The US Supreme Court recently permitted a party that did
not sign an arbitration agreement to enforce it in GE
Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC.
With contracts including arbitration clauses, ThyssenKrupp
hired F.L. Industries to perform construction on ThyssenKrupp’s Alabama steel
plant. F.L. Industries then subcontracted with GE Energy to provide motors for
the project. Later, ThyssenKrupp sold the plant to Outokumpu Stainless USA, LLC.
Outokumpu alleged breach by GE Energy because the motors failed. Outokumpu and
its insurers sued GE Energy in Alabama state court.
GE Energy removed the case to federal court under 9
U.S.C. § 205, which allows removal if a case “relates to an arbitration
agreement . . . falling under the Convention” on the Recognition and
Enforcement of Foreign Arbitral Awards, aka the New York Convention.
GE Energy then moved to dismiss the case and compel
arbitration, relying on the arbitration clauses in ThyssenKrupp’s contracts
with F. L. Industries. The district court granted the motion, but the Eleventh
Circuit reversed, holding that the New York Convention only requires courts to
enforce an arbitration agreement if asked to do so by the parties that actually
signed the agreement, but GE Energy (a nonsignatory) was not such a party. The
Eleventh Circuit stated: “GE Energy is undeniably not a signatory to the
Contracts . . . [p]rivate parties—here Outokumpu and Fives—cannot contract around
the Convention’s requirement that the parties actually sign an agreement
to arbitrate their disputes in order to compel arbitration. Accordingly, we
hold that, to compel arbitration, the Convention requires that the arbitration
agreement be signed by the parties before the Court or their privities.” 902
F.3d 1316, 1326 (11th Cir. 2018) (citations omitted).
The US Supreme Court rejected the Eleventh Circuit’s interpretation
of the New York Convention, and unanimously held that the Convention does not conflict
with domestic equitable estoppel doctrines that sometimes permit the
enforcement of arbitration agreements by non-signatories. The Supreme
Court held that these domestic state-law principles apply to an international
arbitration agreement under the domestic (Chapter 1) portion of the Federal
Arbitration Act because Chapter 1 applies to actions that are governed by the
Convention as long as Chapter 1 does not conflict with the Convention. The
Court concluded that Chapter 1’s allowance of equitable estoppel did not
conflict with the Convention because the Convention is silent on enforcement by
a non-signatory. A wide variety of courts have interpreted FAA Chapter 1 to
allow enforcement of arbitration agreements through various state-law principles like “assumption, piercing the
corporate veil, alter ego . . .” In Arthur Andersen LLP
v. Carlisle, the Supreme Court held Chapter 1 allows “a nonsignatory to
rely on state-law equitable estoppel doctrines to enforce an arbitration
agreement.” 556 U.S. 624, 631–32 (2009). Equitable estoppel “allows
a nonsignatory to a written agreement containing an arbitration clause to
compel arbitration where a signatory to the written agreement must rely on the
terms of that agreement in asserting its claims against the non-signatory.”
Justice Thomas’s opinion for the Court in GE Energy
reasoned that the New York Convention’s silence on these doctrines for
non-signatories to enforce arbitration agreements is dispositive because
nothing in the Convention can be read to otherwise prohibit the application of these
domestic doctrines. The Court went on to find that nothing in the Convention
suggests that it prevents contracting states from applying domestic law that
permits non-signatories to enforce arbitration agreements in additional
circumstances.
The Supreme Court remanded the issue of whether GE Energy
could enforce the arbitration clauses under principles of equitable estoppel or
which body of law governs that interpretation to the Court of Appeals.
Further commentary on this GE Energy Power case is
available in The
National Law Review, The
American Bar Association, Willamette
University College of Law, Jurist,
JD
Supra, and Lexology.
