The Supreme Court decides that GE Energy Power Conversion France SAS c. Outokumpu Stainless USA, LLC. | Faegre Biddle & Reath LLP

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On June 1, 2020, the United States Supreme Court decided GE Energy Power Conversion France SAS c. Outokumpu Stainless USA, LLC, believing that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) does not conflict with national doctrines of fair estoppel which allow non-signatories to enforce arbitration agreements.

ThyssenKrupp has signed contracts with F.L. Industries to build a manufacturing plant in Alabama. (Outokumpu subsequently acquired ownership of the factory from ThyssenKrupp.) Each of the contracts contained an identical arbitration clause requiring that all disputes between the parties regarding the contract be submitted to arbitration. F.L. Industries then entered into a subcontract with GE Energy for the manufacture of motors for F.L. Industries to be installed in the factory that F.L. Industries were under construction.

Outokumpu alleged that the engines failed and caused damage. He sued GE Energy in federal court. GE Energy proposed to dismiss the lawsuit and compel the arbitration, relying on the arbitration clauses in the “main” contracts between ThyssenKrupp and F.L. Industries, even though GE Energy was not a signatory to these contracts. GE argued that it was entitled to perform the arbitration agreements on a fair estoppel. The District Court allowed GE Energy’s request to compel the arbitration, but the eleventh circuit was reversed, holding that the Convention is a multilateral treaty that focuses on international arbitration and does not allow enforcement of an arbitration agreement only by the parties who actually signed the agreement. Since GE Energy did not sign the arbitration agreement, it was unable to enforce the agreement under the Agreement. The court also ruled that GE Energy could not rely on the estoppel principles of state law to apply the arbitration agreements, as this would be contrary to the Convention.

The Supreme Court overturned the decision, concluding that the Convention does not conflict with domestic contract law authorizing non-signatories to an arbitration agreement to arbitrate disputes arising out of that agreement. The Court noted that the Federal Arbitration Act (FAA) authorizes the courts to apply state law doctrines relating to the performance of contracts, and has in fact already recognized that the FAA authorizes non-signatories to s ” use fair estoppel doctrines to apply an arbitration agreement. The Court concluded that nothing in the text of the Convention could be interpreted as prohibiting the application of national doctrine of just estoppel – indeed, the Court observed that “[f]deviate from domestic law, the provisions of the [the Convention] consider using national doctrines to fill the gaps in the Convention. And nothing in the history of the drafting of the Convention called for a different conclusion.

Justice Thomas delivered the opinion of a unanimous court. Sotomayor J. delivered a concurring opinion.

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