US Supreme Court concludes that non-signatories to arbitration agreements can compel international arbitration

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R Zachary Torres-Fowler
Associate, Troutman Pepper Hamilton Sanders LLP, Philadelphia/New York
zach.torres-fowler@troutman.com

On 1 June 2020, the United States Supreme Court issued a relatively rare decision concerning the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘New York Convention’) and its relationship to US domestic legal doctrines. Specifically, in the case of GE Energy Power Conversion France SAS, Corp v. Outokumpu Stainless USA, LLC, the US Supreme Court held that a non-signatory to an international arbitration agreement may avail itself of the US legal doctrine of equitable estoppel to compel arbitration against a signatory of an arbitration agreement. In doing so, the Court clarified that the common law doctrine of equitable estoppel would apply equally to US domestic and international arbitration agreements as addressed by Chapters 1 and 2, respectively, of the US Federal Arbitration Act (FAA).

Although the case raises a relatively unique set of facts concerning a series of interrelated contracts and subcontracts, the Court’s decision is important for two distinct reasons. First, at a practical level, the decision affords parties, who regularly engage in multi-tiered international commercial arrangements like the kind seen in GE Energy, greater clarity into their ability to compel international arbitration before the US courts. Second, although the US Supreme Court’s holding could be narrowly construed, the decision signals broader support by the US judiciary for international arbitration and, more significantly, clarifies the role that US legal doctrines like equitable estoppel should play in international arbitration proceedings.

Although GE Energy received significant attention from US-based international arbitration practitioners, this article seeks to introduce the case to a broader audience located outside the US. Accordingly, as explained below, this article summarises the basic facts of the dispute, the US Supreme Court’s decision, and the key take-aways from the case.

Facts and procedural history

In 2007, ThyssenKrupp Stainless USA, LLC entered into three contracts with FL Industries, Inc for the construction of cold rolling mills at ThyssenKrupp’s steel manufacturing plant in Alabama.¹ Each of the contracts contained an arbitration clause that called for all disputes to be resolved under German law through arbitration, seated in Germany, in accordance with the International Chamber of Commerce’s Rules of Arbitration.² The agreements also provided that FL Industries, and all of its subcontractors, would be treated as one and the same under the contracts.³

FL Industries entered in subcontract agreements with GE Energy Power Conversion France SAS, Corp for the design, manufacture, and supply of motors for the cold rolling mills.⁴ The motors were delivered to the Alabama plant between 2011 and 2012, and, shortly thereafter, Outokumpu Stainless USA, LLC acquired ownership of the plant.⁵ By summer 2015, Outokumpu claims that all of the motors failed and caused Outokumpu to suffer substantial damages.⁶

Outokumpu filed suit in Alabama’s state court against GE Energy.⁷ GE Energy removed the case to US federal district court and moved to compel arbitration based on the arbitration agreement between ThyssenKrupp and FL Industries.⁸ The district court granted GE Energy’s motion to compel arbitration and dismissed the case, holding that GE Energy qualified as a ‘party’ under the arbitration clause.⁹

On appeal, the US Court of Appeals Eleventh Circuit concluded that the district court’s decision to compel arbitration was inconsistent with the New York Convention’s requirement that an agreement to arbitrate be ‘signed by the parties’.¹⁰ According to the Court of Appeals, because GE Energy had not specifically signed the arbitration agreement between ThyssenKrupp and FL Industries, GE Energy had no right to compel arbitration, notwithstanding the fact that the ThyssenKrupp–FL Industries agreement called for FL Industries and its subcontractors, including GE Energy, to be treated as one and the same.¹¹ The Eleventh Circuit reasoned that ‘[p]rivate parties […] cannot contract around the requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration’.¹²

In doing so, the Eleventh Circuit expressly rejected GE Energy’s argument that Outokumpu should be compelled to arbitrate the dispute under the doctrine of equitable estoppel.¹³ While the doctrine of equitable estoppel is conceptually broader, in the case of GE Energy, the doctrine stood for the proposition that a non-signatory (eg, GE Energy) to a written agreement that contains an arbitration clause, may compel arbitration when a signatory (eg, Outokumpu) brings a claim arising out of the agreement against the non-signatory.¹⁴ The Eleventh Circuit explained that ‘[a]lthough parties can compel arbitration through estoppel under Chapter 1 of the FAA, estoppel is only available under Chapter 1 because Chapter 1 does not expressly restrict arbitration to the specific parties to an agreement […] But the [New York] Convention imposes precisely such a restriction’.¹⁵ In other words, the Eleventh Circuit held that, while equitable estoppel was a viable basis to compel arbitration in US domestic arbitrations governed by Chapter 1 of the FAA, it was not a viable basis to compel arbitration in international arbitrations governed by Chapter 2 of the FAA and the New York Convention.

Decision

The US Supreme Court reversed the Eleventh Circuit’s ruling.¹⁶ In a unanimous decision, the Court held that the New York Convention did not conflict with the doctrine of equitable estoppel.¹⁷

In its ruling, the Court explained that ‘[t]he text of the New York Convention does not address whether nonsignatories may enforce arbitration agreements under domestic doctrines such as equitable estoppel. The Convention is simply silent on the issue of non-signatory enforcement’.¹⁸ According to the Court, ‘[t]his silence is dispositive here because nothing in the text of the Convention could be read to otherwise prohibit the application of domestic equitable estoppel doctrines’.¹⁹

The Court’s rationale hinged on its conclusion that the New York Convention was never intended to set a ceiling that would preclude the use of domestic law to enforce arbitration agreements.²⁰ Specifically, although article II(3) of the New York Convention mandates that the courts enforce written arbitration agreements, article II(3) does not restrict the courts from enforcing arbitration agreements under other circumstances.²¹ In those instances, the Court explained the New York Convention was drafted in a manner that was intended to allow domestic contract law to ‘fill gaps in the Convention’.²²

Take-aways

As alluded to above, there are two significant take-aways from the US Supreme Court’s decision.

First, GE Energy is of significance to multi-tiered commercial arrangements that rely on networks of general and subcontract/supplier agreements. In those instances, GE Energy affords certain parties greater access to international arbitration, but also enables a larger number of parties to resolve complex disputes (often multiparty disputes) through a single international arbitration rather than through multiple, potentially inconsistent, proceedings. As a result, GE Energy should be a boon to certain industries, like the construction industry, where parties rely on extensive networks for subcontract and supplier agreements to execute complex engineering projects.

Second, the decision also clarifies that US domestic law doctrines play a significant role in the resolution of international arbitration disputes. While GE Energy concerned the application of equitable estoppel, the Court’s decision seemingly makes clear that other US domestic doctrines such as assumption, piercing the corporate veil, and alter ego would apply in similar circumstances.²³ In doing so, the Court brings the US in line with other major arbitral jurisdictions concerning their interpretation of the New York Convention.

Conclusion

Future US decisions concerning the application of US domestic law doctrines to international arbitration will inevitably be decided on a case-by-case basis. However, the Court’s decision in GE Energy underscores the US judiciary’s broader support for international arbitration and should be viewed as a welcome outcome for users of international arbitration around the world.

Notes

Zachary Torres-Fowler concentrates his practice in international and domestic arbitrations involving complex construction and engineering disputes around the world.

1. GE Energy Power Conversion France SAS, Corp v Outokumpu Stainless USA, LLC, 140 SCt 1637, 1642 (2020).

2. Outokumpu Stainless USA, LLC v Coverteam SAS, 902 F3d 1316, 1321 (11th Cir 2018).

3. Ibid.

4. GE Energy, 140 SCt(see n 1 above), at 1642.

5. Ibid.

6. Ibid.

7. Ibid.

8. Ibid.

9. Outokumpu Stainless USA LLC v. Converteam SAS, No 16-00378, 2017 WL 401951, at *7 (SD Ala 30 January 2017).

10. Outokumpu Stainless(see n 2 above), at 1325-27.

11. Ibid.

12. Ibid, at 1326.

13. Ibid, at 1326-27.

14. GE Energy(n 1 above), at 1644.

15. Outokumpu Stainless(see n 2 above) at 1325.

16. See, generally, GE Energy(n 1 above), at 1637.

17. Ibid.

18. Ibid, at 1645.

19. Ibid.

20. Ibid.

21. Ibid.

22. Ibid.

23. Interestingly, and as an aside, the Court applied US domestic legal doctrines to the facts in this case notwithstanding the fact that the contract at issue was governed by German law and the arbitral seat was located in Germany. See Outokumpu Stainless USA, LLC v. Coverteam SAS, 902 F3d 1316, 1321 (11th Cir 2018).

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