Briefing
US Supreme Court Rules that Non-signatories May Enforce International Arbitration Agreements
On June 1, 2020, the US Supreme Court held in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC that a non-signatory to an international arbitration agreement may rely on US state-law principles of equitable estoppel to compel arbitration against a signatory to the agreement. The Supreme Court thus signaled that the US Federal Arbitration Act (FAA) does not distinguish between domestic and international arbitration agreements in this context: state-law rules on when non-signatories can compel arbitration, or be compelled to arbitrate, will likely apply to both domestic and international arbitration agreements.
Key Takeaways
- Under US law, a non-signatory may invoke state-law principles, such as equitable estoppel, to enforce an international arbitration agreement against a signatory to the agreement;
- The Supreme Court has placed the enforcement by non-signatories of arbitration agreements in international and domestic contracts on the same footing; and
- Parties to contracts with arbitration clauses should take care to consider whether non-signatories may rely on state-law principles to enforce those clauses, particularly in complex transactions involving multiple contracts and parties where the likelihood of non-signatories being involved in the performance of contracts may be higher.
Background
ThyssenKrupp Stainless USA, LLC, entered into three contracts with F.L. Industries, Inc., for the construction of cold rolling mills at ThyssenKrupp’s steel manufacturing plant in Alabama. Each contract contained an identical arbitration clause. F.L. Industries then entered into a subcontractor agreement with GE Energy Power Conversion France SAS, Corp. (GE Energy) for the provision of motors to power the cold rolling mills. After the motors allegedly failed, Outokumpu Stainless USA, LLC (which acquired ownership of the plant) and its insurers sued GE Energy in Alabama state court. GE Energy removed the case to federal court, and then moved to dismiss and compel arbitration. Although it was not a signatory to the F.L. Industries and ThyssenKrupp contracts, GE Energy relied on the arbitration clauses in the contracts.
The Supreme Court held in 2009 that Chapter 1 of the FAA permits a non-signatory to rely on state-law equitable estoppel principles to enforce an arbitration agreement in a domestic contract against a signatory to the contract where the signatory must rely on the terms of that contract in asserting its claims against the non-signatory.[1] When adopting Chapter 2 of the FAA to enact the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), the US Congress provided that Chapter 1 of the FAA shall apply to actions under Chapter 2 “to the extent that [Chapter 1] is not in conflict with this chapter or the Convention.”[2] At issue in GE was whether the state law principles permitted under Chapter 1 “conflict[ed]” with the New York Convention.[3]
After the District Court granted GE Energy’s motion to compel arbitration, the Eleventh Circuit reversed and concluded that equitable estoppel principles were inconsistent with Articles II (1)-(2) of the New York Convention.[4] Article II(1) provides that “[e]ach Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them.”[5] Article II(2) states that “[t]he term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” [6] On the basis of these Articles, the Eleventh Circuit held that only parties that “actually sign” an international arbitration agreement may compel arbitration.[7] The Eleventh Circuit’s decision was consistent with a prior decision of the US’s Ninth Circuit Court of Appeals and conflicted with decisions of a few other US Circuit Courts.[8]
The Supreme Court's Decision
In a unanimous decision authored by Justice Thomas, with a concurring opinion by Justice Sotomayor, the Supreme Court reversed the Eleventh Circuit’s decision and held that the equitable estoppel principles permitted under Chapter 1 do not “conflict” with the New York Convention. In reaching this holding, the Supreme Court determined that the language in Convention Articles II(1)-(2) on which the Eleventh Circuit relied addressed “the recognition of arbitration agreements” (i.e., that an arbitration agreement must be in “writing” to be properly formed), and “not who is bound” by an international arbitration agreement, which is addressed by Article II(3) of the Convention.[9]
Article II(3) of the New York Convention states that “[t]he court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement [to arbitrate], shall, at the request of one of the parties, refer the parties to arbitration.”[10] The Supreme Court determined that this requirement does not conflict with the equitable estoppel doctrines permitted under Chapter 1. To reach this conclusion, the Supreme Court applied standard principles of treaty interpretation. The Supreme Court observed that the text of the Convention is “silent on the issue of nonsignatory enforcement, and in general, a matter not covered is to be treated as not covered.”[11] The Court held that “[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.”[12] In further support of its decision, the Court held that the terms of Article II of the Convention, as well as the Convention’s negotiating and drafting history and the post-ratification understandings of signatory nations, “contemplate the use of domestic doctrines to fill gaps in the Convention” such as the application of domestic laws to define what types of disputes can be resolved in arbitration.[13]
Impact
The Supreme Court’s decision establishes that the New York Convention provides a “baseline” for the obligation to enforce arbitration agreements in international contracts that may be expanded by state-law principles, such as equitable estoppel, that may allow non-signatories to compel arbitration. The decision is consistent with the Supreme Court’s long-standing pro-arbitration jurisprudence. The Supreme Court did not, however, provide guidance on the often difficult issue of what state law should govern whether a non-signatory may compel arbitration with a signatory—the law of the contract, forum, seat of arbitration or another set of laws.
Whether a non-signatory may compel arbitration is particularly important in construction projects, such as the one at issue in GE, and other complex transactions that may involve several related contracts and sub-contracts where not all parties involved are signatories to the same contracts. In these circumstances, signatories should give careful thought to what a potential dispute will look like, and which parties are covered by the arbitration clause in each contract.
1. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631–32, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009) (recognizing that arbitration agreements in domestic contracts may be enforced by non-signatories through “traditional principles of state law,” including “assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel”).
2. 9 U.S.C.A. § 208.
3. GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 590 U.S. __, No. 18-1048, 2020 WL 2814297, at *5 (2020).
4. See Outokumpu Stainless USA, LLC v. Converteam SAS, 902 F.3d 1316, 1326–27 (11th Cir. 2018).
5. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article II(1).
6. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article II(2) (emphasis added).
7. Outokumpu Stainless USA, LLC v. Converteam SAS, 902 F.3d 1316, 1326 (11th Cir. 2018).
8. The Ninth and Eleventh Circuit Courts of Appeals had denied a non-signatory’s ability to compel arbitration against a signatory to an arbitration agreement under the New York Convention. See Yang v. Majestic Blue Fisheries, LLC, 876 F.3d 996 (9th Cir. 2017); Outokumpu Stainless USA, LLC v. Converteam SAS, 902 F.3d 1316 (11th Cir. 2018). The First and Fourth Circuit Courts of Appeals had allowed a non-signatory to compel arbitration under the Convention. See Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355 (4th Cir. 2012); Sourcing Unlimited, Inc. v. Asimco Int’l, Inc., 526 F.3d 38 (1st Cir. 2008).
9. GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 590 U.S. __, No. 18-1048, 2020 WL 2814297, at *7 (2020).
10. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article II(3).
11. GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 590 U.S. __, No. 18-1048, 2020 WL 2814297, at *5 (2020) (internal quotation omitted).
12. Id.
13. Id.
