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Outokumpu Stainless USA, LLC, et al. v. Converteam SAS, No. 17-10944 (11th Cir. 2018) [click for opinion]

Plaintiff Outokumpu Stainless, LLC (“Outokumpu”), through its predecessor ThyssenKrupp Stainless USA LLC, entered into three agreements to purchase from a company called Fives three “cold running mills” (“CRMs”) (the “Contracts”). All three Contracts contained arbitration clauses. They also contained a provision stating that the terms would be binding on subcontractors. Fives entered into a subcontract with GE Energy Power Conversion France SAS, Corp. (“GE Energy”) for the supply of nine motors.

After the CRMs failed, Outokumpu sued GE Energy in state court in Alabama. GE Energy removed based on federal subject matter jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“). Outokumpu moved to remand and GE Energy moved to dismiss, compel arbitration, and for limited discovery. The district court denied the motion to remand and the motion for limited discovery, but granted the motions to compel and dismiss. The decision was appealed.

On an issue of first impression for the Eleventh Circuit, the court set guidelines for district courts hearing both a jurisdictional challenge on a motion to remand and a motion to compel arbitration. The two inquiries are distinct. In determining jurisdiction for purposes of removal, the district court need not—and should not—examine whether the arbitration agreement binds the parties before it. Rather, the inquiry requires the court to determine whether, on the face of the pleadings and the removal notice, there is a non-frivolous claim that the lawsuit relates to an arbitration agreement that “falls under the Convention.”

This determination is to be made under the four-factor test in Bautista v. Star Cruises, that: (1) there is an agreement in writing, signed by the parties or contained in an exchange of letters or telegrams; (2) the agreement provides for arbitration in the territory of a signatory of the Convention; (3) the agreement arises out of a legal relationship, contractual or otherwise, which is considered confidential; and (4) a party to the Agreement is not an American citizen, or the commercial relationship has some reasonable relation with one or more foreign states.

In this case, the parties conceded the second and third Bautista factor. The Eleventh Circuit found that the first factor was satisfied by the arbitration clause in Outokumpu/Fives Contracts. The court found the fourth factor was also satisfied in that the Contracts governed a commercial relationship with a reasonable relation to one or more nations, given that the Contracts contemplated performance by certain foreign subcontractors in foreign states. In addition, the complaint “related to” the Contracts. Thus, removal was proper.

The Eleventh Circuit then turned to the question of whether Outokumpu could be compelled to arbitrate its dispute with GE Energy, a non-signatory subcontractor. Although the same four factors in Bautista should be analyzed with respect to this issue, the inquiry is more rigorous than on a motion to remand because it requires the district court to determine whether the parties before the court agreed to arbitrate their dispute. In this case, the court found that the first Bautista factor was not met because there was no agreement in writing within the meaning of the Convention. The court said that a defendant must have actually signed the arbitration agreement in order to compel arbitration. Here, GE Energy had not signed the Contracts. In light of this, the court did not address the remaining factors.

The district court’s denial of the motion to remand and denial of limited discovery was affirmed, but the court’s order compelling arbitration was reversed and remanded.

A version of this post originally appeared in the November 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.

 

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