January 29, 2020 Dispute Resolution Magazine

New York Convention Case Update

Lionel M. Schooler

Early in the new year, the US Supreme Court is scheduled to hear oral argument in a case that explores the scope and reach of the New York Convention. The focus this time is a controversy arising in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, v. et al. (902 F.3d 1316), and its grant of certiorari is intended to address a question that has split the circuits: whether the New York Convention permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel, even if the parties do not have a written agreement to arbitrate.

The dispute in question arose over the failure of equipment to perform as promised. GE Energy is a French company that manufactured motors for delivery to respondent Outokumpu Stainless USA, the operator of a steel plant in Alabama. Outokumpu installed the motors in its plant, but they failed.

Outokumpu eventually sued GE Energy over this failure in state court. GE Energy removed   the case to federal court and filed a motion to compel arbitration. While there was an arbitration agreement between Outokumpu and its customer, there was no such written agreement with GE Energy; as a subcontractor, GE Energy did not have a direct contractual relationship with Outokumpu. 

GE Energy sought to support its right to compel arbitration on the arbitration clause that existed between Outokumpu and its general contractor. It argued that Outokumpu was “equitably estopped” from avoiding arbitration because it had signed an agreement containing an arbitration clause and because the dispute at issue was alleged to be within the scope of that clause since Outokumpu’s claim “arose out of” the agreement.  

In considering the matter, the Eleventh Circuit reversed the District Court’s judgment granting the motion to compel arbitration. The court broadly stated that the convention requires that to be enforceable, an arbitration agreement must be signed by the parties before the court. It based its holding upon the wording of Article II(2) of the Convention which states that “Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any difference which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.”

At the Supreme Court, GE Energy has challenged the Eleventh Circuit’s holding on the basis that such a reading of the convention is illegitimate and would categorically bar enforcement of international arbitration agreements by or against non-signatories in all circumstances. GE Energy pointed out to the Court its prior ruling in Arthur Andersen LLP et al. v. Carlisle et al. ( 556 U.S. 624, 631), which rejected a ban on non-signatory arbitration in domestic cases. In Arthur Andersen, the Court ruled that non-signatories may enforce or be bound by domestic arbitration agreements under Chapter 1 of the Federal Arbitration Act where “traditional principles of state law allow a contract to be enforced by or against nonparties to the contract.” 

The ruling in this case is expected to have significant impact on international arbitration. Companies engaged in international commercial transactions often participate in transactions that involve performance by entities that are not actual signatories to the contract, such as sureties, subcontractors, lenders, and third-party beneficiaries.

The solicitor general of the United States submitted an amicus brief supporting the position of GE Energy, contending that the New York Convention does not categorically prohibit a non-signatory to an arbitration agreement from compelling arbitration based on the application of domestic-law contract and agency principles, such as equitable estoppel. The solicitor general also requested and was granted permission to participate in oral argument. The case is set for oral argument on January 21, 2020.

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Lionel M. Schooler

Lionel M. Schooler is a partner at JacksonWalker in Houston, Texas, and a member of the Dispute Resolution Magazine editorial board. He can be reached at lschooler@jw.com