Does the Convention on the Recognition of Enforcement of Foreign Arbitral Awards, implemented under Chapter 2 of the Federal Arbitration Act, allow a non-signatory to an arbitration agreement to invoke the equitable estoppel doctrine to compel arbitration?
This case asks the Supreme Court to consider whether the New York Convention permits a non-signatory to an international arbitration agreement to compel a signatory to arbitrate. GE Energy Power Conversion France SAS, Corp. argues that non-signatories may compel a signatory to arbitrate by invoking equitable estoppel because it is available for domestic arbitration under Chapter 1 of the Federal Arbitration Act. GE further argues that this is permissible because the Convention contemplates that countries will apply their pro-arbitration domestic laws. Outokumpu Stainless USA, LLC, et al. disagrees, arguing that the Convention’s text and structure impose a baseline writing requirement to show consent to arbitration. The Court’s decision will affect business parties’ calculation of their arbitration liabilities and how carefully they draft the scope of their arbitration agreements.
Questions as Framed for the Court by the Parties
Whether the Convention on the Recognition and Enforcement of Foreign Arbitral Awards permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel.
On November 25, 2007, Thyssenkrupp Stainless USA, LLC (now Outokumpu Stainless, USA, LLC (“Outokumpu”)), a U.S. corporation, entered into three contracts with F.L. Industries Inc. (now Fives St Corp. (“Fives”)), also a U.S. corporation, for the purchase of cold rolling mills. Outokumpu Stainless USA, LLC v. Converteam SAS at 3. These contracts identify Fives as the “Seller,” Outokumpu as the “Buyer,” and jointly as “Parties,” and provides that “Seller” includes subcontractors that Fives employ for the supply of parts of the mills unless otherwise stated. Id. These contracts require the parties to resolve disputes arising out of or relating to the contracts through consultation, failing which they should be resolved through arbitration in Germany, applying German substantive law and the International Chamber of Commerce’s Rules of Arbitration (“ICC Rules”). Id. at 4. Fives then entered into a subcontractor agreement with Converteam SAS (now GE Energy Power Conversion France (“GE”)), a French corporation, which manufactured motors required for the mills in France and installed them in Outokumpu’s manufacturing plant in Alabama by 2012. Outokumpu v. Converteam at 1322. By August 2015, all the motors that GE supplied had failed. Id.
Subsequently, Fives, GE, and a third company, DMS SA, entered into a consortium agreement, providing that all stipulations contained in the Outokumpu-Fives contracts would bind each party. Id. at 1322. This agreement required the parties to resolve amicably the disputes arising out of or relating to this agreement, or relating to the Outokumpu-Fives contracts, failing which they should be settled through arbitration in France, applying the ICC Rules. Id. at 1322–23.
On June 10, 2016, Outokumpu et al. sued GE before the Circuit Court of Mobile County in Alabama (the “state court”), alleging negligence, breach of professional design and construction warranties, breach of implied warranties, and products liability. Outokumpu v. Converteam at 5. On July 18, 2016, GE removed the suit to the United States District Court for the Southern District of Alabama Southern Division (the “District Court”) based on (i) federal subject matter jurisdiction, which allows for the removal of suits involving subject matter that “relates to” an arbitration agreement “falling under” the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “NY Convention”), and (ii) diversity jurisdiction based on Outokumpu’s joinder of foreign insurers as plaintiffs. Id. at 4–5. Outokumpu and its insurers moved to remand; GE moved to dismiss and to compel arbitration. Id. at 5. The District Court denied the motion to remand, finding removal warranted under federal subject matter jurisdiction. Id. It granted the motion to dismiss and to compel arbitration, finding, among others, that there was an arbitration agreement between Outokumpu and GE under Bautista v. Star Cruises. Id. at 8–9. The District Court determined that the arbitration clause contained in the Outokumpu-Fives contracts binds GE as a subcontractor because GE was not expressly excluded. Id. at 9.
On appeal, the United States Court of Appeals for the Eleventh Circuit (the “Eleventh Circuit”) affirmed the District Court’s denial of the motion to remand. Outokumpu v. Converteam at 1328. The Eleventh Circuit reversed and remanded the District Court’s decision to dismiss the suit and to compel arbitration, holding that there was no arbitration agreement “signed by the parties” within the meaning of the New York Convention because GE did not sign the arbitration agreement between Outokumpu and Fives. Id. at 1326–28. Accordingly, GE had no right to compel arbitration. Id. The Eleventh Circuit rejected GE’s argument that an arbitration agreement may be implied by conduct under the equitable estoppel doctrine, holding that estoppel cannot be invoked to compel arbitration of an international dispute under Chapter 2 of the Federal Arbitration Act (“FAA”), different from a case of a domestic dispute. Id. at 1326–27. GE appealed and the Supreme Court granted certiorari on June 28, 2019.
DOES THE FAA'S CHAPTER 1 INCORPORATE EQUITABLE ESTOPPEL INTO CHAPTER 2?
GE Energy notes that in 2009, the Supreme Court in Arthur Anderson LLP v. Carlisle interpreted Chapter 1, Section 2 of the FAA to allow a party seeking to enforce an arbitration agreement to invoke common-law contract principles––such as equitable estoppel––to construe the scope of the agreement. Brief for Petitioner, GE Energy at 28. GE Energy contends that Chapter 2 must permit equitable estoppel because it would further the NY Convention’s purpose of promoting arbitration by making arbitration agreements more effective. Id. at 28–29. GE Energy asserts that the NY Convention’s drafters assumed that member states would use their domestic laws to fill in the gaps in the NY Convention’s undetailed provisions. Id. at 30. This is why, GE Energy argues, the domestic law from Section 1 of the FAA should apply to this case. Id. Finally, GE Energy rejects Outokumpu’s argument that the law governing the arbitration agreement is German law, arguing that Outokumpu forfeited this argument and, if not, the question of applicable law should not be considered by the Supreme Court, but should be considered by a lower court on remand. Id.
Outokumpu counters by reading Arthur Anderson more narrowly for the proposition that Chapter 1 conditionally permits a party to invoke “estoppel [only] if the underlying state law governing the arbitration agreement allows it.” Brief for Respondent, Outokumpu Stainless USA, LLC at 10. Outokumpu notes that the Supreme Court in Arthur Anderson remanded the case to a lower court to find whether state contract law––the law governing the arbitration agreement in that case––would permit estoppel, not whether federal common law or general contract law would. Id. at 11. Outokumpu therefore urges the court to examine whether German law authorizes GE Energy to invoke equitable estoppel to compel Outokumpu to arbitrate. Id. Finally, Outokumpu contends, in any case, that the agreement here requires the arbitration to take place in Germany, and Chapter 1 does not authorize a party to compel arbitration abroad. Id. at 22–23.
THE NY CONVENTION ARTICLE II'S WRITING REQUIREMENT
GE Energy contends that the NY Convention should be understood as imposing minimum requirements when enforcing arbitration agreements while allowing countries to apply their own domestic laws where such laws would further encourage arbitration. Brief for Petitioner at 31. For support, GE Energy points to the NY Convention’s Article VII, which entitles a party seeking to enforce an arbitral award to employ a country’s more favorable enforcement regime. Id. For example, GE Energy asserts that a party may apply another country’s laws where those laws contain fewer grounds for refusing to enforce an award than the NY Convention. Id. GE Energy cites the United Nations’ UNCITRAL Commission’s 2006 Recommendation, the U.S.-based Restatement of the Law of International Commercial and Investor-State Arbitration, and two treatises in favor of applying Article VII’s principle to Article II’s writing requirement. Id. at 31, 34, 38. In particular, GE Energy notes that Article II(1) provides only that member states “shall recognize an agreement in writing,” not that they must only recognize a written agreement. Id. GE Energy also cites Article III of the NY Convention, which prohibits states from imposing “more onerous conditions or higher fees” on arbitral awards. Id. at 31–32. GE Energy argues that, just as it would not make sense to infer that the NY Convention prohibited countries from making awards easier to enforce, one should not read Article II as limiting a country’s ability to increase the efficacy of arbitration agreements. Id. at 32. Finally, GE Energy contends that Article II(2) is particularly inviting of an expansive reading, since it uses the phrase “shall include” and would accept even an unsigned arbitration agreement if it was “contained in an exchange of letters or telegrams.” Id. at 46–47. Therefore, GE Energy argues that Article II’s writing requirement should be read expansively to bind Outokumpu and employ doctrines of equitable estoppel. Id.
Outokumpu counters that GE Energy’s contention that countries are free to apply their own more pro-arbitration laws does not apply to Article II’s writing requirement. Brief for Respondent at 14. Outokumpu contends that Article VII in fact goes against GE Energy’s position because the NY Convention restricts Article VII’s applicability to arbitral awards and Article II does not contain such a clause. Id. at 17–18. Outokumpu turns to the text of Article II(3), which authorizes a court to compel arbitration in “a matter in respect of which the parties have made an agreement within the meaning of this article.” Id. at 14. Outokumpu observes that Article II(3)’s “parties” refers, as it does in Articles II(1) and (2), to the parties to the agreement, as opposed to the litigation, and that the “agreement” refers to Article II(2)’s writing requirement. Id. Outokumpu therefore concludes that, under the NY Convention, a party may compel arbitration only when that party was itself “one of the parties to the written agreement.” Id. at 16. Outokumpu also contends that Article II(2)’s use of “includes” in specifying the writing requirement is not, as GE Energy contends, open-ended, but rather is a result of a confusing English translation, and that “includes” should instead be read as “means,” as the Convention’s official French and Spanish versions state. Id. at 19–20. But even if “includes” is flexible, and encompasses e-mail, for example, Outokumpu contends it must still require at least some form of writing for a party to compel arbitration. Id. at 20–21.
DO OTHER MEMBER STATES OF THE NY CONVENTION PERMIT NON-SIGNATORIES TO COMPEL AN INTERNATIONAL ARBITRATION?
GE Energy contends that several other countries have compelled arbitration based on doctrines akin to equitable estoppel, such as agency, legal succession, group-of-companies doctrine, and third-party beneficiary theory. Id. at 40. GE Energy notes that both the Indian and the Swiss Supreme Courts have explicitly held that after a court determines that an arbitration agreement exists, the court must separately find which parties are bound by it. Brief for Petitioner at 39. GE Energy indicates that Singapore’s High Court has applied equitable estoppel in particular, even invoking U.S. court decisions for support. Id. at 40–41. GE Energy further argues that civil law countries, which do not recognize equitable estoppel, have employed doctrines similar to it, including principles of “good faith” and “abuse of right” in comparable cases. Id. at 41–42. For example, GE Energy cites a parallel case where the Swiss Supreme Court held that a non-signatory performing a contract could invoke the arbitration agreement against a signatory. Id. Therefore, GE Energy contends that the Court should follow these other countries and compel arbitration under the doctrine of equitable estoppel. Id.
Outokumpu counters that other countries generally do not permit non-signatories to invoke arbitration, and that when they do, it is typically at the later award enforcement stage. Brief for Respondent at 38. Outokumpu contends, moreover, that estoppel is limited to Anglo-American systems, and that civil law countries apply an equivalent doctrine only for “traditional estoppel,” not the equitable estoppel here. Id. at 39–40. Traditional estoppel, Outokumpu explains, depends on a false representation inducing another’s reliance, as where someone invokes an arbitration agreement but then later repudiates that agreement. Id. at 41. This form of estoppel, Outokumpu states, requires the estopped party’s consent to the arbitration. Id. By contrast, Outokumpu argues, the rationale for equitable estoppel is not consent, but a notion of fairness—a party invokes equitable estoppel in order to compel another party to arbitrate because that party has benefitted from the underlying contract, not because that party has in any way consented to arbitrate. Id. at 46–47. Outokumpu contends that the Court should prevent GE Energy from invoking this non-consent-based principle in order to respect the “fundamental principle of consent” that other countries have recognized when treating Article II. Id. at 25.
CERTAINTY AND PREDICTABILITY
The Miami International Arbitration Society (“MIAS”), in support of GE, argues that precluding non-signatories to an arbitration agreement from compelling arbitration in the United States would create uncertainty about their ability to access arbitration as a means to resolve international commercial disputes, thus making it riskier for foreign companies to conduct businesses in the United States. Brief of Amicus Curiae the Miami International Arbitration Society (“MIAS”), in Support of Petitioner at 18. Similarly, the National Association of Manufacturers (“NAM”), in support of GE, contends that allowing non-signatories to compel arbitration would assure companies that conduct international trade that they can resolve potential disputes through arbitration, thereby adding predictability in international commerce. Brief of Amicus Curiae the National Association of Manufacturers (“NAM”), in Support of Petitioner at 11. Without such stability, NAM points out that international commercial transactions and contracting would be significantly hampered. Id. at 15–16.
Professors Benjamin G. Davis and Nader M. Ibrahim (“Professor Davis”), in support of Outokumpu, assert that prohibiting non-signatories from relying on the equitable estoppel doctrine to compel companies similarly situated as Outokumpu to arbitrate would encourage business entities to contract carefully using clear and intentional language. Brief of Amici Curiae Professor Benjamin G. Davis et al. (“Professor Davis”), in Support of Respondents at 27. Public Citizen, also in support of Outokumpu, adds that expanding arbitration agreements to include non-signatories would create uncertainty as which parties are bound by the agreement. Brief of Amicus Curiae Public Citizen, in Support of Respondents at 16–17. According to Public Citizen, this uncertainty would not only affect companies involved in a transaction, but also the individual consumers who increasingly transact with those companies given today’s e-commerce era. Id. at 18-19.
NAM, in support of GE, contends that allowing non-signatories to compel arbitration would assure foreign companies that they can resolve disputes in a neutral forum with the help of arbitrators whose expertise in specific industries would ensure a fair outcome. Brief of NAM at 12, 14. NAM points out that the ability to access arbitration allows non-signatories to avoid the need to seek resolution through domestic court systems, where foreign companies may be disadvantaged due to bias in favor of domestic companies. Id. MIAS, in support of GE, argues that without the ability to enforce foreign arbitral awards in the United States, non-signatories would essentially be deprived of meaningful relief from their adversaries whose assets are in U.S. territory. Brief of MIAS at 22. According to MIAS, this is because non-signatories would be forced to litigate their disputes before domestic courts without an effective mechanism that ensures favorable rulings would be enforced when there is no ratified, multinational treaty similar to the New York Convention that enforces local court judgments. Id. at 23.
Professor Davis, in support of Outokumpu, contends that forcing companies to arbitrate commercial disputes without their consent would seriously disadvantage them. Brief of Professor Davis at 18–19. In particular, these companies would be barred from resolving their disputes through U.S. courts, and thus could not benefit from the United States’ expansive discovery procedures. Id. at 20–21. Professor Davis points out that companies forced to arbitrate would be unfairly subjected to a restrictive discovery process because prevailing international rules impose greater restrictions on document production and e-discovery in arbitration proceedings. Id. at 21–22. Professor Davis adds that forcing companies to arbitrate without consent would subject them to an arbitration governed by foreign substantive laws to which they never agreed to be bound. Id. at 19. Moreover, Professor Davis contends that precluding arbitration in this case would not be unfair to GE because GE should reasonably expect that it may be sued before U.S. courts by engaging in a transaction that has many connections to the United States. Id. at 22, 28.
PROMOTING ARBITRATION SETTLEMENTS VS. ENCOURAGING CONSENT-BASED ARBITRATION
MIAS, in support of GE, argues that limiting arbitration to parties who expressly consent to arbitrate would raise the cost of negotiating arbitration agreements, which undermines the Convention’s goal of promoting the settlement of international commercial disputes through arbitration. Brief of MIAS at 18–19. Because companies commonly delegate contractual performance to other entities, MIAS contends that requiring each of these entities to sign an agreement consenting to arbitration would undermine arbitration as an efficient method in resolving cross-border commercial disputes. Id. at 19–20. The North America Branch of the Chartered Institute of Arbitrators, also in support of GE, contends that barring non-signatories from establishing consent to arbitrate by conduct would preclude arbitration in a broad range of cases where the transactions involve entities, properties, and performance outside of the United States, thus threatening international trade. Brief of Amicus Curiae the North America Branch of the Chartered Institute of Arbitrators, in Support of Petitioner at 8–10.
Outokumpu argues that allowing non-signatories to compel arbitration other than through consent expressed in writing threatens the NY Convention’s goal of encouraging consent-based arbitration. Joint Brief of Respondents at 50–51. Professor Davis, in support of Outokumpu, argues that in cases where foreign law governs the arbitration of a dispute involving a transaction that is connected to the United States, the chair of the tribunal would likely be more familiar with foreign law than U.S. law. Brief of Professor Davis at 19–20. Thus, Professor Davis argues that parties like Outokumpu would be burdened by the additional costs needed to educate arbitrators on U.S. legal principles and policies through expert witnesses, when the NY Convention promotes arbitration as a cost-effective dispute resolution tool compared to litigation. See id. at 20
The authors would like to thank Professor John J. Barceló III for his insights.
- R. Zachary Torres-Fowler: UPDATE: GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC: U.S. Supreme Court Grants Writ of Certiorari to Decide the Question of Whether the New York Convention Permits Non-Signatories to Compel Arbitration Under the Doctrine of Equitable Estoppel, JD Supra (July 2, 2019).
- Gilbert A. Samberg: Non-Signatory to Arbitration Agreement Cannot Compel Arbitration When New York Convention Applies, National Law Review (October 23, 2018).
- Keith R. Fisher, Certiorari Grant: Nonparty Compelling Arbitration under N.Y. Convention, American Bar Association (August 1, 2019).