In cases involving contracts between U.S. companies, courts frequently allow a nonsignatory to a contract to enforce an arbitration provision in the contract against a signatory when the signatory to the contract relies on the terms of that agreement in asserting its claims against the nonsignatory.  On June 1, 2020, the U.S. Supreme Court ruled unanimously that this principle — known as “equitable estoppel” — may also be applied to international contracts governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, because nothing in that Convention conflicts with the enforcement of arbitration agreements by nonsignatories under domestic law equitable estoppel doctrines.

The Supreme Court’s decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC[1] overturned a ruling of the U.S. Court of Appeals for the 11th Circuit, and resolves a split on this issue between the 11th and 9th Circuits on the one hand, and the 1st and 4th Circuits on the other.

The Supreme Court’s decision brings the enforcement of arbitration provisions in international contracts into conformity with the enforcement of such provisions in domestic contracts in regard to the potential for nonsignatories to compel a signatory to bring its claims in arbitration, rather than to litigate against the nonsignatory in court, when the conditions for equitable estoppel are met.

GE Energy concerned a company that entered into three contracts with F.L. Industries, Inc. for the construction of cold rolling mills at a steel manufacturing plant in Alabama. Each of the contracts contained an identical arbitration clause, providing for arbitration of disputes to take place in Germany in accordance with the Rules of Arbitration of the International Chamber of Commerce. After executing those agreements, F.L Industries entered into a subcontract agreement with GE Energy Power Conversion France SAS, Corp. (GE Energy) for the design, manufacture and supply of motors for the cold rolling mills. The owner of the steel plant and its insurers filed suit against GE Energy in Alabama state court, alleging that the motors it supplied failed, resulting in substantial damages.

GE Energy removed the action to federal court and then moved to dismiss and compel arbitration of the claims, relying on the arbitration clauses in the contracts between F.L. Industries and the original owner of the plant. The District Court ruled that GE Energy qualified as a party under the arbitration clauses because the contracts defined the terms “seller” and “parties” to include subcontractors and compelled arbitration.[2]

The 11th Circuit reversed, ruling that the New York Convention includes a requirement that the parties sign an actual agreement to arbitrate their disputes in order to compel arbitration.[3]  It then ruled that GE Energy could not rely on state law equitable estoppel doctrines to enforce the arbitration agreement as a nonsignatory because, in the court’s view, equitable estoppel conflicts with the New York Convention’s signatory requirement. The 11th Circuit’s ruling on equitable estoppel was consistent with an earlier 9th Circuit decision,[4] and inconsistent with decisions of the 1st and 4th Circuits.[5]

The Supreme Court reversed. In a unanimous opinion written by Justice Thomas, the court noted that it has previously ruled that the Federal Arbitration Act permits nonsignatories to rely on state law equitable estoppel doctrine to enforce an arbitration agreement. The court ruled that nothing in the New York Convention prohibits the application of domestic equitable estoppel doctrines to international contracts providing for arbitration, and that the treaty’s silence on that issue was dispositive. The court also found support for its interpretation by looking to decisions by courts of other New York Convention signatories, which it found also permitted enforcement of arbitration agreements by entities that did not sign the agreement.

Because the 11th Circuit concluded that the New York Convention prohibited enforcement by nonsignatories, it did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governed that determination. The Supreme Court remanded the case to the 11th Circuit to make those determinations.

[1] Case No. 18-1048 (June 1, 2020).

[2] Outokumpu Stainless USA LLC v. Converteam SAS, 2017 WL 401951 (S.D. Ala. Jan. 30, 2017).

[3] Outokumpu Stainless USA LLC v. Converteam SAS, 902 F.3d 1316 (11th Cir. 20218).

[4] Yang v. Majestic Blue Fisheries, LLC, 876 F.3d 996 (9th Cir. 2017).

[5] Aggarao v. MOL Ship Mgmt. Co., 675 F. 3d 355 (4th Cir. 2012); Sourcing Unlimited, Inc. v. Asimco Int’l, Inc., 526 F.3d 38 (1st Cir. 2008).