Supreme Court Decides No Signature, No Problem

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For years the Supreme Court of the United States has been petitioned to clarify international and domestic policies surrounding international arbitration and resulting awards. Most recently, on June 1, 2020, the Supreme Court delivered a unanimous opinion regarding the relationship between domestic equitable estoppel and the enforcement of arbitration agreements. In GE Energy Power Conversion France SAS, Corp., Converteam SAS v. Outokumpufka Stainless USA, LLC, et al. (“GE Energy Power”), the Court addressed the issue of whether a nonsignatory to a contract could still have the power to compel arbitration pursuant to that contract. Writing for the Court, Justice Clarence Thomas explained that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U. S. T. 2517, T. I. A. S. No. 6997 (the “New York Convention” or “Convention”), does not conflict with domestic equitable estoppel doctrines that permit the enforcement of arbitration agreements by nonsignatories to the agreement.

The dispute in GE Energy Power was the byproduct of three contracts entered into by two companies in the steel industry, ThyssenKrupp Stainless USA, LLC (“ThyssenKrupp”) and F. L. Industries, Inc. Each of the contracts signed by the two companies contained an arbitration clause stating, “All disputes arising between both parties in connection with or in the performances of the Contract shall be submitted to arbitration for settlement,” GE Energy Power. Eventually, F. L. Industries, Inc. entered into a subcontracting agreement with GE Energy Power Conversion France SAS, Corp. (“GE Energy”), pursuant to which GE Energy designed, manufactured and supplied motors for ThyssenKrupp’s acquirer, Outokumpufka Stainless USA, LLC (“Outokumpufka”). When motors provided by GE Energy malfunctioned, Outokumpufka sued the company in Alabama State Court. GE Energy removed the case to federal court and later tried to compel arbitration by referencing the arbitration clauses in the original contracts between ThyssenKrupp and F. L. Industries, Inc. On January 21, 2020, the Supreme Court heard oral argument that grappled with the question of whether GE Energy was entitled to invoke the arbitration clauses of the original contracts despite the company not being a signatory to the contracts. As mentioned, the Supreme Court found that GE Energy had the right to compel arbitration.

To come to this conclusion the Supreme Court first examined the domestic law that was alleged to be in conflict with the Convention. The Federal Arbitration Act (“FAA”) was passed by Congress to assist with the recognition and enforcement of arbitration provisions and awards. In the instant case, the Supreme Court noted that Chapter 1 of the FAA permits courts to apply state-law doctrines related to the enforcement of arbitration agreements and Section 2 of that chapter provides that an arbitration agreement in writing shall be enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” GE Energy Power (referencing 9 U. S. C. §2) (internal quotations omitted). The Supreme Court then looked to the text of the New York Convention, a multilateral treaty that applies to the recognition and enforcement of foreign arbitral awards. The Court emphasized the fact that solely Article II of the Convention addresses arbitration agreements and that none of the Article’s three subsections address whether nonsignatories may enforce arbitration agreements under domestic doctrines such as equitable estoppel. See GE Energy Power.

In GE Energy Power, the Supreme Court rejected the argument that silence regarding the status of nonsignatories can be interpreted as meaning the nonsignatories are not parties to the contract. Instead, the Court referenced Antonin Scalia and Bryan Garner’s assertion in Reading Law: The Interpretation of Legal Texts, which stated plainly, “In general, ‘a matter not covered is to be treated as not covered,’” GE Energy Power. Additionally, the Supreme Court pointed to other nations that have adopted the Convention (“contracting states”) that have demonstrated similar understandings. The Court stated, “[T]he weight of authority from contracting states indicates that the New York Convention does not prohibit the application of domestic law addressing the enforcement of arbitration agreements. [Furthermore,] courts of numerous contracting states permit enforcement of arbitration agreements by entities who did not sign an agreement,” GE Energy Power. Consequently, the Supreme Court found that allowing nonsignatories to compel arbitration did not create conflict between the Convention and domestic laws.

As a practical matter, the outcome of GE Energy can be viewed as protection for subcontractors who may not be signatories to an original agreement, but are still effectively bound by it. The Court’s decision clarifies that under the New York Convention all parties bound by an agreement, whether signatories or not, have the same right to arbitrate their disputes.

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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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