Outokumpu Stainless USA, LLC, v. Coverteam SAS (aka GE Energy Power Conversion France SAS, Corp.,), No. 17-10944 (11th Cir. July 8, 2022)[1]
Factual Background
In 2007, the predecessor of Plaintiff Outokumpu Stainless USA, LLC (“Outokumpu”) entered into a series of agreements with F.L. Industries Inc. (“Fives”) for the provision of three cold rolling mills used for manufacturing and processing steel products. The parties agreed that disputes arising from the agreements would be subject to arbitration under German law. Fives subsequently entered into a subcontracting agreement with Defendant Coverteam SAS, aka GE Energy Power Conversion France SAS, Corp. (“GE Energy”), to install motors at each of the mills. By August 2015, the motors in all three mills failed.
The District Court Decision
Outokumpu filed a lawsuit against GE Energy in Alabama state court. GE Energy removed to federal court and moved to dismiss and to compel arbitration. The district court granted the motion to compel arbitration, relying on an arbitration clause in the agreements covering “[a]ll disputes arising between both parties in connection with or in the performance of the Contract.” The agreements defined Outokumpu as the “Buyer” and Fives as the “Seller,” but provided that “[w]hen Seller is mentioned it shall be understood as Sub-contractors included, except if expressly stated otherwise.” GE Energy was on the subcontractor list for each contract.
The Eleventh Circuit Decision
On appeal, the Eleventh Circuit reversed. It held that under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“), 9 USC §§ 201–208, GE Energy could not compel arbitration. The Eleventh Circuit reasoned that, because the plain language of Article II of the Convention stated that arbitration could be compelled only where the parties agreed in writing, GE Energy, as a non-signatory, would not be able to compel arbitration.
The Supreme Court reversed the Eleventh Circuit, holding that the Convention was “simply silent on the issue of non-signatory enforcement.” According to the Supreme Court, the provisions in Article II “address the recognition of arbitration agreements, not who is bound by a recognized agreement.” Here, the three agreements were both written and signed, satisfying Article II. The Supreme Court accordingly remanded to the Eleventh Circuit to answer the question of whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel.
After reviewing supplemental briefings from the parties, the Eleventh Circuit found in favor of GE Energy. The Eleventh Circuit explained that, although GE Energy was not a signatory to the agreements, GE Energy was a defined party covered by the arbitration clause. Because “Seller” was understood to include Fives and subcontractors, Outokumpu had thereby agreed to arbitrate disputes that arose with Fives and subcontractors. Based on that conclusion, the Eleventh Circuit determined that it did not need to come to a decision on the equitable estoppel arguments.
In a concurring opinion, Judge Tjoflat explained that, in his view, the Supreme Court only remanded on the question of whether equitable estoppel allowed GE Energy to compel arbitration. Judge Tjoflat reasoned that federal common law should be applied to this question: there was a uniquely federal interest in uniform enforcement of international arbitration agreements under the Convention, and allowing each state or international law to impose its own test for threshold questions of arbitrability would frustrate that interest.
Applying federal common law, Judge Tjoflat noted two circumstances in which a non-signatory may compel arbitration: (1) where the signatory to a written agreement containing an arbitration clause must rely on the terms of the agreement in asserting its claims against the non-signatory; and (2) where the signatory raises allegations of collusive misconduct between the non-signatory and other signatories to the contract. Judge Tjoflat determined that GE Energy could compel arbitration under the first circumstance, because Outokumpu was relying entirely on its contract with Fives to litigate against Fives’ subcontractor, GE Energy. Equitable estoppel therefore applied and GE Energy should be allowed to compel arbitration. Judge Tjoflat accordingly concurred in the judgment only.
This Article was originally published in the North America Newsletter.
