U.S. Supreme Court Decides Major International Arbitration Case

June 2, 2020 | Insights



By Lionel Schooler

Introduction

For the first time in six years, the U.S. Supreme Court focused its attention upon the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, commonly referred to as the “New York Convention,” to decide an unresolved procedural question in international arbitration disputes: May a domestic court allow a non-signatory to seek to compel a signatory to arbitrate a dispute arising under the applicable agreement? In a much-anticipated decision handed down on June 1 in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, the Court evaluated the terms of the Convention and its application in domestic courts, and decided that the answer was “yes.”

Factual Background

The case arose as the result of a construction dispute. A manufacturer entered into three agreements for the purpose of constructing “cold rolling mills” at its plant in Alabama. Each of these three contracts contained an arbitration clause.

One of the contractors entered into a subcontract with GE Energy to provide motors to power the mills. GE Energy was not a signatory of any of those three agreements. The owner then sold the facility to Outokumpu Stainless USA.

The rolling mills allegedly failed, and Outokumpu Stainless sued GE Energy in an Alabama state court over this failure. After removing the case to federal court, pursuant to the New York Convention (9 U.S.C. §205), GE Energy sought to compel arbitration of the dispute on the basis of the arbitration clauses in the contracts, even though it had been a party to, nor had signed, any of these contracts.

GE Energy’s attempt to compel arbitration was premised on the doctrine that a signatory to a written agreement is “equitably estopped” from blocking an effort by a non-signatory to compel arbitration (pursuant to the agreement) when its claim against the non- signatory must rely upon the terms of that same agreement. This doctrine has long been recognized as viably used in domestic arbitrations.

Ruling by the Lower Court

The United States Court of Appeals for the Eleventh Circuit rejected GE Energy’s effort to invoke arbitration. It ruled that the New York Convention only permits a party to an arbitration agreement to invoke the arbitral process, a status which GE Energy lacked as a non-signatory. In doing so, the Eleventh Circuit held that GE Energy could not rely upon so-called equitable estoppel principles of Alabama law to override the N.Y. Convention’s signatory requirement.

Supreme Court Review

The Supreme Court granted certiorari and unanimously reversed the Eleventh Circuit’s ruling. The Court held that the N.Y. Convention does not conflict with nor bar application of domestic equitable estoppel doctrines relating to enforcement of the right to compel arbitration by non-signatories.

The Court noted, first, that in domestic arbitrations, the Federal Arbitration Act (FAA) does not bar the application of underlying state contract law principles which include doctrines, like equitable estoppel, authorizing contract enforcement by a non-signatory.

Turning to a consideration of the N.Y. Convention, which the Court characterized as a “multilateral treaty addressing international arbitration,” the Court noted that ordinary tools of treaty interpretation governed the scope of the Convention. Applying such tools, the Court held that the state law equitable estoppel doctrine of the FAA does not conflict with §208 of the Convention.

Indeed, the Court stated that the Convention does not address at all the potential role of a non-signatory in attempting to enforce an arbitration agreement. It construed this “silence” to support use of the doctrine in an international arbitration case, given that nothing in the Convention’s text excludes such a doctrine nor displaces application of domestic doctrines.

Result of the Decision

On this basis, the Court remanded the case to the Eleventh Circuit to address whether GE Energy could enforce the arbitration clauses under equitable estoppel principles, as well as which body of law would support that determination.

Conclusion

This decision marks the first foray of the Supreme Court into a consideration of whether domestic contractual law principles frequently invoked in domestic arbitrations can correspondingly be applied in international cases. The Court unanimously supported such an application, empowering non-signatories in appropriate circumstances to take advantage of the arbitral process to resolve complex international construction and business disputes.


Meet Lonnie

Lionel M. Schooler is a management-side employment lawyer and recognized authority on employment law, federal appellate practice, and arbitration. Lonnie’s employment practice focuses on counseling clients and litigating, on a nationwide basis, claims under all employment laws, wage and hour claims, and investigations by the Equal Employment Opportunity Commission, the U.S. Department of Labor, and the Texas Workforce Commission. Lonnie is also experienced as an arbitrator on the Commercial and Employment Panels of the American Arbitration Association and as an advocate. He was selected for inclusion by the National Association of Distinguished Neutrals and is certified as a Fellow of the Chartered Institute of Arbitrators for international arbitration matters. Since 2017, Lonnie has served on the Board of Directors of the Houston Bar Association. His previous editorial experience includes serving as editor-in-chief of The Houston Lawyer, a bimonthly publication of the Houston Bar Association.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.