Non signatory third parties, the New York Convention and enforcement of arbitration agreements in the US. SCOTUS says ‘Yes, they can’.

In 2007, 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 of the contracts contained an identical arbitration clause.  F. L. Industries, Inc., then entered into a subcontractor agreement with GE Energy Power Conversion France SAS, Corp. (GE Energy), under which  GE Energy agreed to design, manufacture, and supply motors for the cold rolling mills. Between 2011 and 2012, GE Energy delivered nine motors to the Alabama plant for installation. Soon thereafter, respondent Outokumpu Stainless USA, LLC, acquired ownership of the plant from ThyssenKrupp.

According to Outokumpu, GE Energy’s motors failed by the summer of 2015, resulting in substantial damages. Outokumpu and its insurers filed suit against GE Energy in Alabama state court in 2016 and GE Energy removed the case to federal court under 9 U. S. C. §205, which authorizes the removal of an action from state to federal court if the action “relates to an arbitration agreement . . . falling under the Convention [on the Recognition and Enforcement of Foreign Arbitral Awards].” GE Energy then moved to dismiss and compel arbitration, relying on the arbitration clauses in the contracts between F. L. Industries, Inc., and ThyssenKrupp which defined the terms “Seller” and “Parties” to include subcontractors. 

The District Court granted GE Energy’s motion to dismiss and compel arbitration with Outokumpu and Sompo Japan Insurance Company of America. 

The Eleventh Circuit reversed the District as including a “requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration.” This requirement was not satisfied because “GE Energy is undeniably not a signatory to the Contracts.” It further held  that GE Energy could not rely on state-law equitable estoppel doctrines to enforce the arbitration agreement as a non signatory because, in the court’s view, equitable estoppel conflicts with the Convention’s signatory requirement. The equitable estoppel doctrine permits a non-signatory to a contract which contains an arbitration clause to rely on that arbitration clause when the signatory asserts claims that implicate the contract.

The Supreme Court first found that in cases which fall under Chapter 1 of the U.S. Federal Arbitration Act (FAA), which governs domestic and other arbitrations seated in the U.S., non-signatories may enforce arbitration clauses against signatories.

The Supreme Court then held that the only provision of the New York Convention that addresses the enforcement of arbitration agreements was Article II(3) and the nonexclusive language of that provision did not set a ceiling that tacitly precludes the use of domestic law to enforce arbitration agreements. This 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 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. Nothing in the text of the Convention “conflict[s] with” the application of domestic equitable estoppel doctrines permitted under Chapter 1 of the FAA. 9 U. S. C. §208.

The Court subsequently remanded the case to the Eleventh Circuit to decide whether applicable domestic-law equitable estoppel doctrines would permit GE Energy to compel arbitration.

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