The U.S. Supreme Court recently addressed whether a non-signatory’s attempt to compel arbitration under an international arbitration agreement using domestic doctrines of equitable estoppel is barred by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a multilateral treaty known as the New York Convention and incorporated into the Federal Arbitration Act, “FAA”, in Chapter 2 ). A unanimous Court held it is not. The Court’s opinion in GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC, No. 18-1048 (June 1, 2020) can be read here: https://www.supremecourt.gov/opinions/19pdf/18-1048_8ok0.pdf.
F.L. Industries, Inc. (FL Industries) contracted with Thyssen-Krupp Stainless USA LLC (Krupp) for the construction of rolled steel mills. The contract between FL and Krupp contained an agreement to arbitrate. General Electric Power Conversion France SAS (GE) entered into a subcontract with FL for motors. FL was then acquired by Outokumpu Stainless USA LLC (Otokumpu). The motors failed and Otokumpu sued GE in Alabama state court. GE removed the case to federal court and then moved to compel arbitration relying upon the express terms of the contract between FL and Krupp, the arbitration agreement in that contract and equitable estoppel.
The District Court granted GE’s motion to dismiss and compel arbitration, holding that GE was essentially a party to the arbitration agreement because the contract between FL and Krupp defined “Seller” and “Parties” to include subcontractors. In light of this holding, the District Court did not address GE’s equitable estoppel arguments. FL appealed.
The Eleventh Circuit reversed, interpreting the New York Convention to require parties to actually sign an agreement to arbitrate. Since GE was not a signatory to the contract between FL and Krupp, it could not enforce the agreement to arbitrate. The court also held that state law equitable estoppel theories to enforce international arbitration were unavailing to GE because they conflicted with the New York Convention’s signatory requirement. GE appealed and the U.S. Supreme Court reversed.
In reversing, the Court expanded its prior holding in Arthur Anderson LLP v. Carlisle, 556 U.S. 624 (2009) to international arbitration agreements. Arthur Anderson held that Chapter 1 of the FAA permits courts to apply traditional state law doctrines in considering the enforcement of arbitration agreements, including “third-party beneficiary theories, waiver and estoppel.” Id. at 631. In doing so, the Court focused on the fact that the New York Convention was completely silent on the issue of non-signatory enforcement. It found this silence was “dispositive” of its holding that nothing in the New York Convention prevented a court from applying domestic equitable estoppel doctrines to enforce an international arbitration agreement. The Court also noted that Article II of the New York Convention contemplates the use of domestic law to fill gaps in the treaty, as it is “not set out as a comprehensive regime that displace domestic law.”
GE Energy Power Conversion France SAS is of importance to U.S. companies doing business internationally. To the extent that a company is not a signatory to an international agreement to arbitrate, but has facts to support equitable theories of enforcement, GE Energy Power Conversion France SAS has resolved that the New York Convention is not a bar
