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    Locke Lord QuickStudy: U.S. Supreme Court holds New York Convention does not conflict with domestic estoppel ‎doctrines

    Locke Lord Publications

    International ArbitrationClick Here for PDF

    The international arbitration community has watched the case of GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC with great interest.  At issue is whether a nonsignatory to an arbitration agreement can rely on the state-law doctrine of equitable estoppel to compel arbitration of an international dispute.  On 1 June 2020, the Supreme Court held that the New York Convention does not conflict with the enforcement of arbitration agreements by nonsignatories under domestic-law equitable estoppel doctrines.  This holding is of significant importance to the international community because “[d]isputes involving nonsignatories are inevitable in the context of modern international business transactions that typically involve complex webs of interwoven agreements, multilayered legal obligations and the interposition of numerous, often related, corporate and other entities.”1

    The genesis of the dispute was the alleged failure of motors supplied by GE Energy Power Conversion France SAS, Corp. (“GE Energy”).  ThyssenKrupp Stainless USA, LLC (“ThyssenKrupp”) entered into three separate agreements with F.L. Industries, Inc. (“F.L. Industries”) for the construction of cold rolling mills.  Each contract contained an identical arbitration clause. (“Contracts”). The Contracts defined the terms “Seller” and “Parties” to include subcontractors. 

    After executing the Contracts, F.L. Industries entered into a subcontractor agreement with GE Energy, whereby GE Energy agreed to design, manufacture and supply the motors for the cold rolling mills.  Thereafter, Outokumpu acquired ownership of the ThyssenKrupp plant.

    Alleging that the motors failed, Outokumpu sued GE Energy in state court.  GE Energy removed the case to federal court under 9 U.S.C § 205 and moved to dismiss the lawsuit and compel arbitration.  The district court granted GE Energy’s motions and denied Outokumpu’s motion to remand.  The district court reasoned that while the New York Convention, “require[s] some writing to render an arbitration agreement enforceable,” the requirement was met because the terms “Seller” and “Parties” were defined to include subcontractors.2

    The Eleventh Circuit reversed, interpreting the New York Convention to include “a requirement that the parties actually signed an agreement to arbitrate their disputes in order to compel arbitration.”3  Because GE Energy was not a signatory, the court held the requirement was not satisfied. The court further held that GE Energy, as a nonsignatory, could not rely on state-law equitable estoppel doctrines to enforce the arbitration agreement because the doctrine of equitable estoppel conflicts with the New York Convention’s signatory requirement.   

    Applying familiar tools of treaty interpretation, the Supreme Court held that New York Convention does not conflict with the enforcement of arbitration agreements by nonsignatories under domestic-law estoppel doctrines.  In reaching this conclusion, 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 that Chapter 2 states that “Chapter 1 applies to actions and proceeding brought under this chapter to the extent that [Chapter 1] is not in conflict with this chapter of the Convention.”4

    The Supreme Court found nothing in the text of the Convention that could be read to prohibit the application of domestic equitable estoppel doctrines. To the contrary, the Supreme Court observed that provisions of Article II of the Convention contemplate the use of domestic doctrines to fill gaps in the Convention.

    The Supreme Court also considered the negotiation and drafting history of the Convention stating that “nothing in the drafting history suggests that the Convention sought to prevent contracting states from applying domestic law that permits nonsignatories to enforce arbitration agreements in additional circumstances.” Similarly, the Supreme Court found that post- ratification understanding of the Convention by other contracting States to the Convention, “indicates that the New York Convention does not prohibit the application of domestic law addressing the enforcement of arbitration agreements.”

    The case has now been remanded to the Eleventh Circuit to determine whether GE Energy can enforce the arbitration clauses under the principles of equitable estoppel and which law governs that determination.

     

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    1 James M. Hosking, Non-Signatories and International Arbitration in the United States: the Quest for Consent, 20 ‎ARB. INT’L 289, 289 (2004)‎.
    2 Outokumpu Stainless USA LLC v. Converteam SAS, 2017 WL 401951*4 (SD Ala., Jan. 30, 2017).‎
    3 Outokumpu Stainless USA, LLC v. Converteam SAS, 902 F. 3d 1316, 1326 (2018)‎
    4 9 U.S.C. §208. 

     

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