Supreme Court Decides GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC.

Faegre Drinker Biddle & Reath LLP

On June 1, 2020, the U.S. Supreme Court decided GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, holding that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) does not conflict with domestic equitable estoppel doctrines that allow nonsignatories to enforce arbitration agreements.

ThyssenKrupp entered into contracts with F.L. Industries to build a manufacturing plant in Alabama. (Outokumpu later acquired ownership of the plant from ThyssenKrupp.) Each of the contracts contained an identical arbitration clause requiring all disputes between the parties in connection with the contract to be submitted to arbitration. F.L. Industries then entered into a subcontract with GE Energy to manufacture motors for F.L. Industries to install in the plant that F.L. Industries was building.

Outokumpu alleged that motors failed and caused damage. It sued GE Energy in federal court. GE Energy moved to dismiss the lawsuit and compel arbitration, relying on the arbitration clauses in the “main” contracts between ThyssenKrupp and F.L. Industries, even though GE Energy was not a signatory to those contracts. GE argued that it was entitled to enforce the arbitration agreements under equitable estoppel. The district court granted GE Energy’s motion to compel arbitration, but the Eleventh Circuit reversed, holding that the Convention is a multilateral treaty that focuses on international arbitration and allows enforcement of an arbitration agreement only by the parties that actually signed the agreement. Because GE Energy did not sign the arbitration agreement, it could not enforce the agreement under the Convention. The court also held that GE Energy could not rely on state-law estoppel doctrines to enforce the arbitration agreements because that would conflict with the Convention.

The Supreme Court reversed, concluding that the Convention does not conflict with domestic contract law allowing nonsignatories to an arbitration agreement to arbitrate disputes arising under that agreement. The Court observed that the Federal Arbitration Act (FAA) permits courts to apply state-law doctrines relating to the enforcement of contracts, and that the Court had in fact previously recognized that the FAA allowed nonsignatories to rely on state-law equitable estoppel doctrines to enforce an arbitration agreement. The Court concluded that nothing in the text of the Convention can be read to prohibit the application of domestic equitable estoppel doctrines—indeed, the Court observed that “[f]ar from displacing domestic law, the provisions of [the Convention] contemplate the use of domestic doctrines to fill gaps in the Convention.” And nothing in the drafting history of the Convention called for a different conclusion.

Justice Thomas delivered the opinion for a unanimous Court. Justice Sotomayor filed a concurring opinion.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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