Global Development

Resolving a split among federal appellate courts on what was an increasingly complex arbitration law issue,¹ on June 1, 2020, in GE Energy Power Conversion France SAS, Corp., fka Converteam SAS, Petitioner v. Outokumpu Stainless USA, LLC, et al. (Case No. 18-1048), the Supreme Court of the United States (the ‘Supreme Court’) ruled that state law equitable estoppel and other doctrines, which permit non-signatories to an arbitration agreement to force signatories to arbitrate disputes, do not conflict with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the ‘Convention’).

Eleventh Circuit Court reverses order compelling arbitration

ThyssenKrupp Stainless USA signed contracts with F.L. Industries to construct steel mills in Alabama. As part of these contracts, all disputes between the parties relating to the contracts were to be arbitrated. F.L. Industries hired the predecessor of GE Energy as a subcontractor to produce motors for the mills. Less than five years after installation, the motors failed, and Outokumpu, who had purchased the factory with the mills from ThyssenKrup, filed suit. Raising an equitable estoppel theory and the fact that definition of ‘Party’ in the agreement was broad enough to arguable include sub-contractors, GE Energy removed the case to federal court and sought to enforce the arbitration clause against Outokumpu. The district court held that, because the terms ‘Parties’ and ‘Seller’ included subcontractors, GE Energy was to be considered a party to the agreement, and thus could enforce the arbitration agreement against Outokumpu.

The United States Court of Appeals for the Eleventh Circuit, a federal court with appellate jurisdiction over the district courts of Alabama, Florida and Georgia, reversed, finding that the Convention requires parties to ‘actually sign an agreement to arbitrate their disputes in order to compel arbitration.’ The Eleventh Circuit held that a non-signatory could not rely on state law equitable estoppel doctrines in domestic arbitrations pursuant to the Federal Arbitration Act (‘FAA’) to compel arbitration because such doctrines conflict with the Convention’s signatory requirement. Since GE Energy did not sign the arbitration agreement, it could not enforce the agreement under the Convention.

Supreme Court unanimously holds that nothing in the New York Convention of 1958 precludes non-signatories to enforce arbitration agreements

In an unanimous opinion written by Justice Clarence Thomas, the Supreme Court reversed, finding that the Convention does not conflict with equitable estoppel doctrines. The Supreme Court supports the view that the Convention contemplates the fact that countries will apply their pro-arbitration domestic laws. In doing so, the Supreme Court resolved a split among US courts of appeals on whether Article II of that Convention precludes the enforcement of arbitration agreements by non-signatories under state law doctrines.

Article II reads:

[e]ach Contracting State [to] recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

Central to the Supreme Court’s unanimous holding was that the ‘text of the New York Convention does not address whether non-signatories may enforce arbitration agreements under domestic doctrines such as equitable estoppel’, finding the ‘silence is dispositive here…’ Instead, the Court found that the Convention ‘contemplate[s] the use of domestic doctrines to fill gaps in the Convention.’ The Supreme Court found it to be more permissive than restrictive; that is, it does not mention such non-signatory enforcement at all, and certainly makes no effort to restrict such measures, even though the drafters of the New York Convention would have been aware of them. Looking to the drafting history of the Convention and how it was implemented by signatories, the Supreme Court was unable to find anything in the drafting history to suggest an intent to stop enforcement of concepts like equitable estoppel. Rather, the Convention was meant to impose a baseline standard among signatories.

In concurring opinion, J. Sotomayor stresses non-signatory theories must be based on consent

Noting that some forms of equitable estoppel do no rely on consent, Justice Sonia Sotomayor wrote a concurring opinion emphasizing that the Federal Arbitration Act requires consent to arbitrate, and that non-signatory doctrines, including different forms of equitable estoppel, must reflect that consent to be valid.

While the Court declined to answer some questions, such as how much deference courts should give to Executive Branch opinions about treaty interpretations,² and remanded the question of whether GE Energy could compel arbitration under equitable estoppel, the Supreme Court was unmistakably clear about the fact that the New York Convention does not necessarily bar state doctrines allowing non-signatories to compel arbitration.

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