Supreme Court Permits Non-signatory to Enforce International Commercial Arbitration Agreement

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.