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US Supreme Court to rule on non-signatories

02 July 2019

US Supreme Court to rule on non-signatories

Credit: istock.com/Photonavor

The US Supreme Court has agreed to hear an appeal by a French subsidiary of General Electric over whether the New York Convention permits a non-signatory to an arbitration agreement to compel arbitration under the doctrine of equitable estoppel.

On 28 June, the court said it would hear the appeal by GE Energy Power Conversion France over an Eleventh Circuit decision from August last year, which barred the company from compelling ICC arbitration of a dispute with a US subsidiary of Finnish stainless steel group Outokumpu.

The Eleventh Circuit found that, as a subcontractor of a seller that had entered into an arbitration agreement with Outokumpu, the GE unit could not compel arbitration under that agreement because the New York Convention requires that it be “signed by the parties”.

GE Energy is using Jones Day for the Supreme Court proceedings. Outokumpu is represented by Burr & Forman and its insurers by Clausen Miller.

The dispute relates to the construction of a steel plant in Calvert, Alabama, which the Outokumpu unit operates. In 2007, Outokumpu’s predecessor entered into three contracts with French engineering group Fives to purchase cold rolling mills (CRMs) used for manufacturing and processing steel products. The contracts provided for ICC arbitration seated in Düsseldorf, with the substantive law of Germany applying.

Those contracts defined Outokumpu as “buyer” and Fives as “seller” and referred to buyer and seller collectively as “parties”. They also provided that the term “seller” should be understood as “subcontractors included” unless stated otherwise. GE Energy was named on a list of “preferred” subcontractors appended to each contract.

Fives later subcontracted with GE Energy to supply nine motors needed for the CRMs, but in 2015 Outokumpu said that all nine motors began “failing catastrophically”. 

Outokumpu and its insurers filed a lawsuit against GE Energy in 2016 in a state court in Alabama, but the case was removed to the federal courts. In the following year, the US District Court for the Southern District of Alabama granted the motion to compel arbitration, finding that there was an “agreement in writing” between Outokumpu and GE Energy, as Outokumpu had signed the contracts and GE Energy as subcontractor was not expressly excluded from the arbitration provision.

On appeal, the Eleventh Circuit overturned that decision – finding that private parties cannot contract around the New York Convention’s requirement that an arbitration agreement is “signed by the parties”.

That ruling has attracted criticism. In a blog post, US arbitrator Marc Goldstein said that the decision had created new “uncertainty” about non-signatories and was “at odds with what was decided, or assumed, in the decisions of other federal appeals courts over the last 20 years” – concluding that the case is “one to be watched, and worried over”.

In a February petition to the Supreme Court, the GE unit said that the Eleventh Circuit’s decision “has cemented what is now a 2-to-2 split” among federal appeal courts as to whether the Convention allows a non-signatory to compel arbitration.

GE Energy observed that, if all parties to the dispute had been domestic US entities, there would have been no difficulty in compelling arbitration because chapter 1 of the Federal Arbitration Act, which governs domestic arbitration agreements, incorporates common-law contract doctrines such as equitable estoppel. The company said it “should not have been worse off simply because it is a foreign corporation”.

It argued that resolution of the issue was important for the viability of international arbitration agreements, particularly given the “emphatic federal policy in favour of arbitration” and the reliance of the business community on the arbitrability of these kinds of disputes.

In a joint brief in opposition, Outokumpu and the insurers argued there was no conflict between the appeals courts on the issue – as the courts that have allowed non-signatories to enforce an arbitration agreement using equitable estoppel did not analyse the language of the New York Convention, instead relying on their appellate jurisdiction.

They also maintained the issue was unimportant. If parties like GE Energy wanted foreign arbitration of their disputes, they could achieve that by signing their own arbitration agreements.

Outokumpu Stainless Steel USA, LLC v Coverteam SAS (now known as GE Energy Power Conversion France SAS, Corp)

In the US Supreme Court

Counsel to Coverteam SAS (now known as GE Power Energy Conversion France SAS Corp)

  • Jones Day

Partners Shay Dvoretszky in Washington DC and Amanda Rice in Detroit, Michigan

Counsel to Outokumpu

  • Burr & Forman

Devin DoliveEddie Ramey and David Wanhatalo in Birmingham and Taylor Barr Johnson and Ricardo Woods in Mobile, Alabama

Counsel to Sompo Japan Insurance Company of America, Pohjola Insurance Limited, AIG Europe Limited, Tapiola General Mutual Insurance Company, AXA Corporate Solutions Assurance SA UK Branch, HDI Gerling UK Branch, MSI Corporate Capital Ltd and Royal & Sun Alliance plc (as subrogees of Outokumpu)

  • Clausen Miller PC

Joseph FerriniJames Swinehart and Kenneth Wysocki in Chicago, Randall Spear and Mark Spear in Mobile

 

In the US Court of Appeals for the Eleventh Circuit

  • Circuit Judges Gerald Bard Tjoflat and Julie Carnes and District Judge Beth Bloom

Counsel to Outokumpu

  • Burr & Forman LLP

Devin DoliveEddie Ramey and David Wanhatalo in Birmingham and Taylor Barr Johnson and Ricardo Woods in Mobile, Alabama

Counsel to Sompo Japan Insurance Company of America, Pohjola Insurance Limited, AIG Europe Limited, Tapiola General Mutual Insurance Company, AXA Corporate Solutions Assurance SA UK Branch, HDI Gerling UK Branch, MSI Corporate Capital Ltd and Royal & Sun Alliance plc (as subrogees of Outokumpu)

  • Clausen Miller PC

Joseph FerriniJames Swinehart and Kenneth Wysocki in Chicago, Randall Spear and Mark Spear in Mobile

Counsel to Coverteam SAS (now known as GE Power Energy Conversion France SAS Corp)

  • Lightfoot Franklin & White LLC

Sara Anne FordWesley GilchristMark King and Amie Adelia Vague in Birmingham

 

 

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