Trial News

A unanimous U.S. Supreme Court has ruled that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention) does not conflict with “domestic equitable estoppel doctrines that permit the enforcement of arbitration agreements by nonsignatories.” The opinion did not address whether the agreement at issue can be enforced based on equitable estoppel but held that the Convention does not prevent the doctrine from being applied. (GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA, 2020 WL 2814297 (U.S. June 1, 2020).) Following its June 11 conference, the Court also granted certiorari in Henry Schein v. Archer & White Sales (No.19-963)—an arbitration case that is returning to the Court. AAJ filed an amicus curiae brief on the merits the first time the case was before the Court (No. 17-1272).

GE Energy involves an international business dispute between corporations. In 2007, F.L. Industries agreed to construct mills at ThyssenKrupp Stainless USA’s steel manufacturing plant in Alabama. The international contracts between the companies stated that disputes would be settled through arbitration. F.L. Industries later entered a subcontractor agreement with GE Energy Power Conversion France SAS Corp. to manufacture motors for the mills. GE Energy delivered nine motors to the plant in 2011 and 2012. Shortly after these deliveries, Outokumpu Stainless USA acquired ownership of the plant from ThyssenKrupp.

Outokumpu sued GE Energy in Alabama state court in 2016, alleging the motors had failed. GE Energy removed the case to federal court and moved to dismiss and compel arbitration based on the contracts between ThyssenKrupp and F.L. Industries. The district court granted the motion, but the Eleventh Circuit reversed, ruling that the New York Convention includes a “requirement that the parties actually sign” the arbitration agreement and that this mandate bars the application of state-law equitable estoppel doctrines that might otherwise be available to nonsignatories. The Supreme Court granted certiorari in 2019 and issued its opinion on June 1.

Writing for the Court, Justice Clarence Thomas began by noting that the Federal Arbitration Act (FAA) does not affect traditional principles of state contract law such as equitable estoppel. In Arthur Anderson LLP v. Carlisle (556 U.S. 624 (2009)), the Supreme Court recognized that Chapter 1 of the FAA “permits a nonsignatory to rely on state-law equitable estoppel doctrines to enforce an arbitration agreement.”

The opinion then analyzed whether this same standard applies under Chapter 2 of the FAA, which addresses international arbitration falling under the New York Convention. The Court noted that the treaty, which the United States acceded to in 1970, focuses almost exclusively on arbitral awards with only “three provisions, each one sentence long” on arbitration agreements—and no discussion of nonsignatory enforcement. “This silence is dispositive,” the Court wrote. Because “nothing in the text of the Convention could be read to otherwise prohibit the application of domestic equitable estoppel doctrines,” there is no conflict with applying those state-law principles. 

The Court rejected Outokumpu’s argument that the New York Convention’s drafting history indicated that the treaty “establishes a ‘rule of consent’” that displaces domestic laws, finding no support in the treaty for this position. Reviewing the “postratification understanding of other contracting states”—another interpretive aid when analyzing a treaty—the Court found that “to the extent this evidence is given any weight, it confirms our interpretation of the Convention’s text.” Finally, the Court stated that because the amicus curiae brief filed by the U.S. government aligned with the Court’s analysis, it would not determine whether this brief was entitled to a certain level of deference.

The Court remanded the case for further proceedings. “Because the Court of Appeals concluded that the Convention prohibits enforcement by nonsignatories, the court did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that determination. Those questions can be addressed on remand.”

Looking ahead to the 2020 Term, the Supreme Court will again tackle arbitration, hearing Henry Schein (No. 19-963) for the second time. In the unanimous 2019 decision (No. 17-1272), the Court ruled that courts must enforce contracts that delegate the question of arbitrability to arbitrators, even if a court believes that the argument for arbitration is “wholly groundless.” The Court reversed a Fifth Circuit ruling and remanded the case for further proceedings—which have brought it full circle. The issue now before the Court is whether a “provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to