Case of the Day: GE Energy v. Outokumpu
Posted on June 8, 2020
The case of the day is GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA LLC (S. Ct. 2020). ThyssenKrupp had a contract with FL Industries for the construction of cold rolling mills at ThyssenKrupp’s steel plant in Alabama. The contract provided: “All disputes arising between both parties in connection with or in the performances of the Contract … shall be submitted to arbitration for settlement.” FL had a subcontract with GE for the design and construction of motors for the mills. Outokumpu later acquired the mills from ThyssenKrupp. It alleged that the motors had failed, and it brought an action against GE in the Alabama state court. GE removed the case to the district court and moved to compel arbitration. The Eleventh Circuit rejected GE’s argument, holding that under the New York Convention, only a signatory could be compelled to arbitrate. The question for the Supreme Court was whether the Convention displaced ordinary principles of equitable estoppel, under which a nonsignatory can compel arbitration where the signatory has to rely on the rely on the terms of the contract containing the agreement to arbitrate in order to prevail against the nonsignatory.
The Court unanimously held that the Convention is not incompatible with application of equitable estoppel to compel arbitration of disputes against a nonsignatory. Article II of the Convention does require contracting states to “recognize an agreement in writing” to arbitrate dispute, and it provides that an “agreement in writing” includes “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” Finally, it requires contracting states to refer parties to such a contract to arbitration. But as Justice Thomas noted, it says nothing about nonsignatories and nothing suggesting that contracting states are forbidden to refer nonsignatories to arbitration.
Outokumpu went on to argue that the drafting history shows that the Convention embodies a rule of consent. (It is always refreshing to see the Court acknowledge the importance of drafting history in construing treaties!) Justice Thomas was not persuaded, though the opinion does not delve into the drafting history in detail. Nevertheless, the issue of consent prompted the one concurrence, from Justice Sotomayor. Her concurrence emphasizes that arbitration is a creature of consent, which is of course right. But to the extent her concurrence can be read as critical of the holding, it seems to me it’s really critical of the idea of applying equitable estoppel in the arbitration context, i.e., critical of state law, rather than critical of the conclusion that the use of equitable estoppel is consistent with the Convention.