Case of the Day: Outokumpu Stainless v. Converteam

The case of the day is Outokumpu Stainless USA, LLC v. Converteam SAS (11th Cir. 2018). Outokumpu had a steel factory in Alabama. Its predecessor in interest had a contract with a firm called Fives to buy three cold rolling mills for use in the factory. The contract had an agreement to arbitrate requiring arbitration in Düsseldorf under the ICC Rules. Fives subcontracted with GE Energy Conversion France SAS to provide motors for use in the mills. The motors failed, and Outokumpu sued GE in the Alabama state court. GE removed the case to the District Court and moved to dismiss and compel arbitration. The court denied Outokumpu’s motion to remand and granted GE’s motion to compel, and Outokumpu appealed.

On the motion to remand, the question was whether the subject matter of the action “relates to” the agreement to arbitrate. The court adopted a broad view of the term, similar to the view of other circuits:

While the link between the arbitration agreement and the dispute is not boundless, the arbitration agreement need only be sufficiently related to the dispute such that it conceivably affects the outcome of the case. Thus, as long as the argument that the case “relates to” the arbitration agreement is not immaterial, frivolous, or made solely to obtain jurisdiction, the relatedness requirement is met for purposes of federal subject matter jurisdiction.

But the court properly applied a more stringent test to the substantive question of arbitrability. GE hadn’t signed the agreement to arbitrate, and indeed, at the time of the contract it was merely a potential subcontractor. The rule the court applied: only a party to an arbitration agreement or its privies can compel arbitration.

Of course the courts should generally decide whether they have jurisdiction before deciding the merits of a case. But since the jurisdictional question here depends on whether the plaintiff is merely wrong about the merits or exceptionally wrong, perhaps the court should have dealt with the issues in the other order?

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