By George H. Friedman, SAA Editor-in-Chief
Oral argument took place January 21 before the Supreme Court in GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC, No. 18-1048. Judging by the questions (always a risky endeavor), we’re not sure which way the Court will go. Unlike some recent arbitration-related decisions, though, we don’t see a unanimous decision.
The Petition for Certiorari was filed February 2019, seeking review of Outokumpu Stainless USA, LLC v. Converteam SAS, 902 F.3d 1316 (11th Cir. 2018), a case we summarized in SAA 2018-42 (Nov. 7). At issue is whether the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”) permits a non-signatory to enforce a predispute arbitration agreements (“PDAA”) against a signatory by invoking the equitable estoppel doctrine.
FAA and the UN Convention
To review, FAA Chapter 2, which implements the Convention, enforces not only arbitration Awards, but also PDAAs. It is also hornbook law that a signatory to a broad PDAA is bound by its terms under FAA Chapter 1, and that sometimes such an arbitration agreement can be enforced by or against a non-signatory via equitable estoppel. How so? Under equitable estoppel, one cannot selectively assert rights under a contract. Thus, a contractual PDAA can come into play where a non-party invokes an arbitration agreement involving a signatory. FAA Chapter 1, section 2, which in domestic transactions requires a written agreement to arbitrate, makes no mention of signatures, but the Convention does. The Convention also refers several times to “parties.” Specifically, Article II, § 2 provides: “The term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams” (emphasis added).
Case Below: Non-Signatory has No Equitable Estoppel Right to Compel Arbitration
The core issue presented in Outokumpu at the circuit court level was whether a non-signatory could compel arbitration under FAA Chapter 2. “No,” said a unanimous Eleventh Circuit, as a matter of statutory construction. After determining that the underlying transaction was international, the Court found that the Convention as implemented by FAA Chapter 2 grants this right only to signatory parties, thus rendering the PDAA unenforceable by a non-signatory subcontractor: “Here, our inquiry starts and ends with the first factor because we find that there is no agreement in writing within the meaning of the Convention …. GE Energy is undeniably not a signatory to the Contracts.”
The Oral Argument
The 73-page transcript has already been posted. By far the greatest number of questions came from Justice Gorsuch, with Chief Justice Roberts a close second. GE’s counsel Shay Dvoretzky managed to get more than a minute into his opening remarks before being interrupted – as did Outokumpu’s attorney Jonathan D. Hacker – which is no small accomplishment, considering that in the past few arbitration-related cases at SCOTUS, counsel barely got past “May it please the Court…” We briefly analyze below the arguments and questions, using a page number:line reference. Obvious typos (ed: this transcript version is unofficial and subject to revision) have been corrected.
Petitioner’s Case in a Nutshell: Convention Sets Floor, Not Ceiling
GE’s argument in a nutshell is that the Convention establishes a floor, not a ceiling, for PDAA enforcement, and that the U.S. is free to allow non-signatories to enforce PDAAs via equitable estoppel.
Dvoretzky (4:11): If this case involved a domestic arbitration agreement, GE Energy could enforce it, as long as it could satisfy domestic non-signatory enforcement doctrines like equitable estoppel. The question here is whether the New York Convention prohibits that same result for international arbitration agreements. It does not. The Convention is simply silent about enforcement by non-signatories. That silence is consistent with the Convention 's design, which sets a floor, not a ceiling, for enforcing arbitration agreements and awards…. (65:15) So in terms of how this case can be resolved, there's the narrowest possible way, is to simply hold that the Eleventh Circuit was wrong to apply a signatory requirement.
Jonathan Y. Ellis, Assistant to the Solicitor General (as Amicus) (22:8): [T]he Eleventh Circuit was wrong to read into the writing requirement of Article II a categorical prohibition on compelling international arbitration on the basis of estoppel principles. of valid agreements, including who may be bound or who may invoke those agreements.
Respondent’s Case in a Nutshell: “Signed by the Parties” Means What it Says
Outokumpu argued that the Convention’s clear language allowed only signatory parties to the contract to enforce a PDAA, and that non-party, non-signatory subcontractor GE thus had no standing to assert arbitration rights against Outokumpu.
Hacker (33:15): GE cannot compel Outokumpu to arbitrate its tort claims with GE because there is no written arbitration agreement between them. I agree that would generally not be an obstacle in a domestic arbitration case because, as this Court held in Arthur Andersen [v. Carlisle, 556 U.S. 624 (2009)], Chapter 1's agreement enforcement provision, FAA Section 3, does not limit enforcement to "parties to a written agreement." But the lack of a written agreement is decisive here, because the Convention 's enforcement provision, Article II, Section 3, is limited to the parties to a written arbitration agreement. Because that provision controls over Chapter 1's conflicting enforcement provision, non-parties cannot enforce agreements in cases under the Convention.
Hard to Say Where this Will Land
The questions from the Justices were far-ranging, often shifting, and did not indicate to us a liberal-conservative or pro/anti-arbitration split. As we’ve predicted several times, we think this case will come down to parsing of the verbiage in the Convention. We present below just a few representative comments and questions from the Court.
Chief Justice Roberts (7:12): I thought it was one of the central propositions of our arbitration precedents that arbitration is based on agreement. And here somebody who never agreed to arbitration is being forced into arbitration, even though he has a clear right to take his dispute to court.
Justice Kagan (9:4): So you're saying that when the United States entered into the Convention and when it then implemented the Convention through the FAA, Congress didn't understand arbitration to mean voluntary arbitration? … It seems odd that Congress would have passed the implementing legislation on the view that another contracting state could compel arbitration without any consent whatsoever….
Justice Gorsuch (15:14): I had proceeded maybe on the mistaken assumption that the question whether equitable estoppel is recognized as a viable theory under the Federal Arbitration Act isn't before us. The only question before us is whether anything in the Convention precludes an argument like that to be made under the Federal Arbitration Act, whether or not it might succeed.
Justice Ginsburg (29:4): So what you're suggesting is that we should recognize this equitable estoppel, even though our treaty partners would not, which could yield divergent results and give you a real problem at the enforcement end because a country that doesn't recognize equitable estoppel will hesitate to enforce an award that was based on that theory?
Justice Sotomayor (38:9): You signed a contract. You agreed to arbitrate with the sellers. Sellers were defined as a list of subcontractors or sub-suppliers. They [GE Power] were among those. Why wouldn't estoppel stop you, normal estoppel rules?
Justice Alito (44:19): What do we have to decide? I mean, the Eleventh Circuit said a non-signatory can never enforce, right?... It said a non-signatory cannot enforce. It also emphasized the importance of a signature, which may look like an overstatement because we know Article II includes documents exchanged, letters, and telegrams. But, of course, the Eleventh Circuit was only talking about a signature because GE was not pointing to any sort of separate document exchanged in a letter or telegram.
Justice Gorsuch (53:3): Is there a universe of arbitration agreements a domestic law that might enforce that might not be enforceable under the Convention?... [if yes] isn’t end of the case? If there are some universe of agreements that could be only domestically enforceable but are not enforceable under the Convention, then what?
At this juncture, we can certainly say this case is too close to call, given the shifting thrust of the Justices’ questions. The Alert’s Editor-in-Chief George Friedman thinks we may be in for a surprise from the usually arbitration-friendly Court. Why? “Readers should note that Justices Gorsuch and Kavanaugh seem to be sticklers on statutory construction. Just read the Opinions they wrote in Epic Systems and Henry Schein. So, I would not at all be surprised by a decision saying essentially ‘If Congress meant FAA Chapter 2 to deviate from the Convention’s definition of an arbitration agreement it would have used language to that effect.’ On the other hand, the Justices’ questions were all over the place, so who knows?”
(ed: *Wonder how this case was heard as scheduled Tuesday morning, given that the Chief Justice was busy presiding over the impeachment trial in the Senate that day? Easy. The impeachment trial did not convene until 1 pm, giving the CJ time to hear the case, grab a sandwich, and head over to the Senate. Better that he didn’t miss the oral argument, given that several major SCOTUS decisions involving arbitration were 5-4 votes. **Justices Kavanaugh and Thomas asked no questions. ***The audio recording will be posted here on January 25; we’ll see whether tone and cadence changes our views. ****SCOTUSBlog has an excellent analysis of the oral argument. *****We will of course track this one and keep our readers and followers informed.) (SAC Ref. No. 2020-03-01)
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