Outokumpu Stainless USA, LLC v. Converteam SAS, 2018 U.S. App. LEXIS 24671 (11th Cir. Aug. 30, 2018)
On August 30, 2018, the Eleventh Circuit Court of Appeals reversed a lower court decision to compel arbitration between an Alabama steel plant owner and a French division of General Electric Co. The case is noteworthy because the Court settled two questions of law within the Eleventh Circuit about the interpretation of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”) and the Federal Arbitration Act (“FAA”). The first question concerned the interpretation the FAA’s grant of removal jurisdiction to the federal courts. The second concerned whether an entity could compel arbitration under the Convention despite the lack of a signed arbitration agreement.
Outokumpu Stainless, LLC (“OS”) operates a steel plant in Calver, Alabama that contains three cold rolling mills. In 2007, OS entered into three separate agreements with an entity known as Fives for the purchase of the mills. The Agreements each contained an arbitration clause which required all disputes be resolved via arbitration in Germany under the Rules of Arbitration of the ICC. The Agreements also provided that Fives, and all of its subcontractors, would be treated as one and the same under the contracts.
Fives subcontracted with GE Energy (“GE”) to produce motors for the mills. The motors were installed between 2011 and 2012. By June 2014 they began to fail.
OS sued GE in Alabama state court. GE removed the case to federal court and moved to dismiss and to compel arbitration. OS opposed and moved to remand to state court. The district court denied OS’s motion and granted GE’s motion to compel arbitration and dismiss.
On appeal, OS raised two separate, but related, arguments. First, OS argued that district court should have remanded the case because it lacked subject matter jurisdiction. Second, OS argued that the district court should not have compelled arbitration because there was no agreement to arbitrate between OS and GE.
OS’s first line of argument raised the question of whether Section 205 of the FAA afforded the lower court federal jurisdiction. Specifically, Section 205 permits the removal of an action to federal court “[w]here the subject matter of an action . . . relates to an arbitration agreement or award falling under the Convention.” The Eleventh Circuit concluded that the phrase “relates to,” in Section 205, affords the federal courts broad removal jurisdiction, stating, in part, “as long as the argument that the case ‘relates to’ the arbitration agreement is not immaterial, frivolous, or made solely to obtain jurisdiction, the relatedness requirement is met for purposes of federal subject matter jurisdiction.” As a result, the Eleventh Circuit concluded that the district court’s denial of the motion to remand was proper given that the lower court retained jurisdiction under Section 205 of the FAA.
However, on OS’s second contention concerning the substantive question of whether the parties had in fact agreed to arbitrate the dispute, the Eleventh Circuit applied a more rigorous standard. Citing prior precedent, the Court explained that a party may compel arbitration under the Convention only if, inter alia, there is an agreement in writing within the meaning of the Convention. The Court concluded there was no agreement in writing here because, for purposes of the Convention, the agreement must be signed by the parties. Accordingly, although the district court concluded that GE and OS were parties to the Agreements by virtue of the Agreements’ definition of “Seller,” GE was “undeniably not a signatory.” Instead, GE was “a stranger to the Contracts and, at most, a potential subcontractor. Private parties cannot contract around the requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration.”
Therefore, the Eleventh Circuit reversed the district court’s decision to compel arbitration and remanded the case for further proceedings.
To view the full text of the court’s decision, courtesy of Lexis®, click here.