In a unanimous opinion, the U.S. Supreme Court recently ruled that allowing nonsignatories to an international arbitration agreement to compel arbitration through domestic equitable estoppel doctrines does not conflict with the signatory requirement of the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the New York Convention).
That case, GE Energy Power Conversion France SAS v Outokumpu Steamless USA, LLC, stems from a 2007 contract between a contractor and steel manufacturer for the construction of mills in the manufacturer’s steel plant. The plaintiff, an international subsidiary of the global power company, General Electric, had been subcontracted by the contractor to produce nine motors for the mills. Outokumpu Stainless USA, LLC (which acquired ownership of the plant), and its insurers sued GE Energy after the motors allegedly failed.
GE Energy moved to dismiss the case and sought to compel arbitration by enforcing the arbitration clauses in the contract between the contractor and steel manufacturer. A Federal District Court granted the motion to dismiss and compel arbitration. The Eleventh Circuit Court of Appeals reversed, holding that the New York Convention: (i) requires parties seeking to compel arbitration to be signatories of the arbitration agreement, and (ii) precludes the use of state-law doctrines of equitable estoppel to compel arbitration in conflict with the Convention’s signatory requirement. In reversing the Eleventh Circuit, the Supreme Court held that use of state law doctrines of equitable estoppel to compel arbitration by nonsignatories to an international arbitration agreement was not barred by or conflict with the New York Convention.
Before announcing its holding, the Court first analyzed the two primary authorities at issue in the case, the Federal Arbitration Act (“FAA”) and the New York Convention. The Court began it discussion by noting its previous holdings that the FAA permits a nonsignatory to rely on state-law equitable estoppel doctrines to enforce an arbitration agreement. Generally, in the arbitration context, the Court explained “equitable estoppel allows a nonsignatory to a written agreement containing an arbitration clause to compel arbitration where a signatory to the written agreement must rely on the terms of that agreement in asserting its claims against the nonsignatory.”
The Court next considered the New York Convention, which is a multilateral treaty that addresses international arbitration. The Convention, which focuses almost entirely on arbitral awards, contains only a single provision that addresses enforcement of arbitration agreements. Article II(3) is only a single sentence long and provides 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 within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” This sentence is what the Eleventh Circuit found to be the signatory requirement that limited enforcement of an arbitration agreement to only those parties that had signed it.
The Supreme Court, on the other hand, was not convinced that this single sentence implicitly contained such a limitation instead finding that the New York Convention was “simply silent on the issue of non-signatory enforcement” and that that silence was “dispositive” because “nothing in the drafting history suggests that the Convention sought to prevent contracting states from applying domestic law that prevents non-signatories to enforce arbitration agreements in additional circumstances.”
Article II(3) of the Convention, the Court pointed out, “contains no exclusionary language; it does not state that arbitration agreements shall be enforced only in the identified circumstances.” Thus, the provision “does not prevent the application of domestic laws that are more generous in enforcing arbitration agreements.” State law equitable estoppel doctrines were more generous in that they expanded the concept of “party arbitrability” (i.e. those who may enforce or are bound by a particular arbitration agreement).
The key take away from the Court’s opinion is that domestic companies who do business with international companies may be able to enforce arbitration agreements if state law permits, even if they are not signatories to that agreement.
The court’s full opinion is available here.
The alternative dispute resolution attorneys at Lubin Austermuehle have decades of experience drafting and enforcing arbitration and mediation agreements. We have litigated numerous cases before different arbitration organizations including the American Arbitration Association, Better Business Bureau, FINRA and JAMS.
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