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International Engineering & Construction S.A. v. Baker Hughes, a GE Company, LLC, No. 18-cv-9241 (S.D.N.Y. Aug. 13, 2019)

This case arose from three contracts, entered into between International Engineering & Construction S.A. (“IEC”) and Greenville Oil & Gas, Inc. (“GEOG”). Each contract contained or incorporated by reference an arbitration clause providing that, “[i]n the event of any dispute arising out of or in connection with the [contract], the Parties agree to submit the matter to arbitration to be administered by the AAA under its Commercial Arbitration Rules.”

A dispute later arose between IEC and GEOG concerning the performance of the contracts. In July 2018, IEC commenced arbitration proceedings by filing a demand for arbitration against GEOG, as well as Baker Hughes, a GE Company, LLC (“BHGE LLC”) and Baker Hughes, a GE Company (“BHGE”) (collectively, the “BHGE entities”). IEC named the BHGE entities because, during the performance of the contracts, GEOG and the BHGE entities had a parent-subsidiary relationship.

In August 2018, the BHGE entities appeared in the arbitration, but only to object to jurisdiction because they were not signatories to the contracts and so not subject to the arbitration clauses. IEC and GEOG petitioned the court to compel arbitration against the BHGE entities.

As a threshold matter, the district court determined that to compel arbitration Petitioners must demonstrate they have been “aggrieved” by the BHGE entities’ “failure, neglect or refusal” to participate in arbitration, pursuant to Section 4 of the Federal Arbitration Act (the “FAA”). The arbitration involved domestic and foreign entities and so was subject to Chapter 2 of the FAA, which implemented the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). The court considered whether Section 206 of the FAA conflicted with Section 4 and found that it did not. The requirements of Section 4 did not impose any additional hurdle, but rather were in line with Article III standing requirements and Article II, § 3 of the New York Convention, which required a court refer parties to arbitration when “seized of an action.” If an adverse party has not refused to arbitrate, there is no reason for court involvement in the first place and the court is not seized of an action or there is no case and controversy. The district court then dismissed Petitioners’ motion to compel because they had not been aggrieved. The BHGE entities had not refused to arbitrate, but had raised a jurisdictional objection while participating in the arbitration.

Separate from its determination that Section 4 applied, the court also held that there was clear evidence that IEC and the BHGE entities intended to arbitrate this question. The AAA rules were clear and unmistakable evidence of delegation. Relying on Contec, the court held that “arbitration of the arbitrability question was appropriate… where a non-signatory sought to compel arbitration of a dispute arising under an agreement signed by its prior corporate form” when: (1) there was an “undisputed relationship” between the parties, (2) the party seeking to avoid arbitration with the non-signatory had signed the arbitration agreement, and (3) the dispute arose because the parties continued to conduct themselves as subject to the agreement with the arbitration clause. The parties’ dispute centered around the first question. A corporate relationship is generally accepted as a sufficient relationship. It was for the arbitration to decide whether the BHGE entities were actually GEOG’s successor-in-interest and bound by the arbitration agreement.

Marisa Bakker of the Washington, DC office contributed to this summary.

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