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.” Continue reading ›