Supreme Court Holds Nonsignatories May Enforce Agreements To Arbitrate
The Supreme Court continues to weigh in on the meaning and scope of the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq, most recently in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020). In a unanimous decision, the Court held that a nonsignatory to an arbitration agreement may compel arbitration notwithstanding the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the “New York Convention.”
When the United States became party to the New York Convention in 1970, Congress enacted implementing legislation in Chapter 2 of the FAA, including language 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.” Outokumpu asked the Court to examine one such potential conflict: the application of domestic equitable estoppel doctrines that permit the enforcement of arbitration agreements by nonsignatories.
Petitioner GE Energy was a subcontractor that had supplied motors to a manufacturing plant owned by ThyssenKrupp Stainless USA, LLC. Respondent Outokumpu purchased the plant from ThyssenKrupp and, when the motors failed, filed suit against GE. GE moved to dismiss and compel arbitration, citing the arbitration clauses in the contracts between ThyssenKrupp and its contractor. The U.S. District Court for the Southern District of Alabama granted the motion, and the Eleventh Circuit reversed, holding that the Convention “require[d] that the parties actually sign an agreement” to compel arbitration and, because GE was not a signatory to ThyssenKrupp’s contract, permitting GE to compel arbitration via state-law equitable estoppel doctrines would contravene the treaty’s requirement.
In an opinion authored by Justice Thomas, the Court reversed the Eleventh Circuit, ending a circuit split on the question. The Court began with the text of the New York Convention, which is “simply silent on the issue of nonsignatory enforcement.” The Court determined that silence was “dispositive” in the absence of anything in the Convention that “could be read to otherwise prohibit the application of domestic equitable estoppel doctrines.”
The Court concluded that nothing in the Convention’s drafting history indicated that it sought to prevent members from applying traditional domestic legal principles allowing nonsignatories to enforce arbitration agreements; further, other nations have not interpreted the Convention to preclude the application of domestic law addressing arbitration enforcement. Thus, the Court held the external evidence confirmed the absence of a conflict that would prevent a nonsignatory from using the doctrine of equitable estoppel to enforce an arbitration agreement. In a concurrence, Justice Sotomayor agreed that the Convention does not categorically bar the application of domestic doctrines to permit nonsignatories to enforce arbitration agreements, but expressed that “[a]applicable domestic doctrines must be rooted in the principle of consent to arbitrate.”
Outokumpu is the latest in a recent string of Supreme Court decisions reflecting the FAA’s policy in favor of arbitration agreements. For instance, in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), the Court held in a unanimous decision that agreements to arbitrate the threshold question of arbitrability must be enforced according to their terms, rejecting the exemption under which certain courts previously had decided arbitrability disputes where the arguments in favor of arbitration were “wholly groundless.” That same term, the Court decided New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019), in which a unanimous Court held an employer was not entitled to compel arbitration where a truck driver’s agreement to drive was considered a “contract of employment” excluded from the scope of the FAA. Future terms will no doubt see the Court resolving further arbitration-related questions, reflecting the Court’s continued engagement with the arbitral process from the bench.