter 2 of the FAA and the New York Convention. For an excellent discussion of this issue, see Matthew Adler, “Arbitration: Cases, Problems, and Practice,” chapter 9 (Carolina Academic Press 2017).
The U.S. Supreme Court reversed the Eleventh Circuit’s ruling. In a unanimous decision, the Court held that the New York Convention did not conflict with the doctrine of equitable estoppel.
In its ruling, the Court explained that “[t]he text of the New York Convention does not address whether nonsignatories may enforce arbitration agreements under domestic doctrines such as equitable estoppel. The Convention is simply silent on the issue of nonsignatory enforcement.” According to the Court, “[t]his silence is dispositive here because nothing in the text of the Convention could be read to otherwise prohibit the application of domestic equitable estoppel doctrines.”
The Court’s rationale hinged on its conclusion that the New York Convention was never intended to set a ceiling that would preclude the use of domestic law to enforce arbitration agreements. Specifically, although Article II(3) of the New York Convention mandates that the courts enforce written arbitration agreements, Article II(3) does not restrict the courts from a enforcing arbitration agreements under other circumstances. In those instances, the Court explained the New York Convention was drafted in a manner that was intended to allow domestic contract law to “fill gaps in the Convention.”
The Court’s decision in GE Energy reinforces the federal judiciary’s ongoing support of arbitration and is important for a wide array of international commercial agreements that rely on international arbitration to resolve disputes. In particular, GE Energy is of significance to multi-tiered commercial arrangements that rely on networks of general and subcontract/supplier agreements. In those instances, GE Energy affords certain parties greater access to international arbitration, but also enables a larger number of parties to resolve complex disputes (often multiparty disputes) through a single international arbitration rather than through multiple, potentially inconsistent, proceedings.
We’ve previously written about this case. Click the links below to read more.
Deciding Arbitrability and Arbitration Agreements: Eleventh Circuit Refines Its Interpretation of the Federal Arbitration Act and United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (November 8, 2018)
UPDATE: GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC: U.S. Supreme Court Grants Writ of Certiorari to Decide the Question of Whether the New York Convention Permits Non-Signatories to Compel Arbitration Under the Doctrine of Equitable Estoppel (July 2, 2019)