On June 1, 2020, the United States Supreme Court, in a unanimous decision by Justice Thomas, held that allowing non-signatories to an arbitration agreement to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention” or “Convention”) through domestic equitable estoppel doctrines does not conflict with the Convention’s signatory requirement. GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA LLC, et al., No. 18-1048 (June 1, 2020). The case was on appeal from the Eleventh Circuit, and was previously previewed in our weekly newsletter at the beginning of this year. The Court reversed the decision by the Eleventh Circuit, noting that the text of the Convention does not address whether parties that are not signatories may enforce arbitration agreements under domestic doctrines and holding that “nothing in the Convention’s text could be read to conflict with the application of domestic equitable estoppel doctrines.”

In 2007, a contractor and steel manufacturer entered into a contract (the “Contract”) containing an arbitration clause requiring arbitration of all disputes arising out the construction of mills in the manufacturer’s steel plant. Plaintiff, an international subsidiary of a global power company, was subcontracted by the contractor to assist in production of motors for the mills. Respondent, a company that later acquired the steel manufacturing plant, brought suit against plaintiff after the motors allegedly failed and caused substantial damages in 2015. Plaintiff sought to enforce the arbitration clauses from the Contract between the contractor and the plant’s prior owner. The District Court granted plaintiff’s motion to dismiss and compel arbitration. The Eleventh Circuit reversed, after holding that (i) the Convention requires parties to be signatories of an arbitration agreement before either can seek to compel arbitration, and (ii) state-law doctrines of equitable estoppel could not be used to compel arbitration as this would, in the Eleventh Circuit’s view, conflict with the Convention’s signatory requirement.

The Supreme Court reversed the Eleventh Circuit’s decision. The Court first noted that it has previously held that the Federal Arbitration Act (“FAA”) permits a non-signatory to rely on state-law equitable estoppel doctrines to enforce an arbitration agreement. The Court then analyzed the text of the Convention, a multilateral treaty, and held that the Convention’s own silence on this specific issue “is dispositive . . . because nothing in the text . . . could be read to otherwise prohibit the application of domestic equitable estoppel doctrines.” The Court observed that only one provision of one article addressed enforcement of arbitration agreements and it did “not prevent the application of domestic laws that are more generous in enforcing arbitration agreements” and “contain[ed] no exclusionary language.” The Court rejected respondent’s argument that the Convention’s drafting history “establishes a ‘rule of consent’ that ‘displace[s] [certain] local laws [but not others].’” The Court noted that the text of the Convention did not support respondent’s argument.

Accordingly, the Court held that the language of the Convention does not “preclude[] the use of domestic law to enforce arbitration agreements,” and confirmed that allowing a non-signatory to enforce arbitration agreements through equitable estoppel doctrines does not conflict with the Convention. The Court declined to address the merits of whether plaintiff could enforce the arbitration clauses through equitable estoppel doctrines.

Justice Sotomayor wrote a concurring opinion and emphasized that “any applicable domestic doctrines [to enforce arbitration agreements] must be rooted in the principle of consent” to arbitration, noting that such a limitation is grounded in the FAA itself.

Had the Court affirmed the Eleventh Circuit’s decision and required that the specific party seeking arbitration be an actual signatory to the agreement, it could have had a significant impact on cross-border disputes relating to existing arbitration agreements. The Court’s decision, however, confirms that non-signatory parties may be able to compel arbitration, which is of clear importance in cross-border transactions between large, corporate groups, where various subsidiaries and affiliates can be involved at various stages of performance.

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GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA LLC

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