June 03, 2020 Practice Points

Non-Signatory Can Use Equitable Estoppel to Compel Arbitration

The U.S. Supreme Court help that the New York Convention does not require arbitration agreements to be signed by the disputing parties.

By Mark Kantor

On June 1, 2020, the U.S. Supreme Court (Justice Thomas writing) reversed a ruling by the Eleventh Circuit and unanimously held that “[t]he New York Convention does not conflict with domestic equitable estoppel doctrines that permit the enforcement of arbitration agreements by non-signatories.” GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC (Case No. 18–1048).

The Eleventh Circuit had interpreted the New York Convention to require arbitration agreements to be signed by the disputing parties and concluded that the doctrine of equitable estoppel conflicted with this signature requirement. The Supreme Court disagreed.

According to the Court, the “traditional principles of state law” that apply to domestic arbitrations under chapter 1 of the Federal Arbitration Act (FAA) include doctrines such as equitable estoppel that authorize the enforcement of a contract by a non-signatory. When the U.S. Congress added chapter 2 to the FAA to implement the New York Convention, newly added section 208 of the FAA stated that “Chapter 1 applies to actions and proceedings brought under this chapter to the extent that [Chapter 1] is not in conflict with this chapter or the Convention.” 

Therefore, said Justice Thomas, “We must determine whether the equitable estoppel doctrines permitted under Chapter 1 of the FAA . . . conflict with . . . the Convention. . . . Applying familiar tools of treaty interpretation, we conclude that they do not conflict.” The New York Convention being silent as to the availability of doctrines for non-signatories to enforce arbitration agreements, the Court held “that silence is dispositive here because nothing in the text of the Convention can be read to otherwise prohibit the application of domestic equitable estoppel doctrines.”

In keeping with prior jurisprudence, the portions of the Court’s opinion discussing the proper interpretation of the New York Convention make no mention of international law, whether customary or conventional, as a source for interpreting international treaties.

The Court’s opinion did consider “as ‘aids to its interpretation,’ the negotiation and drafting history of the treaty as well as ‘the post-ratification understanding’ of signatory nations.’” Justice Thomas saw “nothing” in the drafting history of the New York Convention “that suggests that the Convention sought to prevent contracting states from applying domestic law that permits non-signatories to enforce arbitration agreements in additional circumstances.” Further,

[i]n their discussion of [New York Convention Article II], the delegates to the Convention voiced frequent concern that courts of signatory countries . . . should not be permitted to decline enforcement of such agreements on the basis of parochial views of their desirability or in a manner that would diminish the mutually binding nature of the agreements.

Additionally, among other post-ratification matters, the “weight of authority from contracting states” indicated to the Court that the New York Convention does not prohibit the application of domestic law relating to the enforcement of arbitration agreements. “[T]o the extent this evidence is given any weight,” said the Court, “it confirms our interpretation of the Convention’s text.”

Concluding, Justice Thomas noted that the Court of Appeals had not determined whether GE Energy “could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that interpretation.” The Court remanded those questions to the Court of Appeals.

Justice Sotomayor joined the Court’s opinion “in full” but also concurred separately to emphasize that “the application of such domestic doctrines is subject to an important limitation: Any applicable domestic doctrines must be rooted in the principle of consent to arbitrate.”

In considering the impact of GE Energy v. Outokumpu, the Court grounded the availability of these non-signatory doctrines in "traditional principles of state law" under FAA chapter 1 and called for the lower courts to determine “which body of law governs that interpretation.” The Court has therefore unanimously made clear that courts (and presumably arbitrators) considering whether or not to hold a non-signatory to arbitrate must first identify the governing law and then identify and apply the elements of the relevant doctrine(s) set out by the governing law to decide the non-signatory issue. Since one of the parties in the dispute is by definition a non-signatory, finding mutual agreement to a governing law can be very hard. Applying a balancing test to identify the governing law can be even harder. And, in an international case, if that balancing test points to a foreign state with an underdeveloped body of relevant law, the difficulties may be magnified. 

Mark Kantor is a member of the College of Commercial Arbitrators in Washington, D.C.

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